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TrimTabs Demonstrates Why US Final Demand Is Weak And Why Fed Interventions Are Pointless
TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat. TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself." In other words the ongoing debate on whether the US is undergoing inflation or deflation is moot - the primary driver continues to be deleveraging, as Rick Santelli likes to shout on occasion. And all the other monetary phenomena are merely a side-effect. Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange. At that point inflation, deflation and/or stagflation will be the last thing on anyone's mind.
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Deleveraging is deflationary. Nothing the FED can do about it except jawbone. They derive their power from the USD, why would you destroy that which gives you and your elite banker friends their power?
Fucking exactly. Banks make money lending & repossessing. They don't make money devaluing holdings. QE I was all about driving new lending activity; QE II is simply a jawboning rear-guard action to protect member banks while they prepare to seize/buy assets for pennies on the dollar with all those $trillions in ready money stolen from the People.
You've nailed it. All we will see is the bankster gang getting richer and the average taxpayer getting poorer. Bernokio is a f*cking bankster godfather or a complete idiot - or maybe some combination thereof. Responsible people - worldwide - have been scr*wed royally and the pillaging by the phantom financial "economy" will continue. Moral hazards are the "junk" injected by the politicians to keep their suppliers happy.
"QE I was all about driving new lending activity"
When does that part of QE I begin?
Exactly. Maybe someone in the Bubbamint wanted it to look like it was supposed to spur lending activity. But in all reality it was there for the banks to put cash margin on their riskier assets in fear that sooner or later they will either default or they will be forced to mark them to market.
Now, QE2 or, its' precursor QElite, can do that job. That way the banks get their cake and eat it too. Problem is the cake will be paid for by the taxpayers. Oh, and they will also pay interest on the cake as well.
Wonder where all the WallSt-Playa' hatin' is coming from?
"Driving new lending activity" was the cover lie. Never the intention. Bernanke's constituency consists of banks, not American taxpayers, or consumers, or laborers.
QE drives trading profits that help mend the wide gaps in the bank balance sheets, hidden by the accounting rule changes. It is all funny money, but it still is counted in FRNs and therefore matters.
I agree final demand is and has been the problem, it is dropping, and this time, unlike with techs and real estate, there is no driver to take it back up. How that anemic demnad for US products in the trade preort yesterday? And dollar surging won't help that. anything the "consumer" bought here came from China and elsewhere and didn't help our jobs picture. well, guess what, as I've been saying to Leo for months, who has been crazily calling for a "monster" jobs report, there is no driver for this. There is no thriving band of industry here. We blew all that years ago when we exported all of our manufacturing to China, courtesy of our ruling plutocrats who needed to skim more money out of the manufacturing business. Only the CEO wages have increased. An increasingly impoverished middle class is no recipe for economic success, or a stable political system. Our politicians are crooks, servants of these plutocrats, people like Chuck Schumer, and those who think the midterms will change anything are deluded.
None of the this is hard to see, or figure out. Everyone knows what is going on, but we get up and go to work every day, powerless to change any of it. And the beat goes on.
It's all debt. Your scenario can only come to pass if they straight up print. Cold, hard cash doesn't deflate the way asset-backed debtmoney does. The banks implode in deflation along with their asset values. Only once the banks are parking actual cash balances at the Fed and not just twiddling about with balance sheet figures will they ever be able to do what you describe.
Besides, Ben Bernanke does NOT look like a man who believes he's in control. If the man who can literally move economies does not feel that he is in the wheelhouse, maaaaybe things aren't going so swimmingly for the bankers.
Does anyone else see the insanity of looking to a private cartel of banking interests (The Fed)to save them. Definition of fucking insanity... This ship is going down.
Oh they can do something about it. But they are terrified of the consequences so they are trying to dance barefoot on a barbed wire fence.
At some point they either open the floodgates or the entire financial system implodes on itself.
