One of the "positive" side-effects of the Treasury's plundering of retirement accounts is that total US debt in June actually declined for the first time since January 2010, dropping by $1.6 billion from the May 31 closing print of $14.344 trillion. No doubt this was predicated by the US Treasury officially breaching the debt ceiling on May 16. Yet due to this, or for some other reason (and it is not a surge in net income tax receipts as these appear to have reached an inflection point earlier in the year and are now trendlining lower on a Y/Y basis), something else happened: the slope on the cumulative deficit line since the start of the depression in December 2007 (see below), is now the shallowest it has ever been. In other words, the US over the past few months, faced with the threat and now reality of a debt ceiling breach was actively cutting spending, while benefitting from a transitory spike in income tax revenues, although unfortunately now that the unemployment rate is back on the trendline to double digits, this will be the only true transitory thing about the US economy. Whether this actual, factual fiscal prudence was conscious is unclear, however the result is clear: faced with the threat of being unable to finance every single dollar in perpetuity, the US government's involuntary self-imposed austerity actually... Worked! And yes, the direct side effect is that Q2 GDP is now likely to come at 1.6%: the worst quarterly increase since... Q2 of 2010 (recall that 2010 Q2 GDP was revised from 2.4% to 1.6$ on August 27 last year... hours before Bernanke announced QE2 ). And there once again is the glaring correlation between the slowing of the economy and the decline in debt issuance, and the actual deficit "improvement." Now take this slower deficit growth, and assume it actually is reversed, i.e., America has a budget surplus. While great for the country in the Long-Run, it would mean that GDP, which is now purely reliant on how much debt Geithner can issue, it would mean a collapse in the GDP, in the S&P, and in Wall Street executives' bank accounts. At least in the absence of QE3, 4 and so forth...
After working hard to compile a list of Obama's rather questionable record of fiscal promises and actual executions, the gist of which is represented best by the violent clash between myth and realty in Christina Romer's "The Job Impact of the American Recovery and Reinvestment Plan" whose epic failure is defined by one simple chart, we were disappointed to learn that Paul Ryan had already done this. And leaving Paul Ryan's politics aside, the facts do speak themselves. They speak even louder when one considers the din raised by the same president who back in 2006 said: "The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better." Indeed they do president Obama. Indeed they do. So without further ado...
This discussion of "tradition" in the context of "value" is the central problem of our financial age. The question of faith in valuations is at the very heart of the ongoing crisis, infecting all facets of finance and economics. Almost three years after a major banking panic, we are still wrestling with the idea of valuations, and more innately, value itself. Economic and financial unease and uncertainty trace their roots to the shaky valuations that have been provided or interjected into every marketplace, keeping up with the grand tradition of fiat currencies and centralized policy. For example, U.S. treasuries are supposed to be, pardon the pun, the gold standard of riskless assets. Yet they are increasingly questioned (ask Bill Gross and China). The value of the paper is a derivative function of the ability to tax, as in full faith and credit of the United States. But the same is also true of Greek paper, as sovereign Greek debt derives its value from the Greek government's ability to tax. Yet U.S. debt is more "valuable", in money terms, than Greek debt solely because the Greeks have a "tradition" of default while the U.S. does not. Tradition matters.
Nobody could have foreseen this now typical Friday night bomb from the 200 West macroeconomic wrecking crew. Nobody. Well... "Here is the first official Q3 GDP downgrade, courtesy of JPM's Michael
Feroli. We fully expect every other clueless Wall Street lemming to
follow suit in minutes." But as long as the lemmings all move in a herd over the cliff, they will still somehow all get paid the same $5 million (of which 25% is cash and the rest is indentured cliff-vesting equity servitude) at the end of the year. Either way, can we all now agree that Goldman did indeed jump the shark in December, especially now that it sees Q1 GDP at below stall speed in real terms. So here it is: "Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012." Here is why Hatzius gets paid the big Bernankebux: "The “bugbear” is that we are still unsure about the precise reasons
for the slowdown in 2011 to date, which is sharply at odds with our
expectation at the end of last year that growth would accelerate in
2011." And the punchline: "Our forecast remains no fresh monetary easing from the Federal Reserve, but the probability has risen. In particular, Fed officials would undoubtedly ease if the economy returned to recession—not our forecast, but clearly a possibility given the recent numbers." Our prediction is that when Bill Dudley's 2011 calendar is released in December, his first meeting with Jan Hatzius at the Pound and Pence will have taken place right.... about.... now.
"They’re going to cut back the bone and they’re going to keep the fat, basically. They’re going to try to panic the population into acquiescing in a Democratic Party sellout by cutting back payments to the people...while making sure that they pay the Pentagon, they pay the foreign aid, they pay Wall Street." Michael Hudson
But the Johns in Washington (they are technically Johns, not prostitutes, since they are pimping the American people out) and the slavestream media will keep up their circus act regarding the debt ceiling being the only important issue ...
The financial system is once again overleveraged. Meanwhile, the large banks continue to be insolvent due to their gargantuan derivative exposure. Put another way, the financial system is primed for another 2008 episode. The very same issues that caused 2008 remain in place. Leverage is far too high. And the unregulated derivatives market remains a multi-hundred trillion dollar problem.
Gee, you think?
The emergency room doctors are missing the bigger problem ...
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Hey, it helps the big banks ... so shut up, already!
Had a great lunch with two real estate pros who don't see any recovery in US housing and the risk that the Canada bubble is about to burst...
Some things I thought worthy of note.
As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into "risk assets" to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation's fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars. None of these grandiose manipulations has healed the economy or fixed the structural problems which made the meltdown inevitable.
Watch live the first of two official monetary policy testimonies by Ben Bernanke, today being before Congress, and thus Ron Paul, tomorrow before the Senate. Among the critical items to be discussed are the role of fiscal policy, whether there will be QE3, and how (and when) the Fed will proceed with future rate hikes. Mostly, it is expected be a whole lot of hot air. Full text of the report can be read here. The reason everything is surging is because, as predicted, the Chairsatan appears to have just ushered in QE3: "The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate."