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Jan Hatzius Friday Night Bomb: "We Are Downgrading Our Real GDP Growth Estimate To 1¾% From 2½%"
Nobody could have seen this coming: "With most of the news on first-quarter growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth estimate to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago)." Some other things nobody will be able to predict: Hatzius dropping full year GDP from 4% to 2.25%; Goldman's downgrade of precious metals, Kostin's 2011 S&P 500 price target reduction by 20%, and Goldman getting its New York Fed branch to commence monetizing $1.5 trillion in debt some time in October.
From Goldman: Do Consumers Have Enough Fuel?
- With most of the news on
first-quarter growth now in, the GDP “bean count” looks even softer than
it did a couple of weeks ago. The most recent disappointments have
come on the export side—with trade now set to subtract significantly
from growth in the quarter—and from inventories. Consequently, we are
downgrading our real GDP growth estimate to 1¾% (annualized), from 2½%
previously (and from 3½% not too long ago). - Other indicators still point to
solid activity in Q1, but markets have become increasingly concerned
about growth in the remainder of the year as well. A key reason for
concern is the sharp rise in gasoline prices so far in 2011—nearly 70
cents per gallon—which is siphoning off household income at a run rate
equivalent to $100 billion per year. We are adjusting our headline
inflation forecasts over the remainder of 2011 to take the surge in fuel
prices into account. - Despite these higher fuel costs,
consumer spending looks to have grown at a 2½% pace in real terms in Q1,
and—given strength towards the end of the quarter—is headed for a
stronger pace in Q2. An important reason for the resilience: the
payroll tax holiday has helped consumers to absorb the increase in
gasoline prices over the past few months. (Put another way, higher oil
prices have fully offset the impact of the payroll tax cut.) - Going forward, our forecasted
reacceleration in spending growth still looks possible, but will require
a fortuitous combination of circumstances—a modest further pickup in
the labor market, gasoline price relief, and a benign asset price
environment that encourages consumers to gradually reduce saving.
With most of the news on
first-quarter growth now in, the GDP “bean count” looks even softer than
it did a couple of weeks ago. The most recent disappointments have
come on the export side—with trade now set to subtract significantly
from growth in the quarter—and from inventories. Consequently, we are
downgrading our real GDP growth forecast to 1¾% (annualized), from 2½%
previously (and from 3½% not too long ago).
Other indicators still point to solid
activity in Q1, but markets have become increasingly concerned about
growth in the remainder of the year as well. Growth-sensitive equities
have suffered in recent days, and some forecasters have taken down their
expectations for growth later in the year. A key reason for concern is
the sharp rise in gasoline prices so far in 2011, which has the
American public—and policymakers—on edge. Retail pump prices are
approaching their peak levels in the summer of 2008 (Exhibit 1). The
extra cost of about 70 cents per gallon, relative to prices at the end
of 2010, is siphoning off household income at a run rate equivalent to
$100 billion per year—income that otherwise could have been spent on
other goods and services.
Despite these higher fuel costs,
consumer spending looks to have grown at a 2½% pace in real terms in Q1,
and—given strength towards the end of the quarter—is headed for a
stronger pace in Q2. Solid growth in consumer spending will be
essential if the US economy is to post above-trend growth for the
remainder of 2011, as we continue to expect. But will households have
enough “fuel” from income growth to sustain such an expansion,
especially with fiscal and monetary stimulus reaching their peak?
In the next few pages we look at the
prospects for household income growth in 2011 and 2012. We find that
the payroll tax holiday has helped consumers to absorb the increase in
gasoline prices over the past few months. Put another way, higher oil
prices have fully offset the impact of the payroll tax cut. Going
forward, a reacceleration in spending growth is possible, but will
require a fortuitous combination of circumstances—a modest further
pickup in the labor market, gasoline price relief, and a benign asset
price environment that encourages consumers to gradually reduce saving.
Moderate Income Growth, with Risks from Taxes and Oil
Our US economic forecast envisions
personal income from wages and salaries, assets, and transfers should
grow at roughly a 5% nominal rate through most of 2011 and 2012.
1. Wages and salaries should grow at a 4%-4½% clip.
This assumes payroll growth in the 200,000 range (just about a 2%
annual growth rate—see Exhibit 2), a small increase in hours per worker,
and growth of about 1½%-2% in wages per hour (similar to recent growth
in private sector average hourly earnings or the Labor Department’s
employment cost index; see Exhibit 3). Ultimately, it’s labor income
that is needed to fuel a self-sustaining expansion, and this is more
important than ever now that fiscal policy is turning towards restraint.
2. Asset income—weak interest, but growing dividends and business income.
A continued low-rate environment should dampen interest income, but
the rebound in the economy should lead to further gains in dividend
income and small business income (proprietors’ income). We envision
this component growing at a 3-5% nominal rate through 2012.
3. Transfer income will be more restrained. Aside
from the annual cost-of-living increase in Social Security in early
2012, which should be more robust next year due to higher headline
inflation this year, transfer income should grow relatively slowly. In
particular, unemployment benefits should dwindle as individuals find
jobs or exhaust their extended benefit eligibility.
Modeling each component of income
growth separately suggests some downside risk to asset income and
transfer income relative to our current forecasts, but potential upside
risk to our current numbers on wages and salaries. Overall, we see
some small downside risk to our current disposable income forecast,
perhaps about half a percentage point. If we assume trend-like
headline inflation of 1½%-2% over remainder of 2011 and 2012, these
calculations would imply real disposable income growth in the 3% range.
