Markets are reacting to the “surprising” NFP disappointment of 18k.

Surprising? Really? To whom?

ADP’s track record has been awful at forecasting BLS; the rest of the economic data is suggestive of a significant slowing (but not a recession).

The work of Reinhart & Rogoff is rather conclusive in showing that employment and GDP post Credit Crisis is weak. And as we have noted ad nauseum, most of the Wall Street community has been looking at the wrong data set. WW2 recession recoveries provide little or no insight into post credit crisis recoveries. The causes and arcs of collapse and recovery are simply too different.

Which leads us to the markets reaction to today’s data:

In the not too distant past, the market might have been inclined to rally following such a horrific data point. The working assumption is that the Fed, or perhaps Congress, would respond to the economic distress. But the immediate market reaction shows that no one is expecting a cavalry charge to save the day.

Consider the various players and how they have painted themselves into a corner:

Federal Reserve:  Has lost much credibility for helping to cause the crisis, for their bailout of Bear Stearns, for sending inflation higher, and for the crumbling dollar. If we were being fair, they should get kudos for re-liquifying the system during the crisis. But they under increasing pressure, face possible audits and other threats to their independence. After QE1, QE2, and now QE2.5 (rolling reinvestment) there is no appetite for another round of Fed easing.

Congress: The legislative body in charge of taxing and spending seems comfortable with their hardened partisan positions, and few accomplishments. Indeed, as the LATimes has noted, the 112th Congress is one of the least productive in decades. Job creation is not going to come out of anything that Congress does. We are more likely to see counter-productive  Austerity measures, based on the experiences of Great Britain, Portugal and Ireland.

GOP:  I have consistently criticized the Republicans for a) magical thinking despite proof otherwise b) hypocrisy in creating the deficit under Bush but crying about it under Obama. Not interested in anything in terms of jobs.

Democrats:  Their inept, uninformed understanding of economics, messaging, and markets is beyond my comprehension (Austan Goolsbee being one of the rare exceptions). Apparently incapable of anything involving  jobs.

President Obama: Needs to figure out what his economic plan is, how to interact with the GOP, and whether he will abandon his base. His hands — and brain — seem to be completely tied when it comes to anything involving jobs.

Given that historical backdrop, and the major players tied up in knots (and nots), it is hard to see how the job picture will improve anytime soon . . .

Category: Bailouts, Economy, Employment, Markets, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

55 Responses to “Don’t Drink, Don’t Smoke, What DO You Do?”

  1. beaufou says:

    Even though voters are most concerned about the unemployment picture, it doesn’t seem to a priority and it wasn’t from the beginning of the crisis.
    This was going to be the jobless recovery, remember.
    And now that Obama’s opponent look and sound like a bunch of nut jobs, it won’t improve or get better.

    This isn’t about incompetence, it is a choice, the plan is to get reelected and then…whatever.

  2. Petey Wheatstraw says:

    Not so subtle innuendo follows . . .

  3. Petey Wheatstraw says:

    Are we ready to pitch the idea that we ever moved out of the recession and that we are, in fact, in a full blown depression?

    ~~~

    BR: No.

  4. louis says:

    Does Principal reduction on loans help us ride this out? Are we really going to distract our time with debt ceiling charades and kick the can while the core rots?

  5. Ted Kavadas says:

    RE: “The work of Reinhart & Rogoff is rather conclusive in showing that employment and GDP post Credit Crisis is weak.”

    I think that one needs to be careful in interpreting the Reinhart & Rogoff work with regard to our current economic situation. IMHO perhaps the main question to ask is whether our current situation is highly analogous to economic periods dating back decades, if not centuries.

