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Bank Of America Sees Material Deterioration In Budget Deficit Estimates, Worried About Fiscal Tightening Post Mid-Terms

Tyler Durden's picture




 

A few days after the economists have had some time to digest the latest GDP numbers, the results are coming in, and they aren't pretty... And to Obama's chagrin they aren't going to get any better. The end of the stimulus "sugar high" is approaching, and most likely will culminate with the mid-term elections: the attached piece by BofA only solidifies this observation. Bank of America, after Goldman, is now the latest major bailed out bank to join the bandwagon decrying US fiscal insanity (oddly enough, few have much to say about the lunatics in charge of monetary matters). And that's just for the medium-term. Speaking of lunatics, for those curious about the long-term, who can summarize it better than the Oracle of Constitution Avenue himself: "Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the US economy will be sufficient to close these deficits without significant changes to our fiscal policies." - none other than B.S. Bernanke. Furthermore, this is the real problem, forget all about G-Pap reelection chances (none to negative): Greece is just a pleasant distraction compared to what would happen if the US can't roll $700 billion in short-term debt each month.

The following piece by BofAML economist Michael Hanson should probably be read by everyone, but mostly by BofAML head cheerleader David Bianco.

Budget buster

It was an uneventful week, but our core convictions continue to unfold according to script. First: an above-consensus, above-trend economic recovery. US GDP grew at a 3.2% annualized rate in the first quarter, despite unfavorable weather conditions and concerns over a payback for the 5.6% annualized gain in 4Q. Second: core inflation measures continue to drop this year and next. Along with the 1Q GDP data, the Bureau of Economic Analysis reported that the core PCE price index rose just 0.6% at an annual rate, well below the Fed’s implicit target. Third: the Fed is on hold until early 2011. The FOMC reiterated its commitment to keep rates “exceptionally low” for an “extended period.”

Deteriorating deficit outlook

The Treasury’s quarterly refunding announcement next week and the looming threat of a sovereign debt crisis in Europe provides us an opportunity to revisit our deficit projections. After all the US budgetary situation for FY 20091 was nothing to brag about: the federal deficit hit a peace-time peak of $1.42 trillion — nearly 10% of the nation’s output. After sifting through the administration’s most recent budgetary initiatives and current Congressional plans, the FY 2010 deficit now looks to be over $1.34 trillion — somewhat above our earlier estimate of $1.25 trillion (Chart 4). That translates into a budgetary shortfall equal to 9% of GDP.

A sizable proportion of these deficit figures are driven by one-time expenditures to stabilize the economy. For example, the 3.6% growth in consumer spending for 1Q 2010 was supported, in part, by transfers to households. Continued targeted fiscal “stimulettes”, designed to build a bridge to a sustained and broader recovery, are likely to add to next fiscal year’s shortfall as well. Yet the biggest contributor to future deficits isn’t spending: indexing the alternative minimum tax and holding the line on the Bush tax cuts for lower- and middle-income individuals will take an increasingly larger bite out of revenues.

Adding these factors into our projections implies a noticeably worse FY 2011 situation: a deficit of $1.17 trillion, or 7.5% of GDP, versus our earlier projection for a shortfall of $825 billion. We expect the deficit as a share of GDP to  decline as the economy returns to full health, but we still see an average deficit/GDP ratio of 5% from 2012 to 2015, and 4.5% from 2016 to 2020 (Chart 4). No wonder investors are casting nervous glances away from the drama in Europe to worry about the long-run sustainability of the US fiscal outlook as well.

St. Augustine’s plea

Unquestionably, the US government needs to divert the country from its current path to perdition, in our view. But we believe atoning for the country’s fiscal sins should probably wait until the economy is robust enough to handle the penance. We believe policy makers in the administration and at the Federal Reserve are keenly aware of the lessons from Japan’s Lost Decade(s) and the US in the 1930s: don’t prematurely cut the fiscal lifeline to the economy. One of the risks to our medium-term growth outlook would be significantly tighter fiscal policy after the midterm elections. We believe a plan for austerity should be in place soon; the actual austerity should probably begin in earnest in a couple of years’ time. [sorry BofA, as much as politicans want their cake and staying in office too, people are just sick and tired of bankers like you taking the fiscal "stimulus" and converting into nothing but another year of record bonuses. Unlike you, we believe the bitter pill of austerity should be taken yesterday... And no, the world won't end if BofAMLCFC is restructured.]