Exhibit 4 illustrates the recent
paths of wage and salary income, disposable income, and real disposable
income with our forecasts (in shaded area) through the end of 2012. The
spike in mid-2010 is due to the labor market improvement in that
period, which in turn was partly the result of temporary Census hiring.
The data for recent months show clearly the offsetting effects of the
payroll tax holiday and rising gasoline prices. Wage and salary growth
(dotted line) has been reasonably steady in the 3%-4% range, while
disposable income (the gray line) has accelerated to more than 6%
annualized with the cut in payroll taxes. However, in real terms (black
solid line), there has been no acceleration in income, as higher
headline inflation has absorbed the increase in nominal aftertax income.
As for the future, there are two main
risks to a “steady as she goes” income path. The first—fittingly,
given that it’s tax day—is the increase in payroll tax rates slated for
the beginning of 2012, when the partial payroll tax holiday expires.
This will decrease households’ after-tax income by roughly $110 billion
(about 1%), clearly visible as a drop in income growth in early 2012 in
Exhibit 4. Of course, it’s possible the payroll tax cut will be
extended—next year is an election year, after all—but right now there is
no call to do so either from Democrats or Republicans.
The second risk is the path of
commodity prices; continued increases in gasoline prices in particular
would pose a serious threat, especially if they occurred alongside a
reversion to the higher payroll tax rate. Households currently devote
3.6% of their income to gasoline, on average, so a 10% shock to gasoline
prices is worth 36bp on real disposable income growth. This is only a
“first-round” effect, and leaves out any feedback into employment (i.e.
if lower spending caused companies to become more cautious on hiring,
that in turn could affect future spending) or via other sectors of the
economy.
The bottom line: we see modest
downside risk (unfortunately, a phrase we have been using a lot lately)
to our household real disposable income forecasts in 2011 and 2012.
The best chance for exceeding our forecasts is either a substantial
acceleration in the labor market and/or a large drop in gasoline prices.
Will Consumers Loosen the Purse Strings?
Our forecast has real consumer
spending growth at a brisk 4% pace in Q2 and Q3, decelerating to 3.5%
late in the year and to 3% by late 2012. Given the more modest path for
real disposable income discussed in the previous section, this implies a
drop of somewhere between one and two percentage points in the
household saving rate by the end of 2012. This would be a meaningful
loosening of the purse strings, though mild by the standard of either of
the last two economic expansions.
To test the plausibility of such a
drop in saving, we update our model of the household financial balance.
This measure equals after-tax household income less consumer spending
and net residential investment. It is a broader measure of households’
financial stance than the saving rate alone. Since households think
about home purchases and renovations as part of their spending, we think
it makes more intuitive sense, and it also turns out that we can fit
models to it with slightly more accuracy. Statistically, the key
drivers of the household financial balance are 1) asset prices—higher
asset prices are associated with a lower balance, i.e. more spending and
investment, 2) credit conditions—with easier credit also associated
with more spending, and 3) nominal interest rates—with lower rates
typically discouraging saving and boosting spending.
Our model, illustrated in Exhibit 5,
is estimated only on data through 2005, but has continued to track
actual behavior quite closely since then: the tightening in credit and
collapse in asset prices beginning in late 2007 are consistent with the
observed sharp rise in the financial balance. However, the latest
improvement in the financial environment—particularly the rally in the
equity market over the past several months—suggests that consumers may
be willing to “loosen the purse strings” at least somewhat in 2011. The
forecast for the financial balance in the remainder of 2011 and 2012 is
about two percentage points below the current actual level, implying a
desire by consumers to spend a greater fraction of their after-tax
income. Note this forecast is contingent in part on a continued rise
in equity prices (per our strategists’ forecasts) and gradual easing in
credit conditions. Flat equity prices would still imply a decline in
the household balance, but a somewhat smaller one.
Where does all this leave us? The
models suggest that our income and spending forecasts are feasible and
internally consistent. But they also suggest a lot of things will need
to go right for our optimistic view on spending to become a reality.
First, the labor market will need to continue its improvement, and
probably accelerate slightly, to provide the requisite income growth.
Second, gasoline prices need to stop rising, and ideally retrace at
least part of their recent gains, to ensure that income growth passes
through into increases in real spending. Third, overall asset values
need to rise—i.e. equity price gains need to more than offset modest
home price declines—to ensure households feel comfortable loosening the
purse strings. Finally, of course, households need to behave roughly in
the way our model suggests they should!
Cash Flow Growth is Healthy
One other perspective on households’
spending power is provided by our measure of “consumer discretionary
cash flow”. To calculate this, we take the estimates of disposable
income from the previous section, net out non-cash income, add cash flow
from borrowing or asset sales, and subtract essential outlays for food,
energy, medical care, and financial obligations. Finally, we deflate
the remaining series using an adjusted core PCE price index.
This approach paints a somewhat more
optimistic picture (Exhibit 6). Near term, cash flow grows more
strongly than income. The faster growth of cash flow occurs mainly
because recent data on credit extension suggest a noticeable
acceleration—in particular, nonrevolving consumer credit (auto loans)
has grown steadily over the past six months after declining gradually
over the prior two years. We expect this positive “credit impulse”—a
positive second derivative of credit outstanding—to persist through most
of 2011. That in turn would be consistent both with continued growth
in consumer spending and a decline in the saving rate (and household
financial balance).
