Econintersect: Japan had a second consecutive quarter of economic growth for the January-March 2012 quarter, with GDP increasing at a 4.1% annual rate (1% during the quarter). This growth was an improvement on the revised 0.1% growth rate in the fourth quarter of 2011. Japan has now had three consecutive quarters of GDP growth which have followed three declining quarters immediately preceding. The three most recent gains (totaling 3.1%) still have not recouped the three previous declines (totaling 4.0%). And the latest GDP number is still 7.6% below the level for 4Q/2007.
Econintersect: Looking into the minds of the members of the Federal Open Market Committee (FOMC) gives insights on how they view the economy. The April 25, 2012 meeting statement provided the actions taken, but the meeting minutes released today provides the detailed discussion.
It appears that the FOMC members believe the economy is improving but are uncertain that the improvements are sustainable.
There seemed to be an unusual amount of uncertainty on employment - see meeting minute extract below. In addition, it seems that a division in the FOMC is developing on establishing set monetary policy benchmarks for reacting economic conditions.
Econintersect: The Rupee has declined by 12.4% since early February and by 5.8% in just the last 30 days.
"The rupee dropped as low as 54.46 per dollar, breaching its previous record low of 54.30 in December. It was last trading at 54.34/36 compared to a close of 53.79."
Many causes are behind this situation; mainly, the rupee falling was a consequence of the European Union Crisis that has led to an increase for investments in the USA and a shrinking of foreign investments in India. In general, investors prefer to put their money wherever the economy is more stable. Thus, Asian economies such as that of India are being negatively impacted.
Econintersect: As mentioned in another news story today, mega banks deal with management problems. There is a lack of control on entities that have been called "structurally defective." One of the issues that mega banks face is the control of information. Additionally, rare is the day when hidden information leaks from its sources. However, according to an article yesterday (15 May 2012) by Matt Taibbi of Rolling Stone, the lawyers for Goldman Sachs, without noticing, apparently, gave to the public a record of material that the company has been trying to hide for years. They have given an inside look to the bank’s darkest practices, and a debate has started around all the findings from it.
Econintersect: (Updated 2:02pm 16 May 2012) Amar Bhidé, Thomas Schmidheiny Professor of International Business, Fletcher School of Business, Tufts University, says that it is not humanly possible to manage the diverse activities of a financial super entity like JP Morgan Chase (NYSE:JPM). He says that the trading activities alone require the full time attention of the most talented CEO. This is not abstract commentary from a university professor - Bhidé has hedge fund management responsibilities in his personal resumé. He says in an interview with Bloomberg that
"JP Morgan is a systemically important, structurally defective bank, as are all other mega banks."
The Bloomberg video of the interveiew follows the Read more... break.
Econintersect: Greek leaders announced Tuesday (15 May 2012) that they had failed to reach a compromise coalition to form a government. Because no party received an outright majority in the May 6 elections a coalition of parties is necessary to get over the 50% participation rate to form a government. The conservative New Democracy party won the most votes, but with only about 20% of the vote it cannot be said that they won the election. With the highly fragmented vote (at least six parties with 5% or more of the vote), at least three parties have to agree to form a coalition.
Econintersect: (Updated and corrected 1:40 pm 15 May 2012.) III Offshore Opportunities Fund, III Offshore Advisors, was awarded Best High Yield Hedge Fund at the annual awards for 2012 hosted by Credit Flux. The fund won one of the twelve categories that were recognized. The fund and was founded in 1983 and the management company was headed until 1997 by frequent Global Economic Intersection guest author Warren Mosler. He still retains 10% ownership interest in the company. Mosler has been influential on economic thinking over recent decades and has run for president (briefly in 2012) and for the U.S. Senate from Connecticut. Note: Prior version of this article erroneously said that Mosler still headed the management of the investment company.
Econintersect: Red hat, the world’s largest open source software provider, has announced expansion of facilities in the two largest technology centers in India. The two new R&D operations will be added to the more than 70 offices in 30 countries around the world. The Pune facility will encompass 50,000 square feet and be the largest for Red Hat outside North America. Red Hat, headquartered in Raleigh, North Carolina, provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, management, storage and service-oriented architecture (SOA) solutions.
Econontersect: In contrast to some of the latest reports on innovation hubs, a survey by Thumbatack.com and the Kauffman Foundation ranks California, New York, Hawaii and Rhode Island as the least friendly states towards small businesses. These states earned a failing grade of F. On the other hand, Idaho, Texas, Oklahoma, and Utah rank as the friendliest ones towards small businesses. Dealing with small businesses’ needs with high quality, earned these states an A+. Failing cities are Tucson, Los Angeles, San Diego and Sacramento, while Dallas-Forth Worth, San Antonio, Austin, and Oklahoma City are ranked as the friendliest metropolitan areas.
