Congressional Budget Office
An Insecure White House Releases A List Of Pundits, Economists And Journalists Who Greet Its Decision To Boost The DeficitSubmitted by Tyler Durden on 12/08/2010 14:16 -0500
Next time you swing by the White House, remember to tell your now desperately insecure president that he has your support, or else we may get another temper tantrum like the one yesterday. It appears that now none other than the White House has the (in)security issues of a 14 year old girl. In what has to be the epitome of a surreal joke, the official White House website has released a list of actual individuals and institutions (among these, shockingly, the New York Times, Market Watch, Harvard and, no shit, Bank of America) who have voiced their "statements of support on the framework agreement on middle class tax cuts and unemployment insurance." Oddly, nowhere in this list is even a passing mention of the Zero Hedge reminder that just the tax cut extension portion of the deal is likely to boost the deficit, and thus the US funding need, by $5 trillon over the next decade. In other news, the market is up because consumer confidence is higher... and consumer confidence is higher because the market is up. The adventures of Alice through the looking glass have nothing on America's blind meanderings through the depression zone.
Guest Post: Please, Santa, Let This Be the Last Christmas in America (That's Supposed To "Save" The U.S. Economy)Submitted by Tyler Durden on 11/23/2010 15:20 -0500
My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.
The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%. There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas. Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn't a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)
The CBO is against extending the Bush tax cuts. So why are we doing it?
Live coverage of the Senate Banking Committee's make believe grilling of Bank of America representative Barbara Desoer over fraudclosure starts live at 3:15pm, or was supposed to: just like the EU Press Conference, it is also late.
In a way, the administration is correct in that with so many different voices each having their own opinion on how to cut the US deficit, it is next to impossible to reach a consensus. Yet the time bomb is ticking: in 2015 the projected budget deficit will be $418 billion (and likely more). This number will grow to $1.345 trillion by 2030 (both from the CBO, and thus fatally flawed). So here is your chance to give budget balancing a try: the New York Times has launched an entertaining interactive feature that allows readers to attempt to plug the upcoming $1.3 trillion hole on their own, using cuts to domestic programs and foreign aid, the military, health care, social security, existing and new taxes. Incidentally, of all proposals, the one that would have the biggest bang for the buck would be capping Medicare growth starting in 2013, which would almost halve the budget deficit in 2030, leading to a $562 billion recovery in government spending. The bulk of other "material" adjustment comes in the "New Taxes and Tax Reform" category, which is why we are certain that readers should enjoy their current tax bracket for as long as they can. It won't be around too long...
No increase in taxes sounds good. But nothing is free.
Several data points today, with data on claims (accelerated by a day) and imports supplementing a twin (trade and budget) deficit day… But since all econ news is now noise, with good news beinbg sold, and vice versa, at 2 pm we get the new POMO schedule, which is really all that matters.
Goldman Explains Why The "Orphaned" 30 Year Will Soon See Buying Interest, Expects A Drop In The 10s30s Back To 110bpsSubmitted by Tyler Durden on 11/05/2010 09:31 -0500
FUG (as Goldman's Francesco U. Garzarelli signs his emails) has released another note with his outlook for the Treasury curve over the next several months. As readers will recall, it was Goldman's call that the long-end would be bought up by the Fed, leading to an implicit flattening of the curve. Nonetheless, the New York Fed disclosed that, as Morgan Stanley expected, the bulk of purchases would occur around the belly, resulting in, as we highlighted yesterday, what turned out to be a record steepening of the 5s-30s, which could merely be the last trump card the Fed has to generate some profitability for the banks, whose core business model, now that the hedge fund and sales and trading model is in shambles with plunging market participation, is the treasury curve trade (long near, short far). Despite Brian Sack's attempt at giving taxpayer capital to banks in this last attempt to goose the banking sector, Goldman continues to be skeptical about further steepening of the curve: "Our best guess (corroborated by our GS Curve estimates) the slope between 10-yr and 30-yr will retrace to around 110-125bp, from 160bp currently." The explanation for why the Fed would ignore purchases of the long bond even as it bids up everything else is as follows: "While arguably increasing transparency and predictability, the Fed has also lost degrees of freedom, and the costs and benefits are yet to be seen. In the eyes of many, the long bond now appears to have been orphaned by the Fed. One explanation for this may be that the FOMC wanted to have some quantification of the potential costs of the asset purchase policy under future interest rate scenarios before its launch." Well, it now knows. And now that the UST curve look literally like a hockeystock, and the Fed is about to be accused of massive telegraphing of intentions by Ron Paul, we expect that Goldman will be proven right as the yield chase game continues, and the Fed ultimately makes it clear that it will have no choice but to gobble up the long-end as well, especially since if as we expect, MBS repurchases will be far higher than expected, resulting in a far greater contribution to monetization due to QE Lite, and leaving far less available for purchase across the balance of the curve.