A Divergent Impact Across Households
It’s worth noting that the broad
macro themes outlined here have very divergent implications across
households. Households with high exposure to equity prices—typically
those at the top end of the income spectrum—have become more willing to
spend as their net worth recovered quickly following the crisis.
Households with relatively more exposure to housing, and/or who spend a
higher proportion of their income on gasoline—typically those at the
lower to middle income brackets—continue to feel considerable pressure
to economize.
Using data on relative exposure to
gasoline costs from the Labor Department’s Consumer Expenditure Survey,
and to asset prices from the Fed’s Survey of Consumer Finances, Exhibit 7
illustrates the hypothetical impact of changes in asset values and oil
prices since 2005 on spending by the top, middle, and bottom income
quintiles of US households. The concentration of the negative “wealth
effect” among higher-income households is consistent with the sharp drop
in luxury spending and disproportionate damage to higher-end retailers
in the early part of the crisis. Since then, spending at the higher end
seems to have recovered more rapidly, consistent with the implication
of the chart. (The payroll tax cut had a broadly similar effect across
most households, except among the top quintile where it represented a
smaller percentage change in after-tax income.)
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Now that we know Jan reads ZH.....I wonder if we can find out if The Ben Bernank reads it too....
yes.... he does!
Awesome Avaatar. ZH should use it prominently somewhere.
Brilliant!!!
ORI
Speaking of seen it coming I bet the initial print on 1st quarter GDP materially beats the lowered estimates. It's a set-up.
and like the pattern at the individual stock level for twenty or thirty years or so.
I just heard this on FOX's Red Eye show; The Arabic words "Al-Qaeda" literally translate to the English words, "The Base". I nearly fell out of my chair when I heard them say it. I've been blogging this realization for a very long time. Look it up on Wikipedia if you don't know about that.
I didnt use to be as cynic as I am now..But I swear if it looks like a rat, smells like a rat, its probably a rat....
The avatar is beyond brilliant!!!
I conquer.
"Will Consumers Loosen the Purse Strings?"
what good is that when the fucking purses are all empty....
Meanwhile Belarus continues to pay a price for Chernobyl as do Ukraine and Russia). Belarus to devalue its currency. No wonder I see an advt for Russian love match on ZH. Wonder what Japan will be like 25 years from today ?
Early Filipino
Your comment = BINGO.
I pulled this from earlier in the article:
"that encourages consumers to gradually reduce saving."
and I thought to myself, "What savings?"
"Will Consumers Loosen the Purse Strings?"
what good is that when the fucking purses are all empty....
Gotta shake the corners out! Some of those slick em-effers hide nickels under their couch cushions. Greed demands that TPTB take it ALL!
YES lol the 'consumers' are just sitting out there with purses chock full of cash...according to these retards on Wall St anyway.
We all know the masters of the universe wanted to get through the first quarter before they began downgrading. Now they will rely upon decent first quarter earnings to make it through to the middle of May. Then with the end of QE 2.0 only a few short weeks away they can sadly announce that due to the worsening economy the Fed must reluctantly roll out QE 3.0 plus plus.
Yawn. Who has the popcorn? I want extra butter please.
Can the Fed afford to bring QE3 on with crude over a 100 ? A mini-crash is inevitable to justify QE3? Of course, Japan will take the blame on this one.
If a market drop/crash is deemed needed in order to build credibility then one will be engineered. The bulging balloon can easily be vented of 10 to 15% of it's air with very little effort. Upon doing so, the formerly incredulous Fed critics and doubting Thomas's will beg for intervention and another chance to kick the can down the road just a little bit more.
They can, they will and in their view they must. First of all the Fed is a one-trick pony: throw money at any problem that arises by going to the printing press, a source of power mightier than the sun itself. And they always feel smugly justified. Secondly they have one top priority: at all costs mask the deflationary depression that's going on in the real economy. Reports from this week showed dramatic residential price declines in CA, MN, FL, NV. Initial new claims jumped this week in the middle of a "recovery". Never mind real adjusted incomes and the inevitable new fiscal austerity measures coming from DC. When they say "Price Stability" these days, they're not worried about inflation. It's deflation they're still fighting. Thirdly there are a bunch of associated reasons they need QE3: holding Treasury yields low as the Treasury rolls debt, discouraging savings, and supporting Treasury issuance in general. They're boxed in. And they can plausibly deny away inflation because the deflation cancels it out, especially in the CPI calculation.
+100 exactly this.
The Fed will keep jerking everybodys' chain as long as people keep letting them. Deflation and inflation are just 2 weapons in the Fed's arsenal of rent extraction. They can win both ways.
Excellent summation of the FED conundrum. Of course the theatre surrounding these machinations will contain an appropriate level of political suspense and high drama, which at the very least should be fun to watch (in a sick sort of way). I haven't yet bought into the argument that someone posted the other day - that the current size of the FED balance sheet with its associated TB roll-over requirement will be enough to keep bond yields low. I feel the amount of the debt monetization required is simply too large going forward, which speaks to additional QE well beyond any roll-over requirements. We are now in the midst of the most severe stagflation in US economic history - the result of unprecedented Keynesian and Monetarist intervention in the midst of the Greatest Depression - triggered by the Nasdaq bubble bursting. Everything that has happened since has been the tragic results of unprecedented FED intervention to prevent the massive deflation that should have ocurred. This was the swamp that bred the debt monster that has now grown large enough to destroy us all. Thank you Mr. Greenspan; Mr Summers; Mr. Krugman; Mr Bernanke; Mr. Friedman; Ms. Rand; and everyone else who became corrupted by the power of their own intellect, and who considered themselves smarter than the rest.