Econintersect: North Rhine-Westphalia is the most populous state in Germany. Election results for a new parliament on Sunday (13 May 2012) produced a clear majority for the center left parties (Social Democrats and Greens). The center-right Christian Democratic Union (CDU, the party of Chancellor Angela Merkel) received the lowest vote total it had gotten in the state in 65 years, garnering just 26% of the vote estimated from exit polls and reported by the Financial Times. The outcome is a “crushing defeat” (Reuters) for Merkel and comes from 22% of the German population.
Econintersect: Matt Taibbi is the understated journalist who coined the phrase “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” He made this statement in the opening paragraph of an April 2010 article in Rolling Stone to describe what he characterized as “the world's most powerful investment bank.” In a new article from the May 24 edition of Rolling Stone, Taibbi has another graphic analogy: He compares the Dodd-Frank Act as the legislative analogy to “the fish reeled in by Hemingway's Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore.”
Econintersect: About 200 hundred protesters waved flags and placards at the Chinese embassy in Manila on May 11, calling for China to withdraw its ships from disputed waters at the Scarborough Shoal. The numbers of protesters were much below the estimated 1000 demonstrators and the protest ended peacefully. China reacted angrily accusing Philippines of escalating an already tense territorial following the protest. The Chinese name for the Scarborough Shoal is the Huangyan Islands. This contested land “mass” is actually a triangle-shaped chain of reefs and rocks or very small islands with a total area including shallow water areas of 150 square kilometers. The shoal is about 140 miles away from the Philippine Island of Luzon. Click on picture for larger satellite view of Scarborough Shoal/Huangyan Island (Wikipedia).
Econintersect: Lender Processing Services (LPS), said national average home price for transactions during February 2012 was $195,000 – a increase of 0.2% month-over-month. LPS, based on partial data, believes March 2012 data will show a 0.3% improvement in home prices.
"Our HPI shows an increase in seasonally adjusted prices this month for the first time since March 2010, and for only the third time in five years,” said Raj Dosaj, vice president of LPS Applied Analytics. “There have been signs of price declines slowing for a few months now, and our estimates for next month are flat to slightly positive. Without a pickup in sales volumes from their current anemic levels, it’s hard to be more optimistic that the market may be nearing the end of its fall."
Econintersect: Lakshman Achuthan was on the campaign trail this week – seemingly making more appearances than either Obama or Romney and almost certainly more than Ron Paul. Achuthan, Chief Operations Officer of ECRI (Economic Cycle Research Institute), was pounding the interview pavement to reiterate the call by his organization, first made last September, that the U.S. economy was heading into recession and the downturn was definite and unavoidable. The theme of the campaign this week was that the indicators are worse than they were eight months ago and they are all headed down.
Econintersect: Week 18 of 2012 ending 05 May 2012 shows rail traffic is still below 2011 levels according to data released by the American Association of Railroads (AAR).
“Fourteen of the 20 carload commodity groups posted increases compared with the same week in 2011, with petroleum products, up 47 percent; motor vehicles and equipment, up 31.2 percent, and lumber and wood products, up 23.1. The groups showing a decrease in weekly traffic included grain, down 22.7 percent; farm products excluding grain, down 11.9 percent, and coal, down 10.1 percent.”
Econintersect: General Douglas MacArthur is famous for many things, but one of them is the simple quote of an old West Point song:
“Old soldiers never die, They just fade away.”
Another old soldier, the American Stock Exchange (AMEX), is also heading into the sunset. This American icon, established in 1908 as The New York Curb Market Agency, and renamed several times, finally becoming the American Stock Exchange in 1953, started its swan song when it was merged into (sold to) the NASDAQ OMX in 1998. NASDAQ sold the AMEX business to the NYSE Euronext (New York Stock Exchange) in 2008. Click on picture for larger image of the AMEX building.
Econintersect: It has long been thought that the Mayan calendar did not extend beyond December 2012. New archeological finds now say differently. Archaeologists have discovered what appears to be the workshop for the preparation of Mayan calendars and the markings on the walls show that the Mayan “time Keepers” had a view of time that extended far beyond the December 2012 end of the current calendar cycle. The research was led by William Saturno of Boston University and was supported by The National Geographic Society. The excavations have been made in the remote and little explored Mayan site named Xultun in the Peten region of Guatemala.Click on caption graphic for larger image of Mayan Jaguar mask.