Even after the effects of the recession on the budget fade in the next year or two, the outlook remains for sizable deficits as far as the eye can see. As a result, US government debt levels will rise as well. Unfortunately, even shifting the structural budget (that is excluding interest) into balance won’t be sufficient to stabilize the debt as a share of GDP. Interest payments on the stock of existing debt continue to mount. The proportion of outlays devoted to net interest payments should account for nearly 6% of total outlays in FY 2010. Given our budget outlook shown in Table 3, that share should exceed 10% in 2014 and 15% in 2020. Stabilizing the debt-to-GDP ratio would require nominal output growth to be at least as large as the interest rate on the debt. As Table 3 suggests, this condition — whether stated in real or nominal terms — is unlikely to be satisfied in the outyears of our budget projection period. Add back in the chronic structural deficits we currently expect, and even faster growth (or lower rates) would be necessary.

That seems unlikely, especially as post-bubble sectoral reallocations and demographics point to a slower rate of trend growth for the US economy over the next decade — on the order of 2¼ to 2½ percent per annum — relative to the last one.

Chairman Bernanke, speaking before the National Commission on Fiscal Responsibility and Reform on April 27, summarized the dilemma well: “Unfortunately, we cannot grow our way out of this problem. No credible forecast suggests that future rates of growth of the US economy will be sufficient to close these deficits without significant changes to our fiscal policies.” Any economists worth their salt will admit that both spending restraint and higher taxes will be necessary to resolve the US fiscal situation.

Borrowing rebalances

Even though we see a wider federal deficit for FY 2010 and 2011, we continue to expect the 10-year Treasury note yield to finish the year at 4.25%, roughly 50bps from where it is now. Several factors support our current interest rate outlook:

1. A modest economic recovery, subdued inflation backdrop, and a zero Fed funds rate are not exactly the recipe for surging government bond yields.

2. The US is home to the world’s reserve currency, and deepest and most liquid capital markets. The ongoing sovereign debt crisis in Europe implies US Treasuries will enjoy a flight-to-safety premium. Indeed, in times of global
crisis, Uncle Sam’s borrowing costs typically head south.

3. Treasury coupon auction sizes have likely peaked. Despite the large fiscal deficit, Treasury coupon issuance is already so large that the US Treasury is likely to decrease auction sizes fairly soon. Our rates strategists think that
could be announced at the May refunding.

In the long run…

In the current hyper-partisan political environment in Washington DC, we believe the risk remains that only a crisis will force the compromises necessary to appropriately deal with the deficit problem in an economically sound manner. One can only hope that the recent turmoil in Europe will strengthen the backbone of US policy makers to fashion a solution before the cost of inaction rises even further.

 


Well said: to this we can only add that one can only hope that bankers will grow some backbone to tell the truth about the catastrophic US economic situation instead of just continuing the broken status quo model of perpetual sweeping of all problems under the rug. Something tells us Greece would have been a little happier now if they had confronted problems in real time instead of pushing everything into the indefinite future. The "indefinite future" is now almost here.

 

 

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Sun, 05/02/2010 - 09:56 | 327721 Carl Marks
Carl Marks's picture

This country, like Greece, is hooked on easy money, government handouts and instant gratification. As long as we have a symbiotic two party system, nothing will change. Prepare yourselves.

Sun, 05/02/2010 - 14:32 | 327997 Popo
Popo's picture

Prepare yourselves... for DEFLATION.

Sun, 05/02/2010 - 10:05 | 327725 mchandler@ameri...
mchandler@ameritech.net's picture

Greece has a well establiched ritual form of rioting. Folks know they must take the long way home to avoid the demonstration areas and that certain services will be shut down. It's an inconvenience but a known. When people here get upset enough to take to the streets there is no social framework for protest outside a declining portion of the black population, and more importantly no customary limits. Also our population is heavily armed. I think the smart people here will not be taking a roundabout way to work - they will be hunkered down in the basement.

Sun, 05/02/2010 - 14:54 | 328028 LeBalance
LeBalance's picture

This is interesting.  Greece and similar countries have worked out the kinks in their public displeasure venting system.  The US has not.  What will white collar Rambos target? Fed-Ex/Kinko's, Starbucks, or Bed, Bath, and Beyond?  And even more interesting is the disproportionate response by der Polizei.  These guys have a chance to make quite some damage happen and to draw lines.  And if "Collateral Murder" from New Baghdad gives anyone notice of the Rules of Engagement then .... wow, just wow.