T.E.I.N. everyone!
Cav,
Agree w/all you said exception Inflation, no way you can deny what is real, and what is slamming Americans up side the head now.
Residential declines are to be expected, we are still in a super over built mode, and no economy to speak of a 22%+ UE rate, and getting worse.
Their will be a QE3, no way out.But, they had better find a new name for it, hide it,, or the Dollar will lose reserve status, and be dumped all over the globe.
Most here have prepped for it, but those that are still holding thousands in FRN's, better get rid of them asap.
Better excuse would be snow in Arkansas last week.
Who in their right mind spends any time diddliefucking about forecasting GDP of a quarter past when we've all been there done that?
Tell ya' who.
The false prophet leading the foolish, insecure, insane and demented in their false truth appreciation process ingratiating them deeper into the Hegelian Dialect.
How's that asks little grasshopper?
Keep 'em talking about anything other than reality of the moment.
Bingo.
You are there.
Good night and good luck.
I can imagine them taking the market down maybe 30% in one day on a friday, busting all trades more then 5% (except for the banker/connected) and by Monday morning QE3 is launched with a nice gap higher in stocks. All you small fry shorts taking the wood hard and deep and you'll like it bitches.
Welcome back my friends to the show that never ends.
Particularly well said.
What even gets better is that with respect to GS's (and in all fairness the whole of the Street does the same, unchecked by the MSM.... LOL) forecasts, they change 'em and hedge 'em so many times over that they can always look back and say "wetoldjazo".
And the people who fawn over this shit nod their heads in rapt discovery of their presumed infallibility and get bought another lunch for their churned not a penny value added commissions.
But the client feels important.
We used to call that fat, dumb and happy.
Never mind QE 3, lets go all the way to QE 11!!
Such a deal.
Magnificently smart economist, to whom you get to listen.
Client feels important, coddled
Client directs commission to coddler
Client gets wined and dined
Public pronouncement furthers continuation of QE whatthefuckever
QE makes bundles of free money for the firm
Firm uses profits to grease the politicians and regulators
MSM cheers on the whole of the circle jerk
MSM maintains some sense of importance as only financial traditional outlet with breaking news
That (fill in the blank) from the UK gets to go on the telly to impress himself as his business slides
Law keepers do naught with circle jerk but make noise like blind deaf and dumb arse running about waving hands in air as everybody whose complicit has skin in game
Shit goes bad
Jerk off economist sent to big job in gubamint/international agency to make sure shit goes right (for whom is another question)
Public pronouncements as to save the world/darting snail garter/whatthefuckever
Raise taxes
Wash, rinse, repeat
It is that simple IMO.
It is also predictable any current President would go with the, "If we don't raise the debt ceiling limit it will cause a global recession" argument. Because a global recession is coming no matter what.
yep some of the ol'
"this just in - data is manipulated."
suddenly a truth discovered rears it's ugly head - no one has money since only half actually get paid and those folks need to spend it on food and fuel, things not counted, so the experts can't figure out where it went! puleeeze!
then:
"this just came in - data is re-manipulated."
** y a w n **
I suppose tis can help them buttress their commodity down thesis.
The thing though is to not see Ag/Au as part of the commodity complex anymore. They never were in the first place. it was a classic move to club them with copper et. al. Mind-set shift.
Food and PMs have disconnected, even from Oil it seems. Especially Ag and Ag, the only safety zones I can see.
These times are definitely NOT those times, at all.
ORI
http://aadivaahan.wordpress.com/2010/09/28/of-tipping-points-and-shape-shifting-redux/
What do they use for a price deflater to get the "real" numbers? If they are using the CPI, then "real" growth would be over stated. If they are using a different set of numbers, are they different than the CPI?
Such a bunch of terrible liars.
sschu
The downside of said dollar peg ....China's leaders struggle to contain inflation increases
CHINA’S inflation rate rose again in March despite mounting Government efforts to dampen down politically explosive living costs, writes Douglas Hamilton.
Consumer prices in China are up 5.4% over a year ago, the National Bureau of Statistics said yesterday. That is the highest figure in nearly three years and largely the result of spiralling food prices, which rose nearly 12%. The Government’s inflation target is 4%.
The Government also reported that economic growth slowed slightly in the first quarter to 9.7% over a year earlier. That followed efforts to steer China’s rapid expansion to a more sustainable pace after double-digit growth last year.
Chinese leaders said controlling prices was their priority.
On Thursday, Premier Wen Jiabao called for more efforts to bring inflation down, in an attempt to reassure the public the Government was taking action.
“We need to skilfully handle the relationship between promoting economic growth and curbing inflation,” Mr Wen said.
China’s Communist leaders see high inflation as a big political threat because it erodes gains from the country’s economic growth. Food prices are especially sensitive because poor Chinese families spend up to half their incomes on food.
http://www.heraldscotland.com/business/markets-economy/china-s-leaders-s...
"Wages and salaries should grow at a 4%-4½% clip"
Wishful thinking, unless this is the unemployment rate increase.
Change the quote to read:
"Death should come at a 4%-4 1/2% clip"
This planet ain't going to support our desire for unlimited growth.
Of course nominal GDP will become the real real GDP so expect 10% by EOY.