Econintersect: The General Administration of Customs for China announced today that the country posted a trade surplus of $18.4 billion (U.S. dollars) in April. That was a significant increase from the surplus of $5.4 billion a month earlier and an even bigger jump from the average near zero for the first quarter ($223 million average per month). The main driver in the improved balance of payments came from weak imports which were only up 0.3% year-over-year. Exports increased 4.9% from a year earlier. Robin Kwong in the Financial Times says that the surplus was nearly double what Chen Deming, commerce minister, forecast last week at the US-China Strategic and Economic Dialogue.
Econintersect: There have been questions about why banks are not doing more to try for workouts of delinquent mortgages rather than go through foreclosure. From an article by Bloomberg editors (first Source, end of article): "...when homes go into foreclosure, banks lose money." But that is not what drives the behavior of the servicers of mortgages; they are driven by what they get the most pay for and the jackpot for the servicer is to go to foreclosure. The bank has an interest in reaching workouts when possible, yet the interface to the borrower has an interest in seeing foreclosure filed. Guess who manages the mortgagor (borrower) – mortgagee (lender) interface? The servicer, who is incentivized to work against the interests of the other two parties, is in control of the connection between those parties.
Econintersect: CoreLogic's Home Price Index (HPI) shows that home prices in the U.S. increased in March 2012 0.6% month-over-month following last month's 0.8% decline. This is the first month-over-month increase since July 2011.
However, prices declined 0.6% year-over-year. CoreLogic stated:
“This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” said Mark Fleming, chief economist for CoreLogic. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”
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This is a three sided debate on the Euro crisis. Prof. Amar Bhidé, Thomas Schmidheiny Professor of International Business, Fletcher School of Business, Tufts University, represents the position that the current course of action simply needs to be followed through to be successful. Elliott Morss, former IMF economist, argues that the logical solution is to break up the eurozone and reestablish sovereign currencies. John Lounsbury, Managing Editor of Global Economic Intersection, says there is a third solution, the United States of Europe. Read more »
Editor's note: There has been an ongoing exchange between Steve Keen and Paul Krugman over the way that money and banking should be accounted for in the macroeconomy. Between spurts of invective there are some very important concepts being debated.
Jetlag has me up and at the keyboard at 5.54am here in London, 43 minutes before sunrise, which today is at 6.37am.
Only it’s not “sunrise”, is it? As we all know, it’s really “Earth Axial Rotate” at the point in its 24 hour axial rotation when the Sun—around which the Earth rotates once each year—becomes visible from London.
We still call it “sunrise” because it’s a lot less awkward—and a lot more romantic—than saying “Earth Axial Rotate Earth-Sun Radial Alignment”, which is what it really is. We all know that it’s not really the Sun “rising” at all: that implies that the Earth is fixed while the Sun rotates around it, whereas ever since Copernicus we have known that, though it looks that way to a naïve observer on Earth, that’s not what really happens. Read more »
Residential building permits and construction completions in April 2012 show the industry rebound is continuing. Growth trend lines have been positive for the last 4 months, and building permits continue to grow faster than construction completions
US Census Headlines:
building permit down 7.0% month-over-month, up 23.7% year-over-year
construction completions up 10.0% month-over-month, up 20.1% year-over-year
the market expected 675K to 680K annualized housing permits versus the 717K reported
The headlines say Industrial Production (IP) was increased 1.1% in April 2012 and up 5.2% year-over-year. Econintersect analysis is up 1.7% month-over-month (reversing last month's decline) and up 5.1% year-over-year.
The market was expecting a month-over-month increase of 0.4% to 0.5% (vs the headline 1.1%).
The manufacturing component of this index is NOT indicating a recession is imminent. Read more »
The Empire State Manufacturing Survey (manufacturing in New York State) in May 2012 continued on its sixth month of expansion. Manufacturing expansion is indicated by positive numbers to this index:
This noisy index fell from 20.2 to 6.6 in April - and now bounced back to 17.1 in May.
Expectation was for a readings of 8.0 to 8.4
As this index is very noisy, it is hard to understand what these massive moves up or down mean.
Read more »
Business sales rate of growth continued to slow in 2012, while inventory-to-sales ratios were in the middle of a normal range. Business sales combines manufacturing, wholesale and retail sales.
The data this month was historically reset due to the new retail data baseline.
Inventory-to-sales levels were near historical lows in February but returned to normal mid-range in March.