Or the tag line of James Coburn in "A Fistful of Dynamite," :: "Duck, You Suckers!"

I think that when this starts the first thing that will be lost is this communication method, because video and communication of unfiltered truth from ground zero to outside will definitely destroy the government's coverup of slaughter.  Just thinking...

Sun, 05/02/2010 - 19:26 | 328339 GoinFawr
GoinFawr's picture

What will white collar Rambos target?

I would have thought the answers to that question obvious.

If you need a list: just watch a short while of local/state/national/international financial news coverage.

orrrrr: http://www.youtube.com/watch?v=3zJTNOxV4Qg

Happy Hunting, Bonne Chance!

Sun, 05/02/2010 - 22:07 | 328538 hedgeless_horseman
hedgeless_horseman's picture

What will white collar Rambos target?

The taxman?  http://online.wsj.com/article/SB10001424052748703315004575073401102945506.html

Sun, 05/02/2010 - 10:34 | 327751 three chord sloth
three chord sloth's picture

We believe policy makers in the administration and at the Federal Reserve are keenly aware of the lessons from Japan’s Lost Decade(s) and the US in the 1930s: don’t prematurely cut the fiscal lifeline to the economy.

There it is again. That stinking piece of fiction, that delusional conceit -- the so-called "lesson" of Japan's Lost Decades.

I've gotta ask... What lesson would that be? What has Japan solved? They've solved nothing; they've managed to drown themselves in debt, their economy is still weak, and their banks still hold billions in bad debt.

Japan is like a guy who jumps from the top of the Empire State Building, and brags that "I'm still alive!" as he goes screaming past the fiftieth floor. And the Keynes-or-death fools in DC applaud like that's a great accomplishment.

Stop following Japan. We don't want to go where they're going.

Sun, 05/02/2010 - 11:03 | 327776 deadparrot
deadparrot's picture

I believe the American response to Japan's failure would be, "Japan's fiscal policies failed because they weren't big enough. If we double the amount of money thrown at the problem, we will succeed where they failed. And if it looks like we are still failing, we'll double the stimulus again."

Sun, 05/02/2010 - 11:22 | 327794 three chord sloth
three chord sloth's picture

Ah ha! The all purpose Keynesian answer!

I really think that is the reason so many economists turn into Keynesians -- they can never be proven wrong 'cause they've always got that "out". Well, that... and the fact that  they see themselves as high priests of a mysterious, powerful religion and get to act like puppetmasters.

And we wonder why there are so few Austrians... why dedicate yourself to the search for truth when its so much easier to join the school of power, especially when every failure of that school means more power next time?

Sun, 05/02/2010 - 11:54 | 327841 snowball777
snowball777's picture

Perhaps Von Measles should work up a better PR campaign then.

 

Sun, 05/02/2010 - 14:35 | 328001 sushi
sushi's picture

So the Keynesian response is to increase the height of the building faster than the falling man can fall? Done adroitly enough, backed with sufficent will, and a great sense of purpose, the falling man will never reach the 50th floor as the building rockets skyward.

Sounds perfectly reasonable to me.

Sun, 05/02/2010 - 17:15 | 328187 Quantum Nucleonics
Quantum Nucleonics's picture

Sadly true, but there is a difference.  Japan's debt is largely to its own citizens, all too willing to invest there money at 1% long term (which is guess isn't bad if deflation is 3 or 4%)  America's creditors are a less patient lot, and low interest rates have driven Americans to reflating equity and commodity bubbles.

 

And, at least the Japanese got some really nice bridges, trains, and airports for their spending binge.  What have we gotten?  Mostly transfer payments (aka welfare) and some "saved" public employee jobs in the Rhode Island's 481st congressional district.

Sun, 05/02/2010 - 11:43 | 327822 Lux Fiat
Lux Fiat's picture

Yes, we are following Japan.  And we'll get there a lot quicker, as we don't have their high past level of savings and resulting cushion.  Under "normal" circumstances, one might think that we still had several years to deal with things (ala BOA's viewpoint as expressed in the article).  However, once global investors go through one trauma, they seem to get sensitized to it.  The failure in 2008 of some of the earlier banks to fall was a slow affair, with lots of bouts of hope (bull traps) along the way - WAMU comes to mind.  However, as things progressed, so did the pace.  Wachovia went under in much quicker fashion.