Its ending quicker than they expected. Printing more while saying we are recovering at even a snails pace is outright contradictory
Do we really need another analysis of why final demand is collapsing? Demographics, demographics, and, wait for it ... demographics.
Boomers have reached/passed their peak earning years, and are completely sated by past consumption habits. The problem with getting older & wiser is "been there, done that". Well, that's what 50m or so people of a certain age are now concluding.
Big house? Check. Fancy car? Check? RV, boat, second home? Check. Vacations around the world? Check. I mean, really, what happens when everyone realizes it's might fine to have family & friends over for a BBQ and watch the sunset?
I'll tell you what happens, the entire economic model based on ever expanding credit driven consumption collapses into a steaming pile of dung, that's what happens.
What time is the BBQ?
IMO it is a good thing. The Fed, bankers and government need to learn how to adjust.
And our "lost generation" of permanently underemployed is only 10 years behind Japan's.
I beg to differ. Dung has value!
Harry Dent has been right about this.
I agree B9K9. I also believe that the Boomers were the drivers of the Economy. They made good money, paid lots and lots of Taxes and put Trillions into Social Security and Medicare "Trust Fund". They were huge consumers with houses, cars, goods and services.
Now, if they are retiring with smaller pensions, Social Security checks they will be a lot more prudent with the money they have. The days of the mindless spending are gone as they now have to live strictly within a Fixed Income Budget. They will withdraw money from the Stock Market to live on and to preserve their principal. Wall Street complains that no one is spending yet they give the Retirees .05% on their savings. If they are withdrawing part of their Principal to live on if they are in the Stock Market then they are depleting their principal sooner than they would have if the Market was were it was in 2008. This causes a downward spiral in their savings. Top that off with higher property taxes, insurance and repairs and you have retired people running out of Money sooner than expected.
lets not foeget the never ending push for YOU to have more children. The whole thing depends on more childern being born (by folks who can't even pay the rent now) to keep the damn dance going. The same forces who are pro having more children in a world where the resources are scarce are the same ones who control most if not near all the money and resources now. Think about it. You say you just want one kid, maybe adopt one?.... well you are now as good as the enemy.
Probably impossible at my age. Yet, I see that the Government is paying the Welfare people to have children. You know the ones that do not work or if they do are on minum wage. The children that they are having will just be a bigger burdon on the Government and if they do work they more than likely will not contribute very much to the tax base. Statistics show that there are litteral generations of Welfare Families. Yes, more children but does it help our Country. The only thing it helps are the Democrates as there are more voters for them.
http://www.youtube.com/watch?v=XD5G8T2ESsw
There's the disease, the treatment and the side effects to consider.
The disease= de-leveraging from a post-parabolic credit bubble gone bust.
The treatment= Fed monetary and Treasury fiscal policy which have one goal :"Reflation". They believe in it like religion simply because "it worked before". However, one has to consider that 3-4 decades of "Reflation" can also have cumulative effects, and just like a drug used repeatedly, the outcomes may be unexpected. Which leads to:
The side-effects= Inflation (ie "Reflation" gone bad) in the midst of de-leveraging. De-leveraging is unavoidable and the should be the source of creative destruction in a capitalist economy. However the PTB will not allow any kind of destruction, creative or otherwise, to occur to them. As creditors they want to avoid defaults at any cost, mainly at cost to the taxpayer. The side-effects come in when you begin to understand that in a world awash in liquidity, misallocations occur such that some segments of the economy reflate fast and eventually inflate while other segments continue the de-leveraging process unabated. Keep in mind also that Reflation policy by definition involves allocations of liquidity at the discretion of the Fed and lawmakers ie liquidity is allocate politically, not through the laws of supply/demand. Hence gross misallocations which result in economic distortions which give rise to the side-effects of the "treatment". Lotsa Luck.
Like I've said before, once game is flushed, it's in full panic mood and will act fairly predictably. That is, do anything in a mad effort to first save itself.