I prefer decimal points! Bond price up. Yield down. The 10's were off a few basis point's today.
Our GDP Is well over 50. Our ISM is a joke.
5% wage growth, yeah right... Lucky if its not -5%, especially when the public sector wages start a'collapsing.
Ahhh HAHAHAHAHA
Ishkabible
But the market "priced it in" already... and other stupid arguments.
Let them eat debt!
Weekend bombshell in Japan as well: While rival proposals to dismantle TEPCO's reactors circulate, so does a blueprint to dismantle TEPCO.
http://www.asahi.com/english/TKY201104150129.html
Government considering plan to dismantle TEPCOBY YASUAKI OSHIKA ASAHI SHIMBUN WEEKLY AERA
A secret plan to dismantle Tokyo Electric Power Co. (TEPCO), the operator of the crippled Fukushima No. 1 nuclear power plant, is circulating within the government.
The proposal, which is associated with a faction of bureaucrats who have long supported liberalization of Japan's power industry, envisages the passing of a special measures law that would put the company under close government supervision before eventually bankrupting it and completely restructuring its remnants.
There are also proposals to smash the company's powerful influence on politicians and the mass media and force executives to give all their pay and severance settlements to victims of the earthquake.
However, a rival faction in the Ministry of Economy, Trade and Industry and the Agency for Natural Resources and Energy (ANRE) and politicians with links to the power industry may try to fight or emasculate the radical proposals.
Sources said internal government discussions about how to handle TEPCO began in earnest around March 28, as it became clear that trillions of yen would be required just to compensate residents of Fukushima Prefecture affected by the nuclear disaster. The plan to dismantle the firm was being circulated by the end of the month.
The operator of the damaged nuclear power plant in Japan has admitted it has no detailed blueprint to end the nuclear crisis, now more than a month old.
The admission coincided with workers at the Fukushima Daiichi power plant beginning the painstaking task of…
http://www.smh.com.au/environment/nuclear-firm-says-it-has-no-blueprint-to-resolve-crisis-20110414-1dfwg.html
Your posts have been truly informative. Thank you.
There is no question about QE3. The deficits have to be financed. End of Story. Buy PM.
Precisley.
This is the exact reason the fed can't pull a 1981-style 'Volker', to stop inflation in its tracks: our national debt would become unserviceable merely at historically normal interest rates, let alone a 20% fed funds rate. (Not to mention what higher interest rates would do to what's left of the housing and auto industries...)
This is what makes PM's a far safer investment today vs. 1980: the fed is in a box and can't afford to let the QE'ing end.
Sustained 1¾% annualized GDP yoy is not viable in the USA as it was in Japan. The USSA has 1 million in annual illegal immigrants and 4+ million births to feed, educate and employ every year. The nation is addicted to growth. 1¾% will condemn the nation to decades of rising unemployment, stagnant wage growth and ruthless competition to get one of the choice jobs in the top 20% with perqs, bennies and more than 5 annual days holiday.
This is a well-trodden path that all mature post-industrial economies have hoed before us. Unwittingly, we've already gone well down the road to accepting the new reality. That's the irony. Rather than go down the tough path that would have reinvigorated the economy through creative destruction (let the banks fail), the Fed has embraced the status of a low-growth mature economy. They just don't know it yet. We had a chance back there to allow the old, inefficient and rotting elements of the economy fail. The dramatic deflation would have been followed by dramatic growth just like coming out of the Great Depression where GDP grew between 5 and 13% each year except 1938, and between 9 and 13% for the first 3 years of the Roosevelt administration following 1933. Lots could have been done to avoid the worst of human suffering. Then we would be talking about new entrants, new ideas and real competition rather than crony capitalism.
Very well put. I beg to differ on one point..."They just don't know it yet." My read is that they know very well what they have done.
Perhaps you're right on that. Sadly.
"The dramatic deflation would have been followed by dramatic growth"
I don't see this as a certainty along the lines of the sun coming up tomorrow.
Any growth would be predicated on sufficiently exploitable resources. Using the GD as a basis overlooks the fact that there were far fewer inhabitants and far more physical resources on this planet back then, not to mention the US not being in massive debt.
Assuming that growth will occur just as sure as the sun rises is little different than smoking hopium.
+ First, we have to get assets back to realistic prices. That's good for everyone except the banks.
Any chance of a pdf of Hatzius's report?
1.75% from GS and 1.5% from MS, and yes, oil took both those numbers down from 4%, where they were.
Well, guess what, sports fans, there is no law of the universe that says oil can't tack on another $50-75, or more. All those bozos out there saying higher oil means convenience store profits and oil industry employment and net positive to GDP are more or less insane.
If we tack on another $50 onto Brent, we're going GDP negative. Period. That will spike unemployment, destroy tax revenue, explode the deficit, and generate godawful deflation.
100 + oil itself could take us negative dont you think ?
It's a $20/bbl world trying to run on $100/bbl oil. The trajectory is pretty clear: slinky down the staircase; the trend is negative and has nowhere else to go but down (so, yes, it WILL take "us" negative).
Don't go overboard on those numbers. A lot of ZH guys make this error.
Yes, there are powerful currents. Oil's depletion driving the price relentlessly certainly is inevitable death, but keep in mind that payroll tax cut extends to Dec 31. As does the Bush tax cuts. Both are money into people's pockets. Stimulus.