    I wrote a blog post on the topic; for those interested it is found here:

    http://economicgreenfield.blogspot.com/2011/06/reinhart-rogoff-book-general-comments.html

  6. dead hobo says:

    Do drink, don’t smoke, firmly believe that much of what you eat can be improved with a schmeer of cream cheese frosting, especially on most of the very delicious delicacies I bake. (Currently working on double chocolate cookies .. batter included 4 eggs, 1/2 cup flour, 12 oz chocolate chips, 4 oz unsweetened chocolate, bag of chocolate chips for texture, and 3 cups pecans plus cream cheese frosting)

    Right now I just like to watch the gob smacked, totally flummoxed, confused, and wholly discombobulated stock pundits trying to make sense of a stock run up not based on a rational economic foundation.

    Jesus, just let it fall to S&P 900 and let’s all make a ton of scratch on the return trip when QE3 is revealed in November.

  7. foosion says:

    >>employment and GDP post Credit Crisis is weak>>

    That’s because nothing is done to make it stronger. If we did the right things to stimulate the economy, we wouldn’t have such weak results.

    Obama and his administration have latched onto the austerity fairy. History and logic teach us this will only make things worse.

  8. wally says:

    It appears that neither Obama, the Dems in Congress or the Repubs in Congress have any particular interest in getting re-elected.
    Unfortunately somebody will be elected by default (and they will be in debt to big money, as usual). It is too bad that we can’t just dissolve the whole lot and start over.
    What a disappointment.

  9. Nuggz says:

    Ah!! unemployment.

    Here is a hint: 8.5 percent is the base unemployment for now until eternity for the US economy.

    Mr. Market doesn’t care, the super discounting machine that he is.

    Here is yet another hint: All those foreclosed homes “weighing down” the real estate market are going to be zeroed out or better yet bulldozed.

  10. Jack McHugh says:

    Well said on all fronts, Barry. When it comes to jobs, Congress has probably killed more than they’ve created.

    The latest case in point makes my blood boil.

    In Patent Billl Wall Street Shows Its Clout

    The Too Big To Fail banks have far too many advantages over small firms already, and this latest patent provision will be Game-Set-Match for small firms trying to innovate in financial products and services. This provision will allow the big firms to copy or steal any new ideas generated by firms such as the ones I’m working with. Wall Street already copy or steals patented ideas and then says, “So sue me”. Now not even the courts will be available to small firms, and Wall Street will now copy ideas and say, “Thanks for spending all the time, effort, and treasure to develop this concept — we’ll take it from here. We are so happy you represent a free source of R&D for us, and good luck with your next career after bankruptcy!”

    The big banks squandered their built-in advantages in leading us to the brink of disaster in 2008. Why should we now give them yet another advantage, one which will stifle innovation and kill the jobs created by smaller start-ups with good ideas they hope to protect under patent law? While many Americans might say, “who cares about protecting intellectual property in financial products and services?”, they should be aware that most of these protections cover innovations in software and other technologies. Today Wall Street, tomorrow Silicon Valley?

  11. alexanderdelarge says:

    GOP creating the deficit under GWB ? Really ? What was their largest deifict ? $600 Bln ?
    What’s President Obama’s….. $1.6 TRILLION…. as far as the eye can see.
    Please BR. The GOP should be assigned blame for plenty, deficits and redonkulus spending included, but Obama’s ramp up of spending across the board truely is different this time.

  12. wally says:

    “GOP creating the deficit under GWB ?”

    The logic is rather simple to follow:
    1. the crash happened under Bush and necessitated the spending on social programs that had to continue.
    2. The bank bail out was authorized under Bush and had to continue.
    3. Two wars were started under Bush.
    4. The money to pay for all this was never collected – by Bush’s choice (due to his tax cut).

  13. Niskyboy says:

    Austan Goolsbee is a hypocrite and a liar. I realize he is your friend but why should citizens give credence to anything he says? As Obama railed against NAFTA during his presidential campaign, Goolsbee secretly met with Canadian officials to reassure them it was just political posturing and that Obama didn’t really mean it. When news of that meeting unexpectedly came out, Goolsbee denied it had ever happened. Well, it did happen — here’s the NY Times story about it. The story even names names, it’s not just the typical “according to unnamed sources” nonsense which lazy, craven reporters pump out — http://www.nytimes.com/2008/03/04/us/politics/04nafta.html

    You can dismiss this simply as hearsay if you like, but that would mean anything else the media attributes to anyone at any time also ought to be considered hearsay. Including any attributions made in the Sunday columns of a certain Washington Post columnist.