So, step back and watch from afar. The game (Treserve and their owned politicians) have been flushed. Each successive reaction, statement, policy decision, etc will begin to appear increasingly insane & without reason or rationale basis.
You would be mistaken to make this assumption. The "unreason" becomes perfectly reasonable when you know their respective states of mind.
So, step back and watch from afar.
http://www.youtube.com/watch?v=gfVULT8vdUk&feature=related
This envelopes everything...
Thanx for the link - I've watched the video before. I think people across the entire political spectrum now realize that Bammy was the perfect media creation crafted to further advance the interests of his backers.
What a royal hoax. Future generations are not gonna believe this shit actually went down.
"Future generations"
I guess your an optimist.
Your comment made me laugh a little. Too bad it's so sadly effing true.
i found this extremely disturbing:
http://www.bit.ly/Mtqi
Silly. Ppl should label their links. What a waste of time.
I don't think listening to speeches in reverse says anything at all.
Is that what Greg Norman will look like when he is old?
I can't believe that people are now having a revelation about the manufactured Obama persona? You could see it coming from a thousand miles away when he spoke at the convention that nominated Kerry.
As each of the 3 bullish guests on Larry Kudlow say to buy, and the FinMin's say nothing is wrong, the people increasingly feel the disconnect between their own experiences and what they are being told. While many continue to turn away from the truth, more and more are awakened - at the very least at the margin. They buy a little less, perhaps put their house on the market. They grow less and less confident.
The PTB has been successful in robbing the middle class. The end game is here, and will be hastened by their own false proclamations that nothing is wrong.
duplicate
good summary, except 'reflation' was always a farce. Obama said early on there won't a new 'bubble' here, housing aid programs are a joke and are designed to be ineffective.
Debt 'forgiveness' through rapidly rising prices was a solution all along. It's not entirely clear what the new mechanism will be, perhaps SDR's
Household bills higher than average salary:
http://www.telegraph.co.uk/finance/personalfinance/7903432/Average-house...
why the banksters want to keep you in debt.....
http://blogs.thisismoney.co.uk/2010/02/homebuyer-mortgage-amounts-vs-ave...
http://www.ajc.com/news/atlanta/30-000-line-up-589653.html?bigName=Vino+...
This articles photograph shows mostly blacks...Their fearless leader is developing even more of a dependency issue than then they already have. Their internal esteem must be at an all time high.
He's Brilliant!!!!
This looks nasty, any way I cut it. First a metaphor, but then we will deconstruct.
The patient is dead, from all sorts of things (AIDS, gangrene, loss of blood, decapitation, etc) yet the "Drs" (Economisseds) stand around giving their lamed assed opinions thinking that they know best; those righteous scalywags!
We know that the system is dead (life support plugged into a corpse is just that). We know that it was a controlled demolition. That is why we hold our wealth in our love for each other, gold, land, or whatever your means of representation is and will be from here on out.
We have now entered the final scene of this masochistic story. It may be long and drawn out (my time line is that it could go at any minute, a war for example would take it, but at its longest 2 years), as the Dinosaur Kings are long and ill winded (the two usually go hand in hand, unfortunately). We are "waiting" (are we?) for "M"ark to "M"arket. We are waiting (I ask again, are we?) for the (not our) Fed to admit that they don't know their crap from skittles. So while we wait, (do we?) we note that there is no growth. We note there is nothing real being produced that we do not already have. We realize that we will become rationale consumers, not the term evoked by economics but with real rationale, like it or not. We will no longer consume unnecessarily, for we can no longer afford it. The old ways, that were limited oppossed to the human spitit-that which is limitless, become irrelevant. Buying a new cell phone every year is wasteful, and waste not want not. And we will no longer have the thirst for greed, because we will no longer be able too.