We've had a relatively leisurely pace with Greece.  The next sovereign crisis (and there are a bunch waiting in the wings), will likely progress at a much more rapid pace.  If the Greece bailout doesn't go swimmingly, the next one could move at lightening speed.  The EU and IMF are going to spend a significant chunk of change, perhaps thinking that they are buying the global system one or more years to find real stability.  I fear that it might turn out to be only months.

Sun, 05/02/2010 - 10:44 | 327757 MarketFox
MarketFox's picture

Here is the logic.

It is not likely that an Obama admin. will move significantly towards the required austerity.

This means that there will be three more $1 Trillion + Obam deficit periods, whereby the Fed is of the assumption that the debt buyers will comply for the remaining timeframe.

The World is in a Catch22.

The propensity to spend is much stronger than being austere in a public time of need.

..........................

What is proper ?

A maximum 10% consumption tax to the Fed with no income taxes either to individuals or corporations.

The states should add a maximum 5% for their needs.

Why ?

Because it is not competitive to require that taxes be one of the higher components of goods and services.

One also has to answer to job formation that has time endurance.

..................

So far, so bad. The tax component of prices is climbing. This has to reverse itself.

Sun, 05/02/2010 - 14:21 | 327979 Jacob Dreizin
Jacob Dreizin's picture

I couldn't agree more.  Forecasts of U.S. govt debt / GDP at five percent or less by 2014 are ludicrous.

That is just four years away, and our economy is still entirely dependent on its stimulus lifeline (mortgage tax credit, increased aid to states, continuing bailouts of Frannie, etc., not to mention spiraling FDIC costs).

If that lifeline were pulled today, everyone, even the foremost optimists and cheerleaders, knows full well that our entire socioeconomic system would crash immediately and it would be Mad Max time.

On top of that, Obamacare will have fully kicked in by 2014, and you can be sure that, following past experience with govt programs, it will cost twice or three times what was projected, if not more.

Add to that all the "unknown unknowns" such as potential wars, or another Katrina perhaps, and we are looking at trillion-dollar-plus deficits indefinitely.

Sun, 05/02/2010 - 10:45 | 327759 sangell
sangell's picture

Wonder how our economic outlook will be if that oil slick fouls every beach between the Mississippi and Miami ? Clean up and compensation bill larger than Greek bailout. BP, Transocean, Halliburton bankrupt. Insurers bankrupt. Florida tourist industry collapses and so does what's left of the real estate industry. Gulf fishing industry gone.

Sun, 05/02/2010 - 11:34 | 327813 cossack55
cossack55's picture

I've been wanting a nice florida condo aroung the Cocoa Beach area for some time. 

Sun, 05/02/2010 - 11:52 | 327839 tmosley
tmosley's picture

Planning to pan for oil, are you?

Sun, 05/02/2010 - 12:50 | 327899 TBT or not TBT
TBT or not TBT's picture

This oil spill is not a big deal.  Ten years from now you'd never notice there had been a spill, with or without cleanup efforts.   Also, since when were beaches an important part of the economy?   They're cheap places to lay around and otherwise don't produce anything.

Sun, 05/02/2010 - 14:22 | 327980 Caviar Emptor
Caviar Emptor's picture

Yeah right. Santa Barbara had a spill in 1969. If you walk on the beach you still get tar feet. Try scrubbing it off, you can't. It looks like you stepped in shit. 

Beaches not a part of the economy? Try saying that on South Padre Island and get your face smashed. Or Fort Lauderdale. Or The Hamptons, Maui, Newport Beach, Nantucket, Venice, Laguna, Hilton Head. Screw surfing, The Beach Boys and Spring Break.

40% of US fishing is out of the Gulf. Huge wildlife refuges which, sorry dude, people like me (that's most of us) want to protect. 

I want my kids and grand kids to be able to enjoy the beach like I did during my life. It's something worth more than another day at the office. Using your retarded way of thinking we should have just let the Japanese have Hawaii and get used to it.

Sun, 05/02/2010 - 23:21 | 328637 TBT or not TBT
TBT or not TBT's picture

The oil spill is not a good thing, OK, but it isn't the End Of The World.  For sure the engineering could be improved with an additional failsafe or two to stop what happened with this one rig, an outlier event apparently, because there are already impressive layers of safety protocols and backups in place.  