Advanced retail sales for April released today was "less good" destroying the former "better good" trend. Read more »
The April 2012 Consumer Price Index (CPI-U) annual inflation rate fell from 2.7% to 2.3%. Core inflation (CPI less food and energy) was unchanged at 2.3% annual inflation [note that the Federal Reserve uses 2.0% core inflation as an inflation target].
The Fed's inflationary targets are flexible at this time with so much economic slack, and the Fed statements continue to indicate they expect inflation to recede in the coming months.
The real question is why inflation is moderating at this point in an economic cycle. Inflation generally accelerates as the economy heats up - and a lower inflation rate could be an indicator that the economy is cooling. However, because of globalization and free trade - it is hard to be sure how this relates to the economy. Read more »
China watchers are waiting to see whether the country has engineered a soft landing, cooling down an overheating economy and achieving a more sustainable rate of growth, or whether Asia’s dragon will crash to earth, as others in the neighborhood have before it. But some, particularly American politicians in this presidential election year, focus on only one thing: China’s trade balance.
True, not long ago the renminbi was substantially undervalued, and China’s trade surpluses were very large. That situation is changing. Forces of adjustment are at work in the Chinese economy, so foreign perceptions need to adjust as well. Read more »
The debate over stimulus versus austerity continues unabated. This article shows that, while industrial production and trade recovered much more quickly than during the Great Depression, both series now appear to be slowing down. It suggests that, as St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalization, but not yet.
The debate over stimulus versus austerity continues unabated (egCorsetti and Muller 2012). Eighty percent of economists surveyed by the Booth School of Business at the University of Chicago agree that the stimulus bill passed by the US Congress in 2009 successfully lowered the rate of unemployment. But this also means that 20% are either skeptical or uncertain – and that doesn’t even count a number of high-profile conservative members of the profession who did not participate in the survey.
Note: For larger view of caption graphic, see Figure 3.Read more »
This is a three sided debate on the Euro crisis. Prof. Amar Bhidé, Thomas Schmidheiny Professor of International Business, Fletcher School of Business, Tufts University, represents the position that the current course of action simply needs to be followed through to be successful. Elliott Morss, former IMF economist, argues that the logical solution is to break up the eurozone and reestablish sovereign currencies. John Lounsbury, Managing Editor of Global Economic Intersection, says there is a third solution, the United States of Europe. Read more »
Last week I posed the question whether the consumer was returning. It seems to be a common perception that consumer credit is driving the retail economic expansion. Below is a set of graphs that may surprise.
Consumer credit is expanding at an annual rate of 7.75% according the G.19 consumer credit report released last week by the Fed. If one digs a little into the data, and if student loans are backed out, consumer credit grew 0.1% year-over-year, and declined marginally month-over-month. Read more »
The University of Michigan Consumer Sentiment Index Preliminary for May came in at 77.8, which is the highest reading since January 2008. Today's number was above the Briefing.com's consensus forecast of 76.0.
See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I've added a linear regression to help understand the pattern of reversion to the trend. I've also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Read more »
The news in this index is that the supply chain inflation continues to be inverted - with deflation in the crude goods portion of the index. Historically, crude goods leads finished goods.
The Producer Price Index (PPI) finished goods prices increased 1.9% year-over-year in April 2012 (less than the 2.8% in March) - and declined 0.2% month-over-month. The PPI represents inflation pressure (or lack thereof) that migrates into consumer prices - and the PPI continues to moderate. This moderation in PPI has global aspects - PPI in China is actually deflating year-over-year.
The market had been expecting a 0.0% to 0.1% month-over-month increase in finished goods prices (compared to the -0.2% increase).
Read more »
There is absolutely no correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.
The story remains the continually moderating year-over-year inflation - however, this moderating cycle should shortly end. Exports are now up only 0.7% year-over-year and imports up 0.5% (up 1.3% if oil is excluded).
Read more »
Import growth has positive implications historically to the economy - and March 2012 trade data (although not as good as February), continued to support projections the economy is expanding moderately.
The market expected a trade deficit between $49.5 and $50.2 billion and the seasonally adjusted headline data from US Census came in at $51.8 billion. The Econintersect trade balance number is $58.5 - and there were no unusual elements in the data.
Read more »
IntroductionIn earlier pieces, I have written on the global economics of entertainment - how much people spend on different activities to relax and enjoy life. I found that sports ranks 7th after alcohol, illicit drugs, sex, dining out, movies, and gambling. In this article, I look in more detail at sports. What sports have the highest payrolls? What are the most profitable? And what do the players get paid? Read more »
It is not often that the difference between the adjusted and unadjusted data is like night and day - but in March 2012, the seasonally adjusted data looks very good and the unadjusted data looks terrible. The year-over-year unadjusted data crashed from up 14.0% last month to up 3.9% this month. One month is not a trend but after inflation adjustment there seems little growth in wholesale in March.