This ordeal is fortunate and not, because the next phase will be a crude awakening for many. Many will not be able to handle the paradigm shift, and they will jump ship. This will be sad, yes, but life is suffering, and we all deal with it differently. On the bright side (and ironically to quote Kkkrugman) "What is old will be new again". But hopefully it will not be to the desire of these Dinosaurs. Hopefully, we the people, may rally around our good people and create a world that is sustainable and without fear of ourselves, without fear of nature. For there is fear; for without fear we become complacent, and complacency kills, so fear is good, but not fear for fears sake, but for fear of our livelihood.
As for those who wish to discuss the philosophy of economics, it will be rather simple; mediums of exchange will move away from currentseas issued from illegal and corrupt banks. Fair value will rule; gold and silver is your best bet. Land will be for working, once again. Animals will be for loving, as they help us we help them (help ourselves to them, but remember, you are what you eat). Education will come back from the depth of Business schools, and will refocus on philosophy, which includes math and science. These enterprises will be the crux of growth, for as we grow, so do our opportunities. This growth will be what leads us far from the hazard of these systems of control that we have experienced. May we come in peace, for if not, we come not, for remember, you are limitless, this, for all time.
~Blessings to all
Lennon Hendrix, that was truly righteous. Thanks. Well said.
Thank you, and welcome to Fight Club.
Agree with the need for a revival of education to restart growth.
This link may be of interest to some
http://www.smh.com.au/world/china-must-reform-or-die-20100811-11zxd.html
That's all good and true but like your new avatar - just because you're dead, doesn't mean you can't have fun on the beach, be the life of the party and even get laid. The shity part comes when the corpse starts to rot and pretending is no longer an option because of the unbearable stench.
There's always cryopreservation. Perhaps the Fed is taking the Ted Williams approach and hoping that they can just keep the economy in the freezer until some miracle cure is found.
http://www.youtube.com/watch?v=u1hnwvWhbJw
Then hopefully they are beheaded, like poor Ted.
Billie Ray Valentine had the ultimate punishment for the brothers Duke: you take all their money and then their power goes down the drain. It's called Economic Democracy and go out there and target your dollar vote.
I am tired of waiting for the final chapter to come to completion. Let it all crash now and then we can start picking up the pieces and maybe getting it right this time. At times I feel like Chicken Little, telling friends and family to prepare themselves for the meltdown that is coming......I don't know when, it may be soon, get yourself prepared & get your financial house in order, etc, etc. Do any of you feel that way too?
Yes.
No. I don't bother talking to anyone anymore. Tired of the blank stares, slack jaws and spittle encrusted lips.
Unless you are a potted plant without flying seeds, you can move to the light....not just anyone, but someone; not just anywhere but somewhere.
http://www.youtube.com/watch?v=Gmz0h3r3Sos
Sounds a tad utopian. Nations in decline tend to stay in decline. The outcome more likely to be continued degeneration of society and Balkanization. Don't forget that the economics is not something that is independent of society and its character.
Kudos Mr. Hendrix - always worthy comments. Not to mention when I see you name I hear Band of Gypsies "Machine Gun" at full volume in my head.
Dear Mr. Hendrix,
Good luck...been waiting for all this to happen since you and John left us behind to see our optimistic 1960's dreams eaten by our peers. WE are the generation who made all this happen and our childern too. It could not have happened without our assistance. We all bit into the apple and went back for more and anyone who claims otherwise is lieing. If such a world is ever to be realized it will not be in our life times and gen z,y,x and whatever else does not seem to give a rats ass. Lets' all keep blogging our anger, that will scare them! Lets all keep blogging our dreams, that will bore them. Nobody will do anything but blog...
The circus has come to town. I don't agree with you on a number of issues you bring up (and I don't necessarily disagree on those), but debating them seems too pointless. The world is too complex for this one mind to resolve. I am continually amazed at the tides of current groupthink, and what people are led to, and do, believe.
That Hansel, He's so hot right now...
this is why i come to zero hedge. thanks.