Beyond that, I stand by the statement that in ten years you will not notice the residues from this thing.   The water is warm there.  The residues will therefore break up faster than in Santa Barbara or Prince William Sound(which has bounced back nicely).  Life is fantastically resilient even in the very short run, nevermind the long run that ecologists have their panties in a twist about.   Any number of locales on the planet that have been blasted literally to hell by volcanism or scraped clean by glaciers and frozen for 10,000 years are teaming with life now.  

This thing is a microblip, practically unnoticable even on a century long scale of time.   As to the economic benefit of beaches, sure the local economy depends on it, much as, oh, Breckenridge CO needs snow, but it is still spending, not efficient production or investment with a return worth singing about.   It is worth keeping well in mind, because, petroleum byproducts are an input to all sorts of activities across the economy, and not just during the week or two a year we are on vacation spending on fun and frivolities, however rewarding those might be.  

The oil spill sucks, yeah, and especially so for the locals and Red Lobster patrons, not to mention stockholders of BP and RIG.  Still, we need to grow a pair.  Suck it up.   We're not designed to crawl in a hole when a boo boo happens, and stop all activity in fear of another one.  

Your local beach is at risk of getting messed up.  So is your country, BTW.   Your head is there to permit you to adapt:  visit other beaches for a year or two until the mess disperses.  Wait.  Time will heal that.  Time may not heal implosion of the overall economy, or at least not with our Constitution and freedoms intact.

Mon, 05/03/2010 - 10:42 | 329046 gratefultraveller
gratefultraveller's picture

Like in: When an oil spill keeps on giving for ten years and no-one is around, does it still happen?

Mon, 05/03/2010 - 17:17 | 329720 andy55
andy55's picture

What are you talking about??  Until the status of the well is resolved (for the better or worst case), the range of uncertainty is beyond description. Although in the worse case where the well head has a catastrophic material failure (possible) the costs could be as big as you suppose, the moderate to best case would mean costs may not explode.

Understand the unknowns at hand and their respective probabilities, and those probabilities accuracy before you attempt any analysis.

Sun, 05/02/2010 - 10:51 | 327764 masterinchancery
masterinchancery's picture

Given the rosey scenarios being peddled by the Panglossian folks at Merrill Lynch, it seems that BofA doesn't communicate much with its famous subsidiary.

 

Sun, 05/02/2010 - 10:54 | 327766 masterinchancery
masterinchancery's picture

Missing from Hanson's analysis is a look at the scenarios vulnerability to sudden increases in interest rates or oil prices.  An executive summary would read something like "completely disasterous."

Sun, 05/02/2010 - 11:03 | 327775 Wily Wonka
Wily Wonka's picture

Didn't B of A / Merrill just come out with a S&P 500 target of 1380? Didn't they just tell the lemmings the water in fine? I am sure they will reiterate there targets Monday and provide us new reasons to also go long Baklava bonds too!

Sun, 05/02/2010 - 11:47 | 327828 Lux Fiat
Lux Fiat's picture

Baklava bonds - hahaha!  However, please don't denigrate one of my favorites by associating it with Greek bonds.

Sun, 05/02/2010 - 11:18 | 327784 Hansel
Hansel's picture

In total, another crap piece from BAML.  The U.S. ran deficits all through the boom, and now runs even bigger deficits in the bust, but we can't cut back on fiscal policy just yet, not until we enter the next boom.  BAML is dreaming if it thinks the U.S. can run 5%+ deficits through 2020.  Also, it's nice to see BAML citing core CPI.  Just ignore the 18.3% yoy increase in energy.

Sun, 05/02/2010 - 11:16 | 327787 Rogerwilco
Rogerwilco's picture

The common "wisdom" among the crowd at Treasury is that we can fund anything we want at ridiculously low rates because 1) China doesn't dare mess with us (yet), 2) The Eurozone is FUBAR forever, and 3) Our Trident Submarines still operate very well.

All are basically true at the moment, but what if the PIIGS get sent to their rooms and they are effectively decoupled from the rest of the EU? The Euro would then be backed by economies with a net trade surplus, and the US economy would look awfully weak in comparison. China could then get together with other "responsible" nations and legitimately call for a new reserve currency.

Game over, round-eye dudes.

Sun, 05/02/2010 - 11:36 | 327814 cossack55
cossack55's picture

After Jan 1, no more smoking on subs, women permitted on subs. Sex without a smoke afterwards.  Please!