Analagously, the Fed's QE pumped money in, and the presumption that this is purely dilutive has always been wrong. The reason it is wrong is because of continual avalanche of mortgage defaults. That is money leaving the universe. So there is a balancing effect. QE is likely dilutive, but not entirely.
So, oil price increase FROM HERE, will soon no longer have QE (as of late June) to offset its effects, but the payroll tax cut will remain. The 2011 budget deal didn't withdraw much stimulus so it's a neutral effect. State govts are contracting stimulus, but they are likely already in the model.
Demand destruction is the only way to stop oil's ramp, because there can be no supply ramp on the down escalator of dying old fields. The great risk is US demand starts to collapse as China and India accelerate. That could smash the US as price continues to rise due to China/India consumption.
Crash,
As does the Bush tax cuts. Both are money into people's pockets. Stimulus.
Been baked in for a long time, and real inflation has swallowed it up,like a $2 hooker.
With 3 trillion in dollar reserves what would you do? Buy commodities before the dollar falls. Poor nanny state can't afford $4 gallon/gas. Try living in Europe where it's 8.50 gallon. You don't drive to the 7-11 for a big gulp.
Demand destruction may occur in the nanny state of sheeple but the smart money will buy what the US does not use.
Also I belive China is sending a clear signal that thay are not going to fund our wars anymore. Why would they, so we can control all the resources. They win the game without firing a bullet of course thay have been playing the game much longer than the nanny state.
Crash, and all peak oil supporters:
if oil was truly in a death spiral, we would be investing in alt carbon energy..ie Nat gas conversions in vehicles and elec generation..expanding coal elec generation.
we are not, in fact we are stopping drilling for oil on US controlled land and sea. we prohibit building of coal fired plants , nukes are DOA.
this only points to one thing>> suppression of supply by gov edict. this is our national policy ..of course the unintended consequence is inflation and reduction in GDP in energy industries ,during a recession..oops our bad.
Earlier this week, Calculated Risk reported the following from GS:
"At present, the current activity measure carries a clear message: US growth likely had considerable momentum in late Q1 ... our “bean-count” model of Q1 GDP suggests growth of 2.5% or lower ... [however high frequency indicators] showed growth of 3.6% in February [and] more than 4% [in March] ... [this is] consistent with our forecast that GDP growth will accelerate again in the second quarter."
http://www.calculatedriskblog.com/2011/04/misc-goldman-says-q1-finished-...
Lucky I'm not the suspicious type, or I'd think they were just trying to buy time to lighten up on some positions...
Zero Hedge predicted that Goldman would be the first to drop their exorbitant GDP estimate back in January. And we have been following every tick in Hatzius' forecast with a microscope.
A 3/4-point drop in GDP forecast is substantial and indicative of a broader trend. Predictably, the "models" are failing because they are calibrated against observable/historical relationships. But the models have no prior $14.5T debt from which to derive coefficients that work.
The weight of the U.S. and Euro debt is overwhelming the dykes. The centrals and bankster complex are simply trying to steer the leaks away from yield inflation. In the meantime, the "modelers" are becoming parabolic revisionists.
Morbidly, the Fukishima meltdown is witnessing the same strain of revision-ism. The 9.0+ and aftershocks are firsts, and each day is a revelation about just how bad it is. So the politicians are relegated to spinning...
Gravity always, always prevails.
Interesting article from CNBC reporting that Goldman exposure to Munis more than doubled. Another attempt to keep the states solvent and the ponzi alive?
I noted that as well. Link here: http://www.cnbc.com/id/42611455
Or does GS have insider information that the fix is in, and the states will get their federal bailouts?
With Bill Gross and Meredith Whitney betting against public debt, it will be interesting to see who is right; and who is dead...
The biggest loser is the private sector - every time.
What is interesting to me is the lack of response in the market to GS's pronouncements.
We had one day of selling in the commodity space last week after their first GDP downgrade.
This says two things to me 1) commodity longs believe there will be QE3 and 2) they don't think there's going to be much of a drop to warrant QE3 (why incur transaction costs and cap gains taxes if the markets going to be back at the same spot in a few months).
Given what's going on in the Middle East it's hard to tell what the intermediate term impact will be with oil prices. Moreover the lack of a move lower in precious metals seems to imply nobody believes there's going to be any meaningful tightening on the fiscal end despite all the D.C. histrionics.
The upside is Donald Trump is going to run for president and we need a president like him who's put a few companies into bankruptcy because we all know "experience counts". I can hear his acceptance speech now, "America's the biggest, largest, most elegant, luxurious, historic country on the planet".
Funny how these so called "experts" keep downgrading the economy, yet stock prices keep going parabolic.
I wonder what will happen to stocks when things actually improve?
Check out the run on multi-marketing flim flamming Herbalife:
During the crappiest economy in 50 years, these stocks keep skying.
Lesson learned: Tough to fight the Fed...
For those who are new to the board.
RoboTrader is a 17 year old kid with bad acne compounded by a cut and paste addiction of completely irrelevant charts pulled from his 1990 tradestation platform...
To add to what Robslob said:
The fact that Robo equates a direct relationship between the economy and stock prices is sufficient in itself to discredit his "opinions."
How are those Zimbabwe investments working out for you Robo?
"Parabolic?" Do you know what the word means?
GDP is more like closer to ZERO this quarter, the misleading PMI and factory order numbers are a cause of the manufacturing inventory build on the HOPIUM that the tax cuts would stimulate demand. The American consumer is tapped out and will not be catylist for growth during this depression.