The economy, now having been unhooked from the laws of supply/demand, has been turned into a zombie just responding to stimuli from the Fed and Washington. More alarming, the Fed which is suppose to be ahead of the economic turns, is now admitting it's behind, befuddled and confused. Things that worked don't. Things that weren't supposed to happen are. Greenspan would hear an allegro symphony playing i his head every day during "The Great Moderation". As the self-styled conductor of the orchestra, he really got sucked into the grand Monetarist, supply-sider delusion that we could have it all: Growth without inflation through the wizardry of the Fed. Now days Ben is getting blasted with Heavy Metal and Death Rock that just can't be turned off.
I am sorry, but I find it challenging following investment advice from a company whose name sounds like a fad diet product.
Maybe Jillian Barberie or Marie Osmond can be their spokesbimbos.
"the Fed will not let that (deflation) happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange"
All the debtors, along with nearly all businesses, would get wiped out in the event of deflation. Sure it would be a new start, but it wouldn't make the elite too happy. I doubt they could organize enough people to repossess every property currently having a dollar-denominated mortgage on it around the world... and deflation happens quick, just like fractional-reserve lending creates money exponentially fast, so dis-intermediation would wipe out credit-based money very quickly, so the elite would get wiped out in an instant, and everybody else (including the US Government) would just have to go bankrupt and start over. You can see why there is such a strong effort by the banking cabal to keep the yoke on all the debtors... once it is loosed and those debt-oxen get free, it will all be over in a nano-second.. those slaves learn very quickly how good it is to be free.
TPTB will soon find out that FRNs have very few calories/nutrients in them -- may they gag on them ALL the way down!
Alas, as long as deleveraging is the primary driver in the economy, nothing else matters: it has long been our contention that deleveraging must run its course. However, the Fed will not let that happen, and in doing so, it will attempt the last thing in its arsenal - in essence, suicide the economy, by destroying all faith in the actual medium of monetary exchange.
This to me is more or less what ZH is all about and sounds like how I summarize this site to others. If Bruce Palahniuk would be so kind as to rephrase this into more pithy, purple prose I think it should replace the existing "timeline" motto which dismayingly sounds like Keynes's "In the long run we're all dead" line.
Maybe even get Brad Pitt to do a voice-over - what better else is he doing these days? That would probably make a nice brouhaha too.
a classic, george carlin.
http://www.infiniteunknown.net/2009/12/23/george-carlin-the-american-dream/
also a must read for those that haven't.
http://www.infiniteunknown.net/2008/07/19/g-w-bush-and-adolf-hitler-signed-a-directive-51/
Thanks for the great Carlin link. Perfect.
duplicate
I would really like to know what is going on. This regime we are living under has got to know what kind of a road they are leading us down, they have to, they just couldn't be that dumb. So, with that in mind, what are they really trying to do? Their not going to crash the country and ruin the currency, that would be shooting themselves in the foot. No, something else is afoot, and if you can figure it out you could hit the jackpot.
It's like the last carnival the rich threw prior to tomorrow night's torches and revolution.
Only that I think alot of people are getting out of debt as fast as they can, however they can and accumulating goods, supplies and weapons/ammunition for themselves. In some cases I think everyone is being quiet and biding time.
I hope that we get past the November elections and repeal half the spending that happend after Obama took office and reverse some of the damage before it get too bad.
Sadly, Health care reform and the various stimulii being repealed is only the tip of the iceberg.
welcome to the ZH Party, Boomer... You will learn a lot here.
Curious, very curious. Since time immemorial, ZeroHedge fulminates against Krugman and other Keynesians, without actually using any argument, and now it turns out they completely agree with their diagnosis:
1) Private demand is not going to revive anytime soon, it's a balance sheet recession
2) Credit demand isn't there (and why should it, households are delevering, companies are sitting in on loads of cash and capacity utilization is just 70% and end demand is not growing.