Read more »
JOLTS trends continued to predict moderate jobs growth in the coming months, similar to what has been seen year-to-date.
There was moderate growth in jobs openings in March 2012, and JOLTS remains in its improvement channel established since the beginning of 2011. This data series historically is very noisy which likely is a result of data gathering issues and/or seasonal adjustments.
Jobs openings in the BLS Job Openings and Labor Turnover Survey (JOLTS) serves as a predictor of future jobs growth. Read more »
The Fed's consumer credit report should have stated that student loans continue to drive the credit economy.
Consumer credit increased at an annual rate of 7-3/4 percent in the first quarter. Revolving credit was little changed, while nonrevolving credit increased at an annual rate of 11-1/2 percent. In March, consumer credit increased at an annual rate of 10-1/4 percent..
Here is what they should have said:
Overall consumer credit increased 5.0% year-over-year - growth rate increased from 4.3% year-over-year in last month's report
Editor's note: These are Prof. Phelp's opening remarks for the Keynes vs. Hayek debate produced by Reuters, 8 November 2011 at Columbia University. James K. Galbraith led the Keynes team. His opening remarks have been posted previously. Pictured left is John Maynard Keynes; pictured right is Friedrich August Hayek.
Keynes was a close observer of the British and American economies in an era in which their depressions were wholly or largely monetary in origin – Britain’s slump in the late 1920s after the price of the British currency was raised in terms of gold, and America’s Great Depression of the 1930s, when the world was not
getting growth in the stock of gold to keep pace with productivity growth. In both cases, there was a huge fall of price level. Major deflation is a telltale symptom of a monetary problem. Read more »
Today the Conference Board reported their April employment index rose moderately after falling marginally last month.
This gives Econintersect one more chance to Monday morning quarterback the Jobs situation after the BLS jobs report on Friday - second bad report in a row. As Econintersect has continued to remind its readers, a 2% growth economy is not up to producing a lot of jobs - and it now appears that the good jobs growth seen in the recent past is reverting to a more typical growth based on the current dynamics.
Read more »
While often ignored in the financial media, "low-float" stocks should be in every investor's vocabulary. The reason is simple. Low-float stocks tend to be much more volatile than stocks with larger floats.
Simply put, the "float" of a stock is the number of shares available to the public for trading. It doesn't count shares owned by company officers and insiders. In this case, it boils down to a question of supply and demand. Because of their limited supply, stocks with small floats can make major moves-either to the upside or downside.
Some companies exploit that same volatile potential in their initial public offerings (IPOs). Last year many tech companies used low floats in their IPOs to ensure a big first-day pop in the stock price.Read more »
Economic growth continues at weak, below trend levels just at the time the stimulus programs are wearing off. For some this implies that the next recession is just around the corner.
From another perspective the current economic growth has occurred in spite of a major drag from reductions in government programs (see Gene Epstein in this week's Barron's) and contraction in housing. If these two factors just got back to neutral, it would reduce the drag by two percent or so, revealing the true underlying strength of the private economy.
Is there any hope from the housing sector? Even some stability?
I will have some ideas in the conclusion, but first let us review last week's data.Read more »
Below is a summary of the activity at Trefis during the past week that Trefis thought Econintersect readers would find interesting.
Trefis is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the US. It provides the unique feature of allowing the user to model future valuation based upon projected changes in components of each business. It also provides communication capabilities among members, including consensus of member analysis compared to Trefis staff analysis and blogging opportunities for members.
I can picture it clearly: It’s 1963 and 10-year old Benny Bernanke sits staring at the black & white Zenith in the living room of his East Jefferson Street house, captivated by the voice of Vic Perrin…
“There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. We will control the horizontal. We will control the vertical. We can change the focus to a soft blur, or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to the outer limits.”
Putting to one side the hype about promoting World Peace by facilitating better connections between 845 million friends, particularly cool young ones, Facebook is in the Selling-Advertising-on-the-Internet-Business.
Google got to there first, so unless the 22-Immutable Laws of Marketing got revoked Google will always be #1 and Facebook, who got there second, will always be #2.
Judging by the number of lawsuits filed against it over its short history, plus the frequent public apologies for being creepy, Facebook clearly likes to break the rules. That’s good marketing if you want to appeal to the Pepsi Generation and certainly wearing a hoodie at your IPO Prom plus taking a public toilet break just so the suits understand who’s Big Day it was….wasn’t rude, it was cool…awesome even!!Read more »
In our current low-interest-rate environment, many investors are widening their search for more income by buying junk.