By the way, the economy might be tanking, but there are still "enterprising speculators" running around trying to make a killing. Even with real estate.
I'm vacationing in Boca Raton this weekend, and at the Hilton, there is a "Foreclosure Express" tour bus, and some guy here is giving a seminar for potential home flippers.
Hilarious.
Two years after the biggest RE bust in history, they are at it again sucking in hapless investors to "build financial independence" by flipping houses for a living.
With nearly 20% of Florida homes in some kind of distress or empty, the lines to buy flipped homes must be long. How do these people sleep at night or, How can I develop that tough a skin and find a great defense attorney?
Boca Raton Hilton? See a doctor when you get home...
1-800 GOT JUNK?
wonder what they do. my junk is worth alot.
Did I miss it? Or did someone put a number on the juice to consumer income from walking away from their mortgage payments?
Input adjusting and net out-- the Middle class is screwed.
- " a benign asset price environment that encourages consumers to gradually reduce saving."
And so is Gramma. The real Death Panel is at the Fed.This whole discussion looks like a scene from an MICU where a patient (real economy) has been in a coma from an intoxication, but his eyes are wide open.
The monitors showing his vitals (Equity markets) have been tweaked through electronic codes (BLS econ data, POMO) to show better vitals in hopes that by just looking at them the nurses, the medical assistants, the consortium of the doc's, and most importantly the patient himself - through his open yet non-functioning eyes - would get a feeling (the wealth effect) that the patient's condition is a lot better and is actually recovering.
And the cosortium of doctors (pundits, including J H) are discussing, debating, arguing, pointificating, and prognosing based on those falsely coded vitals.
Meanwhile, someone who just takes the patient's hand and checks his pulse by touch realizes that ,in reality the condition is deteriorating as the toxins (bank true balance sheets) are still in the patient's system and with each blood circulation they are destroying more and more brain cells (unemployed workers skills and productivity) bringing his organism to the point of no return, all the while the staff is debating whether or not the patient is going to need a wheelchair or just crutches when he wakes up from his "short" comma.
Just felt like visualizing this whole situation would add another perspective.
Have plenty of useless Federal Reserve Notes on hand for the next fake market crash, coordinated with the NYFed and Goldman, when QE3 will be proffered as the solution to save us from ourselves.
Just about the time they are ready to pull it (like WTC7) the USFed and its criminal syndicate of international bankers will have Obama come on and say something derogatory about the markets, like Bush and Paulson in 2008.
I find this all doubleplusgood. Our chocolate rations will increase from 20g to 25g a week. I know this from the Ministry of Truth, and they never lie to us.
Welcome to stagflation gentlemen. What happened to all those rosy projections of 3-4% growth? Federal, state and local tax revenue will continually decrease requiring higher taxes as the debt and deficits increase leading to much pain for the middleclass. Is this any way to run a business???
Well now....
GDP....that is the ¨REAL GDP¨...will never increase until US labor equilibrates with BRIC labor.....
Since when is US labor worth 10 to 20X BRIC labor ....
.......................................
There is no coincidence that the US currency WILL HAVE TO depreciate in a big way.....
What would be a big help is for government to get out of the way of entrepreneurship....ie radical tax change....ie no more than a 10% consumption tax....no other state or federal taxes....to be collected per state....
Since this is NEVER going to happen....the only solution is currency dilution....which is happening as we speak....
Yes....sometimes 2 + 2 does equal 4......
Assuming the risk asset pullback after the end of QE2 and QE light reducing dramatically as TD has pointed out, the real question now is whether PMs will pull back at all before QE3 is announced -- or are we past the critical mass of stragglers waking up and realizing that the gigue is up?
IMO, we're not going to see lower PMs, even incrementally and ongoing, in the forecastable future. I don't know about everyone else, but I feel prepared and excited about living through what will prove to be one of the most extreme inflection points in history.
Just wondering - Is Goldman's downgrade of metals connected in any way to its short positions in silver?
At trillions a year the Fed will own all the debt by the end of Obama's second term. Then they can retire all their investments straight to the Treasury without dealing with those pesky markets.
"If we assume trend-like headline inflation of 1½%-2% over remainder of 2011 and 2012, these calculations would imply real disposable income growth in the 3% range."
So gentlemen, what happens to your models when you "assume" the true inflation number, such as the current inflation number per the MIT Billion Price Project? Inflation well over 3%, and wages decreasing....
Jan Hatzius keeps changing his forecast. This means...
a) He doesn't know what he is talking about
b) Goldman has placed their bets
c) He is trying to lower public's expectations in order to exceed expectations before 2012 elections
d) He likes to F with the world just because he can.
e) Who cares. We are doomed.
People are still spending money it seems. It seemed like the New England area (at least most of eastern MA & CT) weren't affected at all by the recession... You have all these kids in the Boston area whose parents are footing their $60,000 a year cost to goto one of the universities (other than Harvard or MIT) who all have Iphones, wearing North Face everything and probably spend the equivalent of a small monthly mortgage payment on drinking every month.
This doesn't seem to be like 2008 at all. For one thing the stock market & economy are holding up. There is the payroll tax holiday which will put an extra $300 or so a month into someones pocket who is earning $120,000 (which is lower middle class here in the Boston area).
JMT, seems I only run into people from Mass who could no longer afford to live there and ran south..all complained of high taxes and cost of living?? perhaps you only inhabit the elite enclaves and are not ready to mix with the common folk.
not that this is a new phenomenon..in the 1700's perfumed fancymen calmly walked the streets of london and never met a poor or sick man in the streets..they just did not see them they did not exist as people..