  14. farfetched says:

    Uh, Alexanderdelarge……
    The latest figure for Iraq/Afghanistan is $4 trillion. If you take the initial numbers, GWB is at least responsible for $1 trillion of that…conservatively. Add TARP, the under the table FED loans to Lehman, GS, etc., Medicare drug plan, etc. etc. and it makes $600 billion look like chump change. Even the Iraqi’s are throwing around a $40 billion figure for unaccounted funds for the “reconstruction”.
    How much do you think those tax cuts are costing per year? Don’t forget interest on the money borrowed to give tax cuts to those who clearly don’t need it.

  15. Livermore Shimervore says:

    People need to start ignoring this bait about the President and jobs. The govt has neither the manpower nor the pockets to move the unemployment needle in any drastic way. If trillions in tax incentives and spending (nearly all of which gets cycled back into the economy) has only brought us to 9.2% unemployment then obviously there are bigger forces at play that make all this govt action irrelvant…namely gas prices.
    What Obama should be doing is telling the American people very bluntly:
    If those of you who actually have jobs, are complaining about job growth and only have $500 to spend on non-essentials each month then don’t spend it on yet another Apple product, don’t spend it some foreign made blue jeans or some other crap at Target or Wal-Mart. Instead, spend it on something that goes directly into an American wage. Take the kids to an amusement park, go out to dinner at small business-owned eatery, hire someone to help with housework, hire an out of work college grad to tutor your kids on math, change your spending priorities. Peopl love to farking rail about Obama (and Bush before him) on there not being enough jobs but then immediately make a B line to get the Ipad2. These companies that hire 1 freakin American for every 10,000 it pays are not helping the economy. Maybe the stock market but as we have seen that’s got little to do with job and wage growth.

  16. farfetched says:

    The WAPO reports the Bush tax cuts initially cost $1.5 trillion. Add the $1.25 they say Iraq cost under GW and it starts to add up to some real money. Certainly more then $600 Billion. Add the renewed Bush tax cuts under President Onixon and you can add another $1.3 trillion….or not since it was started under GW but Onixon agreed to it. Let’s all agree, we have been so screwed by both parties it isn’t fricking funny.

  17. Petey Wheatstraw says:

    alexanderdelarge:

    The GOP has been nothing but deficits since Uncle Ronnie. Obama is a stinky corporatist turd but the course was set long before we ever heard his name.

    And some laughed at Al Gore and his comments about SS needing a lock box.

  18. louis says:

    –”All those foreclosed homes “weighing down” the real estate market are going to be zeroed out ”

    How? Where’s the political will or backbone to tell the banks they will write down?

  19. b_thunder says:

    There will be no jobs until the “middle class” wage+benefits+cost of EPA and other regs on businesses in the USA will be comparable to the same wage+benefits in the developing countries and in China (no, i’m not against the EPA. I’d rather earn a few bucks less than die of cancer in my 30s or 40s… it’s just that there won’t be an EPA-type agency in China any time soon)

    And the deficit/debt won’t “solved” until the US Dollar value retraces the value of CitiBank shares 2008-2011. Only then the deficit/debt will become “manageable”

    It’s too late to reorganize/reeducate/rebalance/rebuild infrastructure. (one of the Barry’s own links this week was to a study that showed that the car use has peaked – so why do we need more highways for fewer cars?) And with the dumb and corrupt “tax cuts pay for themselves” Congress and incompetent consensus-seeker in-Chief there’s no hope (and no change!)

    From this point on it’s back to the 19th century: robber barons and the rest. Every man for him/herself. No safety net of any kind. No job – learn to hussle. Or move to China and teach english to the wealthy chinese.