Junk bonds, that is.
More formally known as high-yield bonds - junk bonds have been on a tear lately. With the Federal Reserve vowing to keep interest rates at or near zero through 2014, investors seeking higher-yield investments are eyeing junk bond exchange-traded funds (ETFs).Read more »
In a light week for economic data, we can expect more attention to elections both in Europe and the US.
Political activity provides both an opportunity and a trap for most investors. It is so easy to use our own electoral preferences in forming conclusions about economic and investment prospects.
The usual apologists have rushed to the defense of Jamie Dimon, JP Morgan Chase’s CEO, after he announced that JPMorgan (NYSE: JPM) lost over $2 billion on purported hedges. The academic apologist-in-chief, Yale Law’s Jonathan Macey, is outraged that anyone is concerned about these matters. Macey, channeling Dimon’s flacks, asserts that the facts are as follows:
“The sole purpose of hedging is to reduce risk. The particular trades that J.P. Morgan was making were designed and intended to protect the bank’s balance sheet against losses from its exposure to the apparently increasing risk of some of its European assets, including approximately $15 billion in European distressed debt.”
The Social Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.
– President Jimmy Carter, December 20, 1977.
[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.
– President Ronald Reagan, April 20, 1983.
So said Presidents Carter and Regan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716). Now we read of horror stories like this:Read more »
In 2007, the banks gambled on mortgages and lost, causing the largest global recession since 1929. They then gambled on European sovereign debt and lost. And now we hear J P Morgan Chase (JPM) just lost $2 billion on a derivatives' bet. Should this not be the last straw?
There are important lessons to be learned from all this, lessons the bank lobbyists don’t want anyone to hear.
Click on caption graphic for larger picture of modern bank regulators.Read more »
United States House of Representatives, Committee on Financial Services, Subcommittee on Domestic Monetary Policy & Technology, May 8, 2012
Although it has taken nearly a century, it seems that the entire spectrum of the American political establishment has finally realized the destructive power of the Federal Reserve System. Whether left, right, or libertarian, politicians are lining up to attack Ben Bernanke and the Fed's destructive monetary policy. Where there is disagreement or lack of understanding, however, is on why the Fed's monetary policy is destructive, how it harms the economy, and what should be done about it. Today's hearing will examine the various proposals that have been put forth both to mend and to end the Fed. It is my hope that this hearing will spur a vigorous and long-lasting discussion about the Fed's problems, a discussion which will lead to concrete actions once and for all to rein in the Fed.
The Bundesbank has finally given in to demands calling for a higher inflation rate inside Germany (and the euro zone) in order to rebalance the European economy, as the FT reports:
The Bundesbank, the most hawkish of central banks, has signalled it would accept higher inflation in Germany as part of an economic rebalancing in the eurozone that would boost the international competitiveness of countries worst-hit by the region’s debt crisis.
That means that the German price level would be allowed to rise when the capital inflows finally generate above average rates of inflation. This in turn weakens international competitiveness, which is good. It allows the European periphery to increase their respective exports (to Germany) and repay the foreign debt run up during the last 10 years. German consumption and investment will rise, fuelled by the available capital that now has returned to Germany. A real estate boom is in the making already. The question for the next couple of months is: Was it too little too late?Read more »
To me, all these news stories reflect positive changes for China. Here is why:
Purge: The purge of Bo is good for China. In fact, most of the purges over the past decade (e.g. Chen Xitong and Chen Liangyu) have been good for China.
Political reforms: It’s positive to acknowledge the problems first and try to fix them via reforms. This is very different from the U.S., whose leaders are in total denial of its big problems (Top-10 American Misconceptions about America)! Remember: China was a very screwed up country, thanks largely to Mao. It takes a lot to fix it.
Imagine a world and a society in which 500 people own everything – absolutely everything. These blessed few live in the Citadel, a mighty bastion of comfort with fortified and impregnable walls. The walls surround the Citadelians’ collections of lavish homes, spacious and opulent gardens, gorgeous pleasure arenas, and well-outfitted factories and workhouses.