Sun, 05/02/2010 - 11:36 | 327815 AnAnonymous
AnAnonymous's picture

Are you the guy working in the US department roleplaying this scenario? Must be fun.

Sun, 05/02/2010 - 11:24 | 327802 Implicit simplicit
Implicit simplicit's picture

With the end of quant. easing the banks will not have the excess liquidity to keep pumping the market up as they have been doing. This is also making the banl/fed/gov. oligarchy (oli) nervous. Since  the gov. will not be able to rely on the fed to buy their own treaury bonds as easily, and the banks will not be getting greased as much  they were to pump the stockmarket, the oli needs treasury buyers (the chinese are slowing there purchase), thus the stock market needs to fall to scare investors into treasuries.

With the fed buying program over, M2 will start falling hard. It was already falling  from the deleveraging of the bottom 80% of the income population. The top 20% incomers are the only ones keeping consumer spending going along with the debt defaulters. Only big banks and big internationals and the people that work for them appear to doing ok financially.

An interesting tidbit from the "Contrarian Investor" (CI) talks about the industrial production numbers disconnect with the lack of a rise in the electrical consumption numbers. it doesn't appear that the rise in industrial production is from goods being made and sold here considering electrical usage is down to flat. Also, there are no hard numbers given for the IP #s, its from quetionaires.

 

Sun, 05/02/2010 - 11:34 | 327812 SamThomas
SamThomas's picture

None of the so-called "economists" populating the major banks seem to grasp the obscenity that is a trillion-dollar deficit.  Just goes to show the end result when you lose respect for money in the first place.  Unfortunately, the consequences will not be strictly theoretical, or even cooly observed like some sort of lab experiment. 

 

The result of the loss of respect for money will be human suffering--hungry little kids, homeless families, desititution, mental illness, even death, for many of our countrymen, our fellow Americans.  We will be paid back in full for our presumption and our arrogance. 

 

What will the economists at the Fed, at the Bank of America have to say to them?

Sun, 05/02/2010 - 11:38 | 327817 cossack55
cossack55's picture

I think that has been happening and they will say " We are doing god's work".

Sun, 05/02/2010 - 11:43 | 327821 exportbank
exportbank's picture

What happens to interest rates when more people get wise that price inflation is more like 8% than the core CPI they pawn off on us?

Sun, 05/02/2010 - 11:48 | 327833 snowball777
snowball777's picture

50% cap gains tax.

Up up and away...my beautiful, my beautiful buffoon!

Sun, 05/02/2010 - 12:01 | 327857 What_Me_Worry
What_Me_Worry's picture

Forecasting trillion dollar a year deficits with sustained 3%+ GDP growth and next to no inflation throughout the entire decade.  All with a low overall borrowing rate.

Yeah, that sounds like a reasonable prediction.

Sun, 05/02/2010 - 13:49 | 327945 Hansel
Hansel's picture

+1

Tue, 05/04/2010 - 11:25 | 330842 JW n FL
JW n FL's picture
by What_Me_Worry
on Sun, 05/02/2010 - 11:01
#327857

 

Forecasting trillion dollar a year deficits with sustained 3%+ GDP growth and next to no inflation throughout the entire decade.  All with a low overall borrowing rate.

Yeah, that sounds like a reasonable prediction.

 

What_Me_Worry,

                         

 

Factory Orders Post Another Solid Gain in March


Orders at U.S. factories increased 1.3 percent in March, even as February’s gain was revised higher. Orders for non-defense capital goods, ex-aircraft jumped 4.5 percent—the largest gain since before the recession.


 


 

 

Nearly Halfway Back to Pre-Recession Levels

  • After collapsing during the recession, factory orders have increased in 11 of the past 12 months and are now 44 percent of the way back to the pre-recession peak in July of 2008. Non-defense capital goods orders, ex-aircraft jumped 4.5 percent, an upward revision from the first look we received in last week’s durable goods report and the biggest gain since before the recession began—a big positive for business spending.
    1.  

      Shipments Recover as Inventories Are Re-built

    2. On both a year-over-year basis and a three month annual rate, the recovery in capital goods shipments is outpacing the recovery we saw after the 2001 recession. While the comeback in the manufacturing sector is exceeding the expectations of most market-watchers, it is not altogether surprising when considered in the context of the inventory cycle. A drastic drawdown of stockpiles in the recession set the stage for a swift recovery.
      1. http://mediaserver.fxstreet.com/Reports/0c277596-1579-43d8-bc2a-61ec1ecd473f/7d492923-7b74-41c8-859a-ef6753369eed.pdf

        Sun, 05/02/2010 - 12:10 | 327863 Wily Wonka
        Wily Wonka's picture

        Don't be a racist "What me worry". The Big O can do anything! ;)

        He's going to bring Elvis back too!