  20. jacobh says:

    The Dems and Obama don’t even seem interested in their own jobs. Why do you except them to care about someone else’s?

  21. farfetched says:

    Louis:
    It isn’t political will, it’s simple economics. Those houses are taxed, un-maintained and falling down.
    That goes in the expense column no matter what they do with the loan losses. Sooner or later they will have to fish or cut bait.

  22. AHodge says:

    the rogoff post financial crisis deleveraging finding is no doubt true, make that useful.
    but does not answer whether the US version now is all GOOD necessary delevering.
    or BAD inadequate finance delevering.
    not an easy question,
    but i see signs of inadequate finance in autos, comml realestate non FANNIE housing,other “asset backed funding” with the unguaranteed securitization market still mostly shut.

  23. Long term says:

    @Livermore Shimervore – fantastic start but your solution to create scattered low wage work will not work to create a bright future.

    what we need is centralized planning. we need national 5 and 10 year plans to be competitive in target industries. if there were a national plan to spend $75B on solar energy over 5 years mixed with an extended 10 year investment to keep manufacturing of the new tech onshore, we’d have a start. repeat for 2 other target industries. suddenly, you are adding value in the world and creating good jobs.

  24. RW says:

    A few (connected) points:

    1. “The work of Reinhart & Rogoff is rather conclusive in showing that [private sector] employment and GDP post Credit Crisis is weak.”

    2. Deficits are caused by spending exceeding revenues which means they can be increased by revenues falling w/o significant changes in spending which is pretty much where we are now.

    3. Obama, much to his discredit, did not fight extension of the Bush tax cuts as the price of adding some more stimulus (another half trillion $ lost in revenue) and has not championed nearly enough government spending to fill the output/employment gap.

    The presidential bully pulpit exists for a reason and while the crisis was clearly caused by neo-conservative, pseudo-libertarian policies before his election, Obama owns the problem now because he has failed to use that pulpit well; his fault is not what he did do, it is what he did not do.

  25. willid3 says:

    some how its because neither party cares to do any thing about jobs. whether thats because they think can’t (DEMS) or actually don’t care (GOP). and because they of this, they try to do other things (like austerity to feed that confidence fairy. which seemingly both belief in). the problem for both parties, is the electorate actually cares about jobs. and unless they can point to actually accomplishing some thing in the next election, they will join the next long term career, lobbyist. which maybe the entire point for most of them to be in Congress to begin with. its certainly not to do any thing for the country

  26. Nuggz says:

    @louis

    “How? Where’s the political will or backbone to tell the banks they will write down?”

    Already happening. Banks are doing massive principal reduction because most of those homes in foreclosure are the bottom of the bottom. Those people can either stay and pay a mortgage or leave and pay rent.

    http://www.nypost.com/p/news/business/bless_this_mess_eGj0dX3bBhzS3NTUwRAlRO

    I realize that it is the NYPost. Please feel free to hold your nose while reading.

  27. Livermore Shimervore says:

    @Longterm,

    I didn’t mean that to be a long term plan but merely to highlight the fact that a service sector economy needs MUCH greater support from those who are in a position to spend on service labor. There have been many articles published inidcating that people who are belt-tightening would rather spend nearly all their disposable income on the umpteenth tablet, Iphone or LCD TV. Prioritizing consumption in this way, at times like these , really takes all the punch out of the limited options the govt does have.
    “HEY CHECK OUT MY NEW GADGET!”
    “Cool. I’ll come over and check it out later I just got layed off….”

  28. DeDude says:

    I think you are right that a lot of people get in trouble when they try to learn from other recessions when they “predict” what will happen after the “great recession”. Maybe it would help if we instead called it the “small great depression”. We really have to go back to the 1929-45 period to find things that can help us figure out what is and will be going on with this downturn. Ultimately a huge public works project like WWII is what we need – hopefully we can direct it towards building something rather than destroying the world.