Yes, factories and workhouses. These mighty 500 pay 100,000 other people to do various kinds of work for them. The work consists in transforming some of the resources and goods belonging to the 500 owners into a variety of consumable products, and also in using some of those products along with other raw materials to perform sundry services for the 500, services that include the production of splendid works of art and intellect.Read more »
January-March 2012 quarter, with GDP increasing at a 4.1% annual rate (1% during the quarter). This growth was an improvement on the revised 0.1% growth rate in the fourth quarter of 2011. Japan has now had three consecutive quarters of GDP growth which have followed three declining quarters immediately preceding. The three most recent gains (totaling 3.1%) still have not recouped the three previous declines (totaling 4.0%). And the latest GDP number is still 7.6% below the level for 4Q/2007
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Econintersect: Greek leaders announced Tuesday (15 May 2012) that they had failed to reach a compromise coalition to form a government. Because no party received an outright majority in the May 6 elections a coalition of parties is necessary to get over the 50% participation rate to form a government. The conservative New Democracy party won the most votes, but with only about 20% of the vote it cannot be said that they won the election. With the highly fragmented vote (at least six parties with 5% or more of the vote), at least three parties have to agree to form a coalition
Econintersect: (Updated and corrected 1:40 pm 15 May 2012.) III Offshore Opportunities Fund, III Offshore Advisors, was awarded Best High Yield Hedge Fund at the annual awards for 2012 hosted by Credit Flux. The fund won one of the twelve categories that were recognized. The fund and was founded in 1983 and the management company was headed until 1997 by frequent Global Economic Intersection guest author Warren Mosler. He still retains 10% ownership interest in the company. Mosler has been influential on economic thinking over recent decades and has run for president (briefly in 2012) and for the U.S. Senate from Connecticut
The two new R&D operations will be added to the more than 70 offices in 30 countries around the world. The Pune facility will encompass 50,000 square feet and be the largest for Red Hat outside North America. Red Hat, headquartered in Raleigh, North Carolina, provides high-quality, affordable technology with its operating system platform, Red Hat Enterprise Linux, together with cloud, virtualization, management, storage and service-oriented architecture (SOA) solutions.
by Thumbatack.com and the Kauffman Foundation ranks California, New York, Hawaii and Rhode Island as the least friendly states towards small businesses. These states earned a failing grade of F. On the other hand, Idaho, Texas, Oklahoma, and Utah rank as the friendliest ones towards small businesses. Dealing with small businesses’ needs with high quality, earned these states an A+. Failing cities are Tucson, Los Angeles, San Diego and Sacramento, while Dallas-Forth Worth, San Antonio, Austin, and Oklahoma City are ranked as the friendliest metropolitan areas
majority for the center left parties (Social Democrats and Greens). The center-right Christian Democratic Union (CDU, the party of Chancellor Angela Merkel) received the lowest vote total it had gotten in the state in 65 years, garnering just 26% of the vote estimated from exit polls and reported by the Financial Times. The outcome is a “crushing defeat” (Reuters) for Merkel and comes from 22% of the German population
relentlessly jamming its blood funnel into anything that smells like money.” He made this statement in the opening paragraph of an April 2010 article in Rolling Stone to describe what he characterized as “the world's most powerful investment bank.” In a new article from the May 24 edition of Rolling Stone, Taibbi has another graphic analogy: He compares the Dodd-Frank Act as the legislative analogy to “the fish reeled in by Hemingway's Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore.”
Econintersect: Lender Processing Services (LPS), said national average home price for transactions during February 2012 was $195,000 – a increase of 0.2% month-over-month. LPS, based on partial data, believes March 2012 data will show a 0.3% improvement in home prices.
certainly more than Ron Paul. Achuthan, Chief Operations Officer of ECRI (Economic Cycle Research Institute), was pounding the interview pavement to reiterate the call by his organization, first made last September, that the U.S. economy was heading into recession and the downturn was definite and unavoidable. The theme of the campaign this week was that the indicators are worse than they were eight months ago and they are all headed down
Econintersect
was a significant increase from the surplus of $5.4 billion a month earlier and an even bigger jump from the average near zero for the first quarter ($223 million average per month). The main driver in the improved balance of payments came from weak imports which were only up 0.3% year-over-year. Exports increased 4.9% from a year earlier. Robin Kwong in the Financial Times says that the surplus was nearly double what Chen Deming, commerce minister, forecast last week at the US-China Strategic and Economic Dialogue.
article by Bloomberg editors (first Source, end of article): "...when homes go into foreclosure, banks lose money." But that is not what drives the behavior of the servicers of mortgages; they are driven by what they get the most pay for and the jackpot for the servicer is to go to foreclosure. The bank has an interest in reaching workouts when possible, yet the interface to the borrower has an interest in seeing foreclosure filed. Guess who manages the mortgagor (borrower) – mortgagee (lender) interface? The servicer, who is incentivized to work against the interests of the other two parties, is in control of the connection between those parties
Residential building permits and construction completions in April 2012 show the industry rebound is continuing. Growth trend lines have been positive for the last 4 months, and building permits continue to grow faster than construction completions
The headlines say Industrial Production (IP) was increased 1.1% in April 2012 and up 5.2% year-over-year. Econintersect analysis is up 1.7% month-over-month (reversing last month's decline) and up 5.1% year-over-year.