        Sun, 05/02/2010 - 12:14 | 327871 Rainman
        Rainman's picture

        The one party rulemakers are struggling to hold on without a crisis for the next 6 months. Unfortunately, those pesky Arizonans are stirring the immigration reform pot. Peace and quiet is now futile pre-mid terms.

        Obama's big play is the Deficit Reduction Commission report in December. That will lay the groundwork for VAT. It will be constructed as a " TAX MODERNIZATION " scheme.

        And since that Fannie/Freddie unlimited taxpayer bailout announcement made on Christmas Eve last year worked out so well for the Critters ( not a creature was stirring ), you can expect a similarly large lump of coal in your stocking on December 24.

         

         

         

        Sun, 05/02/2010 - 12:54 | 327904 TBT or not TBT
        TBT or not TBT's picture

        "The one party rulemakers are struggling to hold on without a crisis for the next 6 months. "

        BINGO!

        Sun, 05/02/2010 - 12:15 | 327872 dark pools of soros
        dark pools of soros's picture

        what's the problem??  they only said "No credible forecast suggests"

         who is left to produce any of that??

         

        Sun, 05/02/2010 - 12:23 | 327881 doolittlegeorge
        doolittlegeorge's picture

        excellent article with one obvious problem:  we can solve only one crisis at a time.  It the Federal Government could solve the budget crisis believe me it would.  It can't because we have a far bigger crisis right now called inflation and this current regime is fully incapable and indeed got elected on an inflation platform (meaning "we will create inflation.")  this of course is the government you wanted and voted for so stop "getting into it's brain" and "start getting into yours."  We've found the enemy and "he is us."  we have no solution to the inflation catastrophe right now and indeed my personal view is now one of "let the Fed keep rates at 0 to 1 and hope for the best" because after seeing the result of the "hard money euro" i've begun to do a reassessment of my own hard money views.  I can tell few if any of you go to Church here.  Today might be a good day to start although the worst folks the human race will ever know are the religious nuts.  In short:  the Romans were on to something, too.

        Sun, 05/02/2010 - 12:27 | 327886 JW n FL
        JW n FL's picture

        We cant spend half of our GDP on medicine, but we can spend half.... on Energy!

        Sun, 05/02/2010 - 12:46 | 327896 Babalooee
        Babalooee's picture

        A not even careful rereading of the Cat In The Hat Comes Back would save everyone a lot of time trying to figure out how this is all going to end; well, right up to Cat Z anyway. Dress Ben up in a fir suit and he even looks a bit like the cat. Except for the eyes. The Cat had a twinkle, he had VOOM. And Ben’s dronelike peepers? Hmmmm, what rhymes with VOOM?

        Sun, 05/02/2010 - 13:28 | 327926 RobotTrader
        RobotTrader's picture

        Why is everyone so freaked out by our deficits???

        I mean really, everyone is so enamoured with our bonds and currency, the ability to float trillions in deficits is Infinite....

        Look at how everyone is fleeing to bonds, the 26-year bull market continues unabated.

        Sun, 05/02/2010 - 14:34 | 328000 zeroman
        zeroman's picture

        so you basically believe that there is no consequence for gov't financial mismanagement, lack of tax revenues, bailing out private and public enterprises?  you think the whole excersize is futile and irrelevant is only to convince the masses to be financially prudent while the Fed and its cronnies do not?

        Sun, 05/02/2010 - 16:08 | 328126 JW n FL
        JW n FL's picture

        I think maybe he was pointing out that the Algo's have a mind of thier own and are set on auto...

        A jobless recovery? Banks with TONNES! of bonus monies handed out, but no loans made? and losing clients due to 20% un-employment?

        Maybe, the number where meant to be sarcastic.. is what I am saying... to be less than cryptic.

        To the poster with the charts... thanks for the green shoots perspectus! to the moon Alice!, to the Moon!

        Buy! Buy!! BUY!!!

