As the great Yogi says: "It ain't over 'till it's over" but May is now officially over and it was, in fact, a down month, despite the TREMENDOUS effort that was made in the past week to keep it from being a 5% loss.
Richard Koo Calls For, Surprise, More Reconstruction Stimulus To Prevent Japan's Natural Disaster From Becoming A Man-Made CalamitySubmitted by Tyler Durden on 06/01/2011 13:52 -0400
Richard Koo is back with his latest piece titled, not surprisingly, that "Fiscal Consolidation is Not the Answer" - alas, a decimated by (previously secret) debt European continent, and even America, is rapidly starting to disagree with this assessment, which stems from the faulty assumption that the economic "balance" achieved after 30 years of endless balance sheet expansion courtesy of ever declining interest rates is sustainable. Hint: it isn't. And until the world realizes that it is precisely this Fiscal Consolidation that is the answer, we will continue seeing bankers sell bits and pieces of Greece to each other, transfer payments in the US from the government ending up straight in Wall Street pockets, and broadly the Big getting Ever Bigger to Fail. Yet for those who still believe (Krugman) that one last hit is all it takes and after that it will be better, here is Koo's summary, on why Japan, which we continue to believe is the key macroeconomic variable over the near term, may be in very deep trouble unless it commences yet another (what number is that, #20, #50, is anyone even keeping score?) round of fiscal or monetary stimulus: "Fortunately for the Kan administration, Japanese institutional investors have been dealing with this surplus of private savings on a daily basis for more than 15 years and understand its macroeconomic implications. It is only because of their calm and calculated response to these conditions that the yield on 10-year JGBs remains at 1.2%. To prevent this natural disaster from becoming a man-made calamity (ie a recession), the government needs to push ahead with reconstruction efforts. With private savings surging, the necessary funds can be borrowed for now. Later, once businesses and households start looking to the future, funding can and should be shifted to tax hikes and budget reshuffles." That is the conventional wisdom. For all those who wish to read what will happen if and when Japan continues on this unsustainable path of converting private savings into public funding without regard for demographics, please read Dylan Grice (here, here and here).
150 Economists Sign Letter Against Increase Of US Debt; Spoiler Alert - Paul Krugman Is Not Among ThemSubmitted by Tyler Durden on 06/01/2011 09:29 -0400
Following last night's largely irrelevant and extremely theatrical vote for a clean debt ceiling hike, this morning 150 economists (of which those belonging to Ivy League institutions can be counted on one finger... the middle one) have signed a letter warning that "a debt limit increase without spending cuts and budget reform will destroy American jobs." Luckily, since a clean debt ceiling hike will have no impact on the BLS birth/death model, there is no reason to bother Paul Krugman with the fact that ever more of his peers think that those calling for endless fiscal largesse are now a part of the problem, and not the solution. From the letter: "An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government’s spending addiction will harm private- sector job creation in America. It is critical that any debt limit legislation enacted by Congress include spending cuts and reforms that are greater than the accompanying increase in debt authority being granted to the president. We will not succeed in balancing the federal budget and overcoming the challenges of our debt until we succeed in committing ourselves to government policies that allow our economy to grow. An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms would harm private-sector job growth and represent a tremendous setback in the effort to deal with our national debt." The full list of signatories is below. Among them are Nobel prize winner and Euro scourge Robert Mundell, John Taylor, Alan Meltzer, Douglas Holtz-Eakin, as well as former U.S. Secretary of State George P. Shultz, and many more. Suddenly the idea of buying US CDS does not seem so outlandish.
In the boardrooms of corporate America, profits aren't everything - they are the only thing. A JPMorgan research report concludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers' living standards, but their decisions are neither coordinated nor intentionally harmful. Call it the "paradox of profitability." Executives are acting in their own and their shareholders' best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company's income statement has been a disaster for working families and their communities. Obama's lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.
Economists from the Left and the Right Agree: Neither the U.S. Nor Europe Is Dealing With the Real ProblemSubmitted by George Washington on 05/23/2011 20:58 -0400
And Moody's will issue a big credit warning on 14 of the UK's 18 biggest banks tomorrow ...
Answer: Much more than you think...
- "There isn't a person outside a mental hospital or an Ivy League faculty who believes the federal government can continue on its current fiscal trajectory, even with tax increases" (Bill Freza)
- Joplin tornado death toll hits 89: officials (Reuters)
- Asian stocks end lower; Shanghai drops 2.9%, biggest drop in more than four months (MarketWatch)
- Vote Jars Spain's Ruling Socialists (WSJ)
- Europeans Focus on Retaining Leadership of I.M.F. (NYT)
- Signs of division between IMF and Europe over bailouts (Reuters)
- U.S. Debt Limit Increase Agreement May Take Until August, Ryan Tells NBC (Bloomberg)
- Next Danger: "Splash Crash" (Barrons)
- As Lenders Hold Homes in Foreclosure, Sales Are Hurt (NYT)
- When Austerity Fails (Krugman)
It was another manic Monday with lots to cover, setting the record straight on Bill Gross, China, and the commodity selloff...