3) Monetary policy is powerless, banks already sitting on a trillion of excess reserves, it's credit demand that isn't growing, credit supply isn't the problem
4) The logical conclusion of these three stylized facts to which ZeroHedge actually subscribes is that budgetary policy has to step in, otherwise we run the considerable risk of entering a deflationary spiral
But hey, spelling that out makes you a communist idiot, right?
You guys cannot even draw the logical conclusions out of your own writing, let alone argue.
It's all been spelled out before here:
http://shareholdersunite.com/2010/07/04/keynesianism-zerohedge/-
What's so bad about a "deflationary spiral"? Let those who took the artificial profits from years of inflation surrender them back to those who prudently declined them.
The "students" of the Great Depression (Bernanke, et al) claim it was a deflationary spiral, so they want to avoid another "Great Depression" at all costs. That's the cover story anyway.
Of course their actions are sending us hurtling into the Mother of all Depressions.
I tell you whats bad about the deflationary spiral - the owners of debt capital refuse to wipe out the debts.
If they wrote off all that malinvestment - the pain would be shared.
But as Carlin might say - those cocksuckers are not into real capitalism , they want it all and are prepared to destroy everything to get it.
Sorry, but no one here agrees with your conclusion No. 4. You don't get it. I think it is safe to say that many a ZHer would espouse the position is that a certain amount of deflation in order to reset the system is inevitable, regardless of what measures are taken. And that your "cure," that of endlessly spending government dollars which it does not have, is driving us towards much worse things.
Have a nice day.
De-leveraging will take place! The Government can fight it and delay it, but it will occur. A price will be paid for reckless use of credit and leverage.
The FED is currently punishing savers and people that were responsible during the GAGA credit period. The FED is afraid of deflation because it will make the public and private debt situation much worse, but it would actually be beneficial to the the responsible people (low debt/no debt).
"Moderate" inflation would be good for the government. It devalues government debt and increases tax revenues. The dangers are very real, the US is essentially bankrupt and the FEDs action could cause severe or hyper inflation.
The FED didn't see the financial crisis comingand they are fighting the last war this time (30s depression playbook). I have zero confidence in the keynesian idiots!
As far as real estate goes I think the actions by the Administration far outweighs the FED actions in direct real estate sales and postpoment of lose recognition for home owners. The FEDs MBS actions just transfered bad debt RMBS from the banks to the FED.
The Administration actions with Fannie, Freddie, FHA and FDIC, and now with the $3B zero interest refi program (essentially a rate of zero), I think was the majority contributor to falsly inflating real estate price. Or to put it another way, finance home owners in continuing to pay on original over priced obligations. The FED's claim on rate control was a secondary effect in a strategy to increase BHC profits.
If we look at all these action in total, it is really amazing that real estate price woiuld go down. The realization is that the money invested has just offset bad debt. To try and remove bad debt through its purchase is a losing strategy. Especially if your investment is off by a factor of 4, to really "corner" the market.
I think we will see the market flop one stock at a time based on earnings now until the GDP number.
Mark Beck
Perhaps someone can help a RE noob out with some facts. I've only come around to this whole economics/finance thing in the past 5 years and never worked in the biz, been trying to catch up.
Do the banks pay taxes on the foreclosed properties they own?
It seems that if they don't, it's rather tragically unjust. Claiming a "market" value of empty and decaying real-estate without helping pay for the government that protects that ownership is truly freeloading.
But if they do, there is at least a tiny actual balance-sheet benefit to deflating those prices. It couldn't be enough to keep the banks operating as the properties seek a true market value, surely, but from my simple-minded view, it would seem there's some kind of case to be made there.
Might anyone rough out that picture for me?
Any tax benefit would be tiny compared to the nuclear damage done to the balance sheet with foreclosure or mark to market.
Appreciate the info, guys, thanks.
The taxes are a first lien on the property, ahead of the bank's mortgage, under most, if not all, state laws. Whether the bank is current on those REO properties' tax obligation is another story. But to pass clear title at sale, the taxes would have to be paid.