Paul Krugman says the stimulus package is enough to help, but not enough to cure the economic crisis.
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Monday, July 13, 2009 (05:44)
On the Economic Outlook and the Commitment to Price Stability
Dennis P. Lockhart
President and Chief Executive Officer
Federal Reserve Bank of Atlanta
Rotary Club of Nashville
Nashville, Tennessee
July 20, 2009
For my remarks this afternoon, I’ll talk about how I see the economy at this juncture, the near- and medium-term outlook, and the growing concern about inflation. Let me add at this point my usual disclaimer that my remarks are my thoughts alone and may not necessarily reflect the views of my colleagues on the Federal Open Market Committee (FOMC).
It’s especially important that I mention this caveat the day before Chairman Ben Bernanke makes his semiannual monetary policy report to Congress. Tomorrow the chairman will speak for the Federal Reserve System. Today, I am speaking just for myself, informed by advice from my colleagues at the Federal Reserve Bank of Atlanta.
Current economy
Current economic conditions are mixed at best, but the economy appears to be in stabilization mode. Stabilization necessarily precedes recovery. A recovery has not yet taken hold but should begin before too long.
I’ll start with a look at manufacturing, which has been hard hit in this recession. Just last week we learned that manufacturing production was down 0.6 percent in June, month over month. In the past year, manufacturers have cut production by more than 15 percent, and the manufacturing capacity utilization rate dropped to about 65 percent, a record low.
Here in middle Tennessee, manufacturing accounts for about 12 percent of employment. The number of manufacturing jobs here declined by about 12 percent on a year-over-year basis in May, the most recent data available. I know that many of you here today have directly felt the troubles in this important sector.
Recent indicators of business investment are also down but are a bit less discouraging. Durable goods orders increased this spring and in May reached the highest levels in four months. On the other hand, the most recent data showed the liquidation of business inventories continuing, but the pace has slowed.
Consumer spending absorbs about two-thirds of economic output, and the recent picture in this area is mostly negative. After taking price changes into account, it appears that retail spending fell again in June. Restaurants, department stores, and building materials retailers all posted month-to-month declines. Overall, retail results are in line with the ongoing weakness in consumer spending we have been seeing.
Monday afternoon — first linkfest of the week!
• More toxic loans could haunt banks (Associated Press)
• Joseph Stiglitz: The Most Misunderstood Man in America (Newsweek)
• The Real Story of Trading Software Espionage (Advanced Trading)
• Subprime Brokers Resurface as Dubious Loan Fixers (NYT)
• James Altucher has departed the Street.com for Dow Jones, and it shows in his initial column: The Internet Is Dead (As An Investment) (WSJ)
• Fed’s Lending Ebbs as Crisis Subsides (WSJ)
• Rescued Banks Post Big Profits, Drawing Ire (Washington Post)
• Want a good laugh? Read this July 2008 WSJ article: Ten Reasons to Buy Stocks Now
Anything else fresh and linkworthy?
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I will be briefly popping into to CNBC’s Fast Money to discuss Tech, the Economy and especially any signs of a Housing Bottom — tonight at 5:00pm.
The show is on at 5pm, and then rebroadcast at midnight.
This is a WTF number:
“U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.
“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.
Costs include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs, he said.
Wow. Hard to believe . . .
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Sources:
U.S. Rescue May Reach $23.7 Trillion, Barofsky Says
Dawn Kopecki and Catherine Dodge
Bloomberg, July 20 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aY0tX8UysIaM
http://www.sigtarp.gov/reports.shtml
I believe for the very first time, a Fed member is admitting that it was an artificially low fed funds rate that ‘helped create the housing bubble’ (I’m quoting Bloomberg). Voting member Lockhart just made the comment in a Q&A after a speech on the US economy. He took office as head of the Atlanta Fed in 2007 so he of course was not party to the Greenspan/Bernanke Fed that cut rates to 1% and left it there for one year. While I’d love to say ‘the first step to recovery is to acknowledge the problem,’ Lockhart went on to say a low rate policy will likely hold ‘for some time,’ today’s low rate is not repeating history and the low rate will not lead to a bad outcome. This time is different is always scary to hear, specifically so with Fed policy.
With CIT garnering headlines over the past week in terms of its own fate but that of many small businesses reliant on it, on Friday the Fed released its weekly balance sheet data for commercial banks for the week ended July 8th and we can see what the business lending trends are. Commercial and Industrial loans (the most important with respect to business lending) outstanding fell to the lowest level since March ’08. Some will cite the banks unwillingness to lend whether its due to tighter lending standards and economic concerns but there also continues to be a reduction in the demand for loans.
Although the economy is still battered, economists are beginning to draw conclusions about the way Federal Reserve chairman Ben Bernanke has weathered the storm. Some believe that Mr. Bernanke has saved the public from an even greater catastrophe, explains WSJ economics editor David Wessel.
7/17/2009
From a friend on the Hill:
Good news today. Some of you have noted that it is somewhat outrageous for the Treasury to privately price and sell warrants back to the banks that got TARP money instead of doing an open auction that will fetch the best price for the taxpayer. The Congressional Oversight Panel claims that the currently used secret process returns only 66 cents on the dollar to the taxpayer.
Mary Jo Kilroy, a freshman Democrat from Ohio, introduced a bill (HR 3232) to compel an open auction of these warrants with six cosponsors: Brad Sherman, John Boccieri, Betty Sutton, Jackie Speier, Marcia Fudge and Alan Grayson.
All of these members except Brad Sherman are in their first or second term in Congress, and all are Democrats. Sherman was the leader of the little noted but important ‘skeptics caucus’ that attempted to stop the $700B bailout in September.
There is also a hearing on the TARP warrant repayments on Wednesday. Many of you don’t have faith in Congress, but there are lots of crosscurrents and sometimes people here do show leadership.
Information on the bill is below.
Source:
PROFIT Act to Make Taxpayers, Transparency Priority in Bank Bailout Payback
July 16, 2009 4:21 PM
http://kilroy.house.gov/2009/07/profit-act-to-make-taxpayers-transparency-priority-in-bank-bailout-payback.shtml
Last week, I mentioned Retail Sales ex-Auto and Gasoline were pretty poor.
Looks like the Atlanta Fed is now also reporting what they Core Retail Sales — ex autos, energy and construction.
They noted: June retail sales increased 0.7% from May, slightly higher than analysts’ expectations of 0.4%. However, retail sales excluding autos increased below an expected 0.5% gain to 0.3% in June (See chart).
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Source: U.S. Census Bureau
·Total retail sales exceeded market expectations in June. This was the second consecutive monthly increase, but sales are still down 9.0% from a year earlier.
· On a year-over-year basis, the decline in retail sales excluding autos continued to accelerate, falling to -7.9%.
· Consumers continue to be very conservative in their spending, as demonstrated by May’s personal savings rate, which climbed to 6.9%, the highest rate in almost 16 years.
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Although retail sales posted a gain in June, gasoline stations were responsible for more than half of the increase. The auto and gasoline stations sales increase was likely the result of rising prices. (See chart).
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Source: U.S. Census Bureau
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Source:
Consumer Spending
Economic Highlights—July 15, 2009
http://www.frbatlanta.org/EH_invoke.cfm?objectid=60E864C1-5056-9F12-12ADD19D362B0090&method=display_body
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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