  29. There is merit in your comments, DeDude. My Recession Indicator defines a depression as 8 quarters averaging less than -4% GDP. Albeit BEA measured the contraction as 6 quarters averaging -2.3%, TRI measured it as 7 quarters @ -4.3% … a mere single quarter short the definition.

    There is little prospect for the Unemployment Rate to drift below 8% by the Election based on the current economic activity outlook. After adding in this week’s data, TRI gauges Q2 GDP @ 2.7% and barring mitigation measures is projecting a 1.2% GDP trough in November … en route to 2.2% by its 2013Q2 horizon.

    TRI chart: http://trendlines.ca/free/economics/RecessionIndicatorUSA/USA-TRI.htm

  30. Sidfinkel says:

    You need to add to your list “The Economic Profession” which proclaimed the Great Recession over in 2009 (so of course everyone moved on to other problems) and The National Press

    The policy of a payroll tax cut and one year expensing of capital investment was just so wrong, so obviously wrong yet Economists did not rise up in indignation about this totally ineffective implementation of policy. How do we know it was ineffective, gosh, anyone?

    We need a better economics profession (present company and author of this Forum excepted)

    http://dismalpoliticaleconomist.blogspot.com/2011/06/economists-need-to-be-better-economists.html

    The national press has just refused to confront the reality and idiocy of many Republicans, totally fearful that they will be called “unfair” for reporting the actual news. So the economic policy recommendations and analysis of people like Eric Cantor and Paul Ryan and their associated budget are treated as though they were serious.

  31. DeDude says:

    @Freddy;

    Unfortunately we are stuck with a high unemployment rate until way past the election. If we re-elect Obama we will have a slow decrease in the following years, if we elect a republican we will get a slow increase. The only thing I see that could really get unemployment heading down, would be a mandate that all employers use E-verify. However, that would not come from Washington where both parties have different reasons to allow illegal aliens to find work. Maybe more states will make E-verify mandatory – to fix their own unemployment problems.

  32. Joel826 says:

    I understand Paul Krugman’s frustation, as per today’s column. Everyone has dropped unemployment as an issue while the Republicans focus on reducing spending that will worsen both GDP and employment — and Obama, instead of countering bad economics, is now parroting Republican talking points.

    We are doomed.

    Where is FDR when we need him?

  33. Joel, an agreement providing for $4 trillion in long term expenditure cuts would reverse the secular decline of the USDollar and trim $16 off a barrel of oil. This headwind reduction and coincident boost to business/consumer confidence would regenarate the auto sector, employment and the general economy, imho.

  34. farfetched says:

    Freddy, $4 T over ten years would reverse the decline of the $USD? Maybe you are assuming that CONgress would magically stop spending and the rest of the world would not continue easing/devaluing and India and China would not offset our oil use?
    We all get so locked up on the Fed and QE version whatever, but one quick glance at the Treasury statement would illustrate that $4T and Qe V3.? is but a drop in the bucket to the ‘easing’ CONgress participates in monthly.

  35. Livermore Shimervore says:

    @Freddy Hutter
    “$4 trillion in long term expenditure cuts would reverse the secular decline of the USDollar and trim $16 off a barrel of oil. ”

    I have a bridge here I’d like to sell you…

    There’s ZERO chance of cutting anything close to that amount by the time we reach the end of “long term”. Certainly not with healthcare costs becoming a question of much we can lower the rate of increased costs vs. actual cost reduction. And if you weren’t around in July of 2009 Granny will drop kick you if you touch her Medicare at the next town hall. And lastly, even if Congress were good boy scouts and brownies $4 trillion or $300-400 billion annualy (right!) wil barely dent the deficit let alone the soon to be $15 trillion debt. You have a better shot at seeing the China hard landing boost the greeback vs. some pittance discretionary cuts on the poverty level folks.