Treasury Refunding Statement Released: $32/$24/$16 Billion In 3/10/30 Years, $72 Billion Total, Puts Rand Paul On Collision Course With Debt CeilingSubmitted by Tyler Durden on 11/03/2010 08:13 -0500
The Treasury has announced $72 billion in coupons to hit the Primary Dealers POMO churn accounts, just as expected. The breakdown is as follows: November 8: $32 Billion in 3 Years; November 9: $24 Billion in 10 Years; November 10: $16 Billion in 30 Years. Now what is interesting is that while the rate of coupon (and bill) issuance will certainly not decline, we now know that even according to the UST, it will in fact accelerate, and hit $700 billion net over the next 5 months. And as we calculated a few days ago, this means that the US Debt ceiling of $14.3 trillion will be breached. Which puts such Tea Partiers as Rand Paul in a sensitive position. In fact, last night as MSNBC highlighted, at the next debt ceiling raise vote, Paul may be able to filibuster the vote (something MSNBC seems to disapprove of, and a vote that had no problems passing last time it was cast in late 2009) which will result in essentially what is a default of the US. Of course, it is much easier to simply do away with the debt ceiling travesty altogether as even the CBO has confirmed that the US will need to raise at least $10 trillion in debt over the next decade. So why continue pretending America no longer live Primary Dealer sticksave auction to auction?
Great idea ... Not!
In today's note by Goldman's Robin Brook, the analyst takes an inverse approach of looking at what a dollar drop implies for CPI and general prices, in an attempt to settle a debate whether the expected drop in the USD as a result of QE2 will have a meaningful impact on both inflation, currency wars, and other derivatives of monetary policy. As Goldman concludes: "the ‘pass-through’ from Dollar declines to US consumer price inflation
is small. This in turn means that – if indeed the Fed sees the Dollar as
one of its key policy levers for preventing inflation from staying
below its mandate for a prolonged period – the Dollar needs to fall a lot further from here." The quantification of "lot" is not provided but is sufficiently indicative from a qualitative standpoint. Of course, the biggest issue here is with the construction of CPI itself, which is driven far more by a collapse in leveraged input prices specifically as pertains to shelter, then spiking prices in items most see as critical in day to day use. Nonetheless, as Goldman is one of the Primary Dealers whose opinion is now a part of the "reverse inquiry" methodology in determining monetary policy, the fact that the hedge fund is comfortable with a substantial drop in the USD implies that the Fed should be just as comfortable with a shock and awe approach to QE2, as a pronounced effect on the dollar would likely have to come from a stepwise drop as opposed to a gradual wear down which would be intercepted by other central banks. The key question remains: what level on the DXY is Goldman, and thus the Fed comfortable with as ""modestly inflation stimulating, and what will the price of jeans be, gold, and other commodities be, not to mention what the final level of excess reserves and margins for Chinese exporters, once that level is finally attained.
With just two months until the end of the year, the one most important issue facing the US economy, which incidentally is not how many trillions in new, never to be used (or used only upon the case of hyperinflation) dollar bills Ben Bernanke will issue on November 3, but what the fate of the Bush tax cuts will be, and especially that of capital gains tax, remains still unresolved, Bloomberg has done a good analysis that frames the dilemma for the crippled administration: insolvent states or a market sell off. One would hope that with Geithner's track record vis-a-vis taxes, the former would take precedence, although as Blankfein has been rumored to seek the capital to expand his 15 CPW duplex into a triplex, the final outcome is pretty much clear, and it likely means little if no change to cap gains taxes, and thus no sell off in stocks. The problem is, however, that California, the state with the biggest economy, projects taxpayers’ capital gains will grow 40 percent this year while New York, the third-most-populous state, forecasts a 59 percent increase, or roughly 24% from the current 15%: an event which would have rather dramatic implications on investors desire to close out positions well before January 1. Should these states not be able to recoup revenues from actual capital gains receipts, then a federal bailout is virtually assured.
Some scary developments in Iceland including a 41% inflation in the past three years, 63% of mortgage is underwater, and 40% of homeowners are insolvent make me wonder how far behind is the United States?
This is coming our way.