The market was expecting a month-over-month increase of 0.4% to 0.5% (vs the headline 1.1%).
The manufacturing component of this index is NOT indicating a recession is imminent. 
The Empire State Manufacturing Survey (manufacturing in New York State) in May 2012 continued on its sixth month of expansion. Manufacturing expansion is indicated by positive numbers to this index:
Business sales rate of growth continued to slow in 2012, while inventory-to-sales ratios were in the middle of a normal range. Business sales combines manufacturing, wholesale and retail sales.
2.3% annual inflation [note that the Federal Reserve uses 2.0% core inflation as an inflation target].
The Fed's inflationary targets are flexible at this time with so much economic slack, and the Fed 
April advanced Retail Sales was far from good, and likely was the poorest retail sales growth (year-over-year) in last 20 months (Census result).
Last week I posed the question 
The University of Michigan Consumer Sentiment Index Preliminary for May came in at 77.8, which is the highest reading since January 2008. Today's number was above the Briefing.com's consensus forecast of 76.0.
See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I've added a linear regression to help understand the pattern of reversion to the trend. I've also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
1.9% year-over-year in April 2012 (less than the 2.8% in March) - and declined 0.2% month-over-month. The PPI represents inflation pressure (or lack thereof) that migrates into consumer prices - and the PPI continues to moderate. This moderation in PPI has global aspects - 
There is absolutely no correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.
The story remains the continually moderating year-over-year inflation - however, this moderating cycle should shortly end. Exports are now up only 0.7% year-over-year and imports up 0.5% (up 1.3% if oil is excluded).
Import growth has positive implications historically to the economy - and March 2012 trade data (although not as good as February), continued to support projections the economy is expanding moderately.
The market expected a trade deficit between $49.5 and $50.2 billion and the seasonally adjusted headline data from US Census came in at $51.8 billion. The Econintersect trade balance number is $58.5 - and there were no unusual elements in the data.
It is not often that the difference between the adjusted and unadjusted data is like night and day - but in March 2012, the seasonally adjusted data looks very good and the unadjusted data looks terrible. The year-over-year unadjusted data crashed from up 14.0% last month to up 3.9% this month. One month is not a trend but after inflation adjustment there seems little growth in wholesale in March.
nds continued to predict moderate jobs growth in the coming months, similar to what has been seen year-to-date.
There was moderate growth in jobs openings in March 2012, and JOLTS remains in its improvement channel established since the beginning of 2011. This data series historically is very noisy which likely is a result of data gathering issues and/or seasonal adjustments.
Jobs openings in the BLS Job Openings and Labor Turnover Survey (JOLTS) serves as a predictor of future jobs growth. 
The Fed's consumer credit report should have stated that student loans continue to drive the credit economy.
volatile than stocks with larger floats. 
recession is just around the corner.
“There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. We will control the horizontal. We will control the vertical. We can change the focus to a soft blur, or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to the outer limits.”
the Selling-Advertising-on-the-Internet-Business.
In our current low-interest-rate environment, many investors are widening their search for more income by buying junk. 
The usual apologists have rushed to the defense of Jamie Dimon, JP Morgan Chase’s CEO, after he announced that JPMorgan (NYSE: JPM) lost over $2 billion on purported hedges. The academic apologist-in-chief, Yale Law’s Jonathan Macey, is outraged that anyone is concerned about these matters. Macey, channeling Dimon’s flacks, asserts that the facts are as follows:
could leave them or their families destitute. 
establishment has finally realized the destructive power of the Federal Reserve System. Whether left, right, or libertarian, politicians are lining up to attack Ben Bernanke and the Fed's destructive monetary policy. Where there is disagreement or lack of understanding, however, is on why the Fed's monetary policy is destructive, how it harms the economy, and what should be done about it. Today's hearing will examine the various proposals that have been put forth both to mend and to end the Fed. It is my hope that this hearing will spur a vigorous and long-lasting discussion about the Fed's problems, a discussion which will lead to concrete actions once and for all to rein in the Fed.
There has been a lot of political news coming out of China recently, from the purge (
fortified and impregnable walls. The walls surround the Citadelians’ collections of lavish homes, spacious and opulent gardens, gorgeous pleasure arenas, and well-outfitted factories and workhouses.