  36. DeDude says:

    @Freddy;

    What businesses need are costumers not a whack of the wand from the confidence fairy. Cutting deficits is a tried and failed policy (that we do not want to repeat). Having government cut its employment and purchase of services does not make consumers more likely to spend rather than save. It just gives rotten employment and GDP numbers that scare people into reducing their spending (look at UK). Yes the confidence fairy can give a slight additional push to an already established trend but she had never proven her ability to turn things around.

    It is all about aggregate demand. China newer even experienced a recession because they implemented a deficit spending plan that was as big as the predicted loss in aggregate demand from the crisis. It makes no economic difference whether the spending is consumer or government. The critical issue is the multiplier effect of the specific spending (imported luxury cars not much, infrastructure in the US a big multiplier). It also makes little difference whether the spending is taken from a build up surplus (China) or is added to the debt (US consumers and government), as long as the creditors do not see a relatively high risk of default (compared to similar debtors). However, counter-cyclical spending (and saving) has to be done by government, because consumers gut feeling makes them do the opposite.

  37. farfetched says:

    As everyone might recall, Little Timmy Geithner wrote a letter to CONgress on April 4th warning them about the debt ceiling. What has CONgress been up to since April 4th? How much money have they been spending and how much more debt have they issued since April 4th?

    As of June 24th the daily treasury statement says we had $8.4TRIL USD in total annual spending including redemptions. If we “net out” redemptions then the net outlays are $3.22TRIL USD. If we add in marketable debt as of June 24th it comes to $5.768TRIL.

    If we go back to the April 4th daily treasury statement we can see CONgress has spent another $2.477TRIL.

    If we “net out” redemptions for April 4th outlays we get $2.28TRIL US, which means that net spending in 60 days is $940BIL, or $16BIL per working day. Even on a “net outlay” basis the US Treasury has out spent Ben’s QE2 by $340BIL USD.

    Uh, doctor, I think the patient is hemorrhaging. Please, tell us again how cutting $4T in ten years is going to reverse the secular decline in the $USD when CONgress is spending nearly a trillion every two months. Where do we sign up for Greek citizenship?

  38. RW says:

    What DeDude said.

    Those who claim contraction is expansion can provide no plausible economic model supporting their case, can offer no historical exemplar(s) that cannot be better explained by a model that contradicts the Austerian thesis, and have no mechanism other than “confidence” under the influence of magic dust …oh, and maybe a pony too.

    Contraction is contractionary and we’ve already been there, done that and are still bloody doing it; e.g., http://tinyurl.com/3ef2jry

  39. Robert M says:

    Having hit the nail on the head would you please kick the dog when you get home and STOP MAKING SENSE!

  40. Frwip says:

    Test. (Sorry but my inane(?) comments seem to go to the bit bucket)

  41. Frwip says:

    @Petey Wheatstraw and BR

    “Are we ready to pitch the idea that we ever moved out of the recession and that we are, in fact, in a full blown depression?”

    A full blown depression a la 1929-1940, certainly not.

    A better analogy would be the Long Depression like what the Western world went through from 1873 to the late 1890s, early 1900s. Note that it wasn’t down all the way. The Long Depression largely overlapped with the Gilded Age.

    No Cross of Gold this time, but again the same deflationary policy biases toward the rentier/financial class. Also the same context of massive technological and social disruptions and enormous and growing income inequality. Actually, when you think about, 2008 is a pretty good echo of the Panic of 1873, the collapse of a massive speculative bubble underpinned by widespread “accounting” fraud and market manipulation.

    Hopefully, it will find its conclusion in the same way the Long Depression ended in the US, with the Progressive Era. No clue who will be our Theodore Roosevelt, alas. Many hoped Obama would the real thing. Miss. It will have to wait for another 6 years or so at best.

  42. Upon Obama’s inauguration, USDollar debasement was a mere $1/barrel component of crude price. Successive deficit budgets have succeeded in ballooning the debasement component to $24. This was instrumental in decimating New Vehicle Sales this Spring, just as in 1980, 1990 & 2007 (based on definitive oil/gdp ratio demarked presently by $90/barrel).