Wages rising by 5%?? HA HA... Many jobs that are being 'created' are temp or the mythical 'temp to perm'. Salaries in this area (Boston MA) for people with say 5 years of experience --- any more subjects you to age discrimination don't look much higher than they were in 2000
Same here in California everyone looking for someone with no more than 5 years experience. Good way to keep costs down and improve the margin but screw people that were laid off that have 15-20 years experience like me and even If I did find a job I would have to take a 20-30% cut. Truly is age discrimination.
well, hang in there & good luck. you're smart enuf to make adjustments and survive. 2nd childhood. enjoy!
this downgrade seems pretty gloomy, but when ya break it down, the guy sez: The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories.
okay! back in the old groove again! these people keep sending us this shit, and we just keep signing for it! this is somehow bad for the economy.
so fukin what?
I got let go from at the end of 2009 and have been working at scattered temp jobs since then. I have enough saved partially from doing what many have done -- 'strategically defaulted on credit cards'.
And the excuse is always 'you will be "bored" here' or some other excuse. At the TBTF bank I am working for (as a temp with probably no chance of becoming perm) I am literally one of the oldest people working there at age 35. Many companies have taken advantage of unemployed people by only offering temp work (thru a third party recruiter) with the belief that the position 'will become perm' which we all know how true that is.
I got let go from at the end of 2009 and have been working at scattered temp jobs since then. I have enough saved partially from doing what many have done -- 'strategically defaulted on credit cards'.
And the excuse is always 'you will be "bored" here' or some other excuse. At the TBTF bank I am working for (as a temp with probably no chance of becoming perm) I am literally one of the oldest people working there at age 35. Many companies have taken advantage of unemployed people by only offering temp work (thru a third party recruiter) with the belief that the position 'will become perm' which we all know how true that is.
Next week's trading is going to be interesting...
the GDP
will be lucky to see
zero % growth
this year...
yes Virginia ..
there is less than zero
Wow Tyler! I did not know you had the prophetic gift. :-) I suppose I should pay closer attention so I can learn how to better discern the voices coming forth from the trolls (puppet monkeys). Thanks
An old saying, I think from Daniel Boone, or Crocket.
"Don't believe anything you hear, and half of what you see".
Cry wolf works once (last May's mini crash), twice (the AUD/JPY con job) but never a third time.
By now even the most bearish trader should know the trick - "BTFD". That is why any "forthcoming mini crash" will not work, and no one will suddenly rush to buy bonds, not PIMCO unless his friends at the Fed grants him the other 150bp of yield he insisted on. because if they tank it, all the Pavlovian dogs will instantly load up on any CCCPs on the opther side of Goldman's and JPM's trade. It will get harder for the oligarchy to re-conddition the Pavlovian dogs, QE3 will be here, but not via a flash crash, it will not work again, as we all wirness with the squids dual downgrading of CCCP and GDP. Live by the sword, die by same.
Have a look at governor Palin at Wisconsin Tea party rally yesterday:
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2663&p=31841#p31841
This will be the end result of FEDs game and the USA moving into second recession late 2011-early 2012. Third party taking over.Walkover.
So, the government is revising its former figures lower and lower, employment is not increasing, housing is not going anywhere, construction is standing still, and Goldman’s deep thinker sees fairly moderate continued growth going forward in “a fortuitous combination of circumstances—a modest further pickup in the labor market, gasoline price relief, and a benign asset price environment that encourages consumers to gradually reduce saving.”
If the numbers don’t fit Goldman’s rosy forecasts, it does what its point man Bernanke does; it lies.
Never mind, Hatzius, that a poll from Gallup found that U.S. employment rose to 10.3 percent in mid-February, as opposed to the official BLS national unemployment number of 8.9 percent. Gallup’s findings showed the BLS’s numbers just ain’t so. Gallup also found that those who seek full-time jobs but hold part-time positions surged to 19.9 percent and that the universe of jobs available in the American private sector has shrunk considerably.
As Joel S. Hirschborn put it April 16 in his Global Research article, Fake Unemployment and Inflation Figures Sustain Illusion of Economic Recovery :
“How do the powerful keep the US population dumb and distracted? A key tactic has been using methodologies that produce totally misleading underestimates of key economic factors. First we learned that official unemployment figures are too low by a factor of two. Now, understand that the official rate of inflation hitting consumers is even more inaccurate. You will hear about a low inflation rate of less than 3 percent. In reality, it is closer to 10 percent, according to the highly regarded analysis by John Williams.”
http://theglobalrealm.com/2011/04/16/fake-unemployment-and-inflation-figures-sustain-illusion-of-economic-recovery/
With all that staring him in the face, it must have been a little hard for Hatzius to write with a straight face, based on the true figures. Goldman can hope for all these things to happen - that people will stop saving and throw their money into more risk, that retail shoppers will return to Goldman-financed malls and shop till they drop, and that inflation will languish below the Fed’s magical 2 percent smoke and mirrors inflation, but hope is what we got from Barack Obama – and it turned out to be GARBAGE.
So, now, when the biggest crook company on the block tells me what to expect, I just say I’ve got better things to do than read the stuff. Or, to quote Hirschborn: "Unemployment at 20 percent, inflation at 10 percent, a multi-trillion dollar national debt, and nothing but lies from politicians. Have you had enough?"