Congressional Budget Office
Having warned just 6 weeks ago that high-yield credit and small high-tech firms may be in a bubble, Fed Governor Tarullo, ironically speaking at the Hyman Minsky Financial Instability Conference, suggested that the recuction in share of national income for "workers" (i.e. income inequality) is troubling. Furthermore, he added, "changes reflect serious challenges not only to the functioning of the American economy over the coming decades, but also to some of the ideals that undergird the nation's democratic heritage." His speech, below, adds that since there has been only slow growth so far, expectations for a growth spurt are misplaced and that the Fed-policy-driven recovery has "benefited high-earners disproportionately."
Corporations continue to push the boundaries of wage and employment suppression, productivity increases and accounting gimmickry to support elevated profit margins. All of these functions are finite in nature, and despite much hope to the contrary, the current set of fundamental variables are more usually witnessed at the end of cyclical expansions rather than the beginning. With corporate profits being driven primarily by "accounting magic" rather than strongly rising revenue, the sustainability of the current level of corporate profits is in question. Fed actions leave a void in the future that must eventually be filled by organic economic growth. The problem comes when such growth doesn't appear.
It took Virtu's idiot algos some time to process that the lack of BOJ stimulus is not bullish for more BOJ stimulus - something that has been priced in since October and which sent the USDJPY up from 97.000 to 105.000 in a few months, but it finally sank in when BOJ head Kuroda explicitly stated overnight that there is "no need to add stimulus now." That, and the disappointing news from China that the middle kingdom too has no plans for a major stimulus, as we reported last night, were the final straws that forced the USDJPY to lose the tractor-beamed 103.000 "fundamental level", tripping the countless sell stops just below it, and slid 50 pips lower as of this moment to overnight lows at the 102.500 level, in turn dragging US but mostly European equity futures with it, and the Dax was last seen tripping stops below 9400.
It was so fitting that Obama sauntered into the Rose Garden on April Fools day to proclaim the wonderful success of Obamacare. We are the fools for allowing this fool and his fellow fools in Congress to further bankrupt our country with this disastrous government run clusterf*ck. Their is so much propaganda, spin, disinformation and outright lies circulating in the captured mainstream media that the dumbed down, distracted, disinterested American populace believe the sound bites from Obama and the talking heads on MSNBC and the rest of the Obama loving media. You may have noticed the non-stop 30 second ads trying to convince iGadget addicted morons to sign up for Obamacare over the last three months, building to a crescendo in the last few weeks. Let’s assess the tremendous success the Savior was blustering about yesterday. He sold the plan to the American public back in 2009 with a number of promises.
According to The White House, 7,041,000 people have signed up for Obamacare (though it's unclear how many have paid as of yet and what the mix of enrolees actually is). While this will be proclaimed as mission accomplished and spun for all it's worth, wasn't Obamacare supposed to reduce the ranks of the 45 million uninsured in America? Still, it seems like a long way to go to meet CBO projections, as WaPo notes, "the CBO and Joint Congressional Committee on Taxation in February projected that 13 million previously uninsured people would gain coverage in 2014." We suspect the President will be over the moon and blame Republicans, Twitter, and YouTube for the number not being higher...
If you are not Professor Paul Krugman you probably agree that Washington has left no stone unturned on the Keynesian stimulus front since the crisis of September 2008. By the time the “taper” is over later this year (?) the Fed’s balance sheet will exceed $4.7 trillion - $4 trillion in new central bank liabilities in six years. All conjured out of thin air. Professor Krugman proposing to “do something”... In short, Krugman wants to double-down on the lunacy we have already accomplished. Unfortunately, we are presently nigh onto “peak debt”; there is no “escape velocity” because the Fed’s credit channel is broken and done. Going forward, the American people will once again be required to live within their means, spending no more than they produce. By contrast, Professor Krugman’s destructive recipes are entirely the product of a countrafactual economic universe that does not actually exist. He wants us to borrow and print even more because our macro-economic bathtub is not yet full. And that part is true. It doesn’t even exist.
In order to enforce the fading Pax Americana in the Ukraine, and to keep the funding to the otherwise insolvent Ukraine flowing, which as everyone knows will be first and foremost used to pay Russia's Gazprom. So when it comes to priorities, whom does Putin have to thank for the billions in Western funds he is about to receive? Maybe he can start in Detroist where the local utility is planning mass water shutoffs over $260M in delinquent bills. In other words, while the US is enforcing some odd international law, according to which a democratic vote is not credible but a violent coup is, US citizens are about to have no drinking water over a paltry $260 million.
Is America the greatest nation on the planet? The reality is that the United States is in a deep state of decline, and it is getting harder to deny that fact with each passing day.
The Whole World Has Gone Into Debt
The magical thinking highlighted in two charts, as WaPo reports; in his budget request, Obama projects public debt as a percentage of gross domestic project falling to 69% by 2024, while the CBO has it rising to 79% - a difference of 10 percentage points, or roughly $2.7 trillion. As WaPo notes, the likelihood of this scenario unfolding... zero.
Our public finances are a mess, notwithstanding the misinformation you’ll hear tomorrow. When President Obama rolls out his proposed budget, you’ll hear boasts about improvements in the deficit since the depths of the Great Recession. You’ll also hear claims that those improvements are easily sustained; that a much talked about “grand bargain” on long-term debt reduction can wait. But once you see through the phony numbers in government projections, it’s clear that we’re on a path from a stupidly high debt burden to a much higher burden. Washington would need to find some leadership and foresight to change that path, and there’s no sign of that happening anytime soon.
"January nominal personal spending rose 0.4% (vs. consensus +0.1%). Both durable (-0.4%) and nondurable (-0.7%) goods spending fell on the month. Services spending rose a sharp 0.9%, the strongest gain since the bounce-back from the September 11 attacks in October 2001. Out-sized gains occurred in two categories of services spending: household utilities (+9.7%), boosted by colder weather, and health care (+1.6%) in light of enrollments in the Affordable Care Act exchanges."
"For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking."
- Former St. Louis Federal Reserve Bank President William Poole.
After surging yesterday for no reason whatsoever because as we explained on several occasions, there were no surprises in the Tuesday BOJ statement, and the doubling and extension of its loan facilities was implicit and factored into the doubling of its monetary policy (as goldman explained quite well), both the Nikkei and the USDJPY has been forced to revert, with the latter all important carry funding pair back to 102 and in danger of sliding lower, as a result ES is now below yesterday's lows. Which is why the 102 USDJPY "invisible hand" tractor beam will be all important today especially if the market finally starts paying attention to the proxy civil war that has gripped the Ukraine. Stocks traded lower, albeit in a relatively range-bound range this morning, with the Spanish IBEX-35 underperforming. Banking names remained under pressure, with focus still on yesterday’s reports that Spanish banks' bad loans marked a fresh record, together with comments by ECB's Weidmann, who said that sovereign debt purchases would constrain the central bank via political pressure. Similar view was also echoed by ECB’s Nowotny, who said that government bond buying US Fed-style would be difficult to do under ECB's mandate.