        Sun, 05/02/2010 - 13:31 | 327928 wesa
        wesa's picture

        The US, in particular, and the "developed world" in general is fighting a problem of over-production, also known as over-capacity.  This has been going on for at least the past 25 or 30 years and is the underlying reason for the constant drumbeat of buy, buy, buy.  The economies depend on consumer purchases and increasingly these purchases are being made with money the consumers don't have.  As Big Ben points out, we can't grow our way out of this problem.  The simple fact is that if consumers couldn't afford their level of buying back in 2005 they sure can't afford that level now or in the foreseeable future.  

        Sun, 05/02/2010 - 13:46 | 327942 buzzsaw99
        buzzsaw99's picture

        Prosperity for them now, austerity for us later.

        Sun, 05/02/2010 - 14:22 | 327981 SWRichmond
        SWRichmond's picture

        Thanks!  My god, I had to scroll all the way down to get to a comment that showed that someone finally got it.

        In the current hyper-partisan political environment in Washington DC, we believe the risk remains that only a crisis will force the compromises necessary to appropriately deal with the deficit problem in an economically sound manner. One can only hope that the recent turmoil in Europe will strengthen the backbone of US policy makers to fashion a solution before the cost of inaction rises even further.

        Translation: we at the big banks got ours, we're safe now, the Fed's given us almost a trillion in free reserves and has told us we're safe forever, they will print us whatever we need.  The rest of you fucks in the unwashed masses are gonna have to suck it up now because the money is gone (we got it all, none for you, too bad so sad).  So it's austerity now for you, what did you think this was, an open bar party or something? 

        The hubris in the position espoused in this piece is absolutely astoninshing, and I'm sure the &%$$!@!! that wrote it doesn't see it.

        Sun, 05/02/2010 - 14:00 | 327954 trillion_dollar...
        trillion_dollar_deficit's picture

        There won't be fiscal tightening after the election for the same reason there won't be fiscal tightening before the election - there's always the next election. The same rule applies for ZIRP.

        Sun, 05/02/2010 - 14:18 | 327974 Jacob Dreizin
        Jacob Dreizin's picture

        I couldn't agree more.  Forecasts of U.S. govt debt / GDP at five percent or less by 2014 are ludicrous.

        That is just four years away, and our economy is still entirely dependent on its stimulus lifeline (mortgage tax credit, increased aid to states, continuing bailouts of Frannie, etc., not to mention spiraling FDIC costs).

        If that lifeline were pulled today, everyone, even the foremost optimists and cheerleaders, knows full well that our entire socioeconomic system would crash immediately and it would be Mad Max time.

        On top of that, Obamacare will have fully kicked in by 2014, and you can be sure that, following past experience with govt programs, it will cost twice or three times what was projected, if not more.

        Add to that all the "unknown unknowns" such as potential wars, or another Katrina perhaps, and we are looking at trillion-dollar-plus deficits indefinitely.

        Sun, 05/02/2010 - 14:20 | 327977 BlackBeard
        BlackBeard's picture

        Captain Obvious strikes again!

        Sun, 05/02/2010 - 14:31 | 327995 sushi
        sushi's picture

        .

        Sun, 05/02/2010 - 15:10 | 328050 Caviar Emptor
        Caviar Emptor's picture

        Tired of Keynes? Tired of Friedman? Think Reagan was a clown and Bernanke a buffoon?

        Wait! All isn't lost! Here's the global macro solution of the century:

        Ready? 

        Shopping!!!

        Not measured, balanced shopping. 

        Announcing the Great Post-Bubble Hangover Hair-O-The-Dawg Shopping Blowout!

        How? We'll nuke this global recession with a mega one-time, globally coordinated, government scrip issue redeemable immediately for only frivolous consumer discretionary items within 30 days. I think on the order of $25,000 per US household, pro-rated for the rest of the globe.

        No fuss no muss with sovereign debt. The scrip self-destructs!

         

         

        Tue, 05/04/2010 - 11:00 | 330784 JW n FL
        JW n FL's picture

        I have read it 5 different times and every time I laugh... Thank You! Caviar Emptor for brining some joy and laughter into the World.. God Bless You! and Yours! 

        Sun, 05/02/2010 - 22:15 | 328554 dumpster
        dumpster's picture

        in the country where no one is accountable

        Bank America sees

        White house says

        banks commit fraud

        military drones families

        IRS increases audits

        congress votes to extend pay increases to itself

        faceless, non human action.

        global action

        inanimate blocks of stone, paper organizations , acting with out human intervention, the globe becoming a slithering fungus

         

         

         

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