At one point, the music will stop, but for now, I agree with Britney Spears, you got to keep on dancing till the world ends. And despite what those bears on Zero Hedge think, the world isn't ending anytime soon...
A little under a year ago Moody's Mark Zandi and Princeton economist and former Fed vice chairman Alan Blinder penned a paper titled "How we Ended the Great Recession" which did nothing but extoll the virtues of spending trillions in both fiscal and monetary stimuli and preventing U3 from hitting 16% (of course how one proves a counterfactual is irrelevant: just remember - if the Fed disclosed its top secret bailout plans the world would end. Same thing here - accept it - after all the guy is a professor at Princeton). In a nutshell Blinder is nothing but Paul Krugman on steroids: a man who believes that there is nothing worse in this world than establishing fiscal (and monetary) discipline now. Well, in an interview with Tom Keene earlier, Blinder fired the first shot across the QE3 bow, telling his Bloomberg host that the US needs "somewhat more" fiscal stimulus once again in order to boost employment (hold on: didn't we end the Great Recession, and certainly the normal one in the summer of 2009 according to the NBER?). How this would be accomplished in the current climate is not explained. Instead what Blinder says makes one wonder just who is on the tenure committee at Princeton - when asked how we bring the deficit in without austerity, the Princetonian responds: "Unfortunately I think it is very subtle for most political processes especially for the political process in the US. What we should be doing is somewhat more fiscal expansion but at the same time legislating into law fiscal consolidation for the future. Starting 2 years from now, 3 years from now, 18 months from now. But not now." Of course never now: why bite the bullet now when it can be kicked to some other administration in the indefinite future? Especially when tenure money and/or Wall Street bribes are at stake...
U.S. Government Used COMMUNIST Torture Techniques Specifically Designed to Produce FALSE ConfessionsSubmitted by George Washington on 05/10/2011 13:13 -0400
Nice Work, Comrades! Along with Chairman Bernanke, you have helped turn the United States of America into a bastion for Communism!
Speaking of spending money we don't have - $23Bn of POMO money will be handed out to the IBanks in the first 3 days of the week as the Government props 'till we drop.
- Fannie Mae requests additional 8.5 billion dollars in government aid (Xinhua)
- U.S. Will Press China to Hasten Yuan's Rise (WSJ)
- European Officials to Revamp Greek Aid (FT)
- Europe Pressured to Revise Irish and Greek Bailouts (Reuters)
- Krugman: The Inflation Monster Under the Bed (NYT)
- Euro Holds No. 1 Spot as EU Shows Resolve on Greece Debt (Bloomberg)
- EU to Cut Emerging Nations’ Trade Benefits (FT)
- Japan Reaffirms Nuclear Energy Use (NYT)
- The truth behind the popular markets adage of 'sell in May' (Telegraph)
- What to watch, on the Street and on the court, to determine whether the rally will continue…or fizzle (Barrons)
Sean Corrigan On The Inflationary Diabolus Ex Machina, And Bernanke As The Modern Incarnation Of Shiva, the Shatterer of WorldsSubmitted by Tyler Durden on 05/08/2011 00:20 -0400
Inflationists are typically ignorant of the fact that the complex, multi-stage, labour-divided, task-specific, dynamic whole which is a modern economy intimately relies on much more spending than is captured in the flawed totem of GDP. They are further unaware that much of that spending is highly discretionary—that the bulk of it, in fact, represents gross capital formation via saving—if we define saving as making an outlay not to consume what is acquired finally and exhaustively today, but with the aim of giving rise to a greater income tomorrow, most routinely done by adding value in the course of a productive/entrepreneurial process...The key feature of this dense, reticular system of mutually-beneficial interaction is that it in no way relies upon any centralised control function—indeed, for all the weasel words of the rag-bag of anti-market intellectuals, from Krugman and Kaletsky to Stiglitz and Soros, every time the attempt has been made to impose one, the result has been to unleash at least three of the four horsemen of the Apocalypse upon the unfortunate victims of the Planners...To the extent that, in their primitive adherence to the toilet-flush hydraulics of their facile, consumer- demand model of the economy, the Bernankes of this world adulterate that money and deliberately contribute to its inconstancy, they— more than Robert Oppenheimer, even— are the modern- day Shivas, the Shatterers of Worlds before whom we should tremble.
Gallup Poll Shows that More Americans Believe the U.S. is in a Depression than is Growing … Are They Right?Submitted by George Washington on 04/29/2011 02:00 -0400
How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?