    The secular decline of the USDollar began in Jan/2002 and is directly related to a presently projected $22 trillion Federal Debt in 2021. Should the Debt Limit negotiations make headway in reducing that target, I am confident the reversal of $4/barrel per $1-trillion in cuts/revenues will occur as the models indicate.

    As oil recedes below the $90 threshold, auto sector sales will rise above the elusive 14-trillion unit pace…

    Barrel Meter chart: http://trendlines.ca/free/peakoil/BarrelMeter/BarrelMeter.htm

  43. DeDude says:

    @Freddy;

    Thanks for the link to information you base your statements and prediction on. I give you credit for giving your “year ago” predictions at the end. Few people have the guts to do that because the prediction business is so hard. Would be useful if you could take the projected budget deficits (and surpluses) from the past decade and show a direct connection between these projected deficits and show that they directly correlate with your “dollar debasement” part of the oil price. Just on the back of the envelope it concerns me that your July 2008 price has $31 attributed to “dollar debasement” yet at that time the projected debt was much less than $22 trillion. This does not look good for the idea that shaving a mere $4 trillion of the projected debt would actually cut the oil price by $16 (back in July 2008 when the projected debt was much lower than $18 trillion the debasement component was $7 higher not >$16 lower). Seems to me that there are a lot of other parameters at play making it very hard to substantiate a simplistic claim that we can get a $4/barrel lower price per $1-trillion in cuts of projected federal debt.

  44. RW says:

    @Freddy, interesting chart, but it requires some heavy lifting to create a valid model from a pattern; quite a bit heavier than naming them. I trade the occasional head and shoulders pattern but do not fool myself that it explains fundamental mechanism instead of merely representing something about the collective judgment of market participants. The BarrelMeter could be a useful tool but the confusion of cause and effect and lack of connection to key macroeconomic variables removes even the most basic elements of verisimilitude a macroeconomic model requires even if the pattern does lead to a successful investment.

    “Debasement of the dollar” is a catchphrase from the hard-money crowd but in substance it only means that other currencies have appreciated against the dollar because prices for currency in a fiat system are ineluctably relative to each other; e.g., there is no straightforward relationship between level of government debt and currency price, if there were the Japanese Yen would be worth much less than it is and the Norwegian Krone much more.

    If the $USD appreciates then that is because the currency of other countries fall and oil becomes more expensive for them. So what are they going to do about that, cut spending some more to appreciate their currency? And so the US does the same in response to appreciate ours in return? And that’s going to do something besides accelerating a mutual economic death spiral? Why, exactly?

    Macroeconomics 101 says that people who lack money, jobs and leverage buy less rather than more and neither the price of oil nor the price of the dollar has any fundamental effect on that other than level of misery.

    Unfortunately it appears the commodity shock, oil in particular, has made an astonishing array of influential policy makers and power brokers believers in Austerian voodoo and all seem to be moving as a herd straight for the cliff and taking their countries with them.

    As Marshall Auerback at http://tinyurl.com/3kgynjv (ht Yves Smith) phrases it:

    “The collective embrace of fiscal austerity has gone beyond perverse. It’s as if Josef Mengele was reborn as an economist, working on some weird new social experiment to inflict the maximum amount of damage on the maximum amount of people. It’s a sick variation on that old joke:

    Patient: “Doctor, it hurts when I do this.”

    Doctor: “Then keep doing it.”

    Twenty eight developed governments have moved to get the oil price down to save the global economic recovery. Professional investors, speculators and fellow traveler manipulators have given these governments the finger over the last week and a half by bidding the oil price up.”

    Since everyone seems to be making predictions these days I’ll make one based on macroeconomics 101: Countries with leadership wise (or humane) enough to resist the lure of Austerian voodoo — who increase spending on jobs, on education, on infrastructure, on their people until their economies full recover — are going to come out of this ‘small’ depression so much better off, so economically healthier, than those countries who practice austerity that the difference in GDP growth between the two cohorts will be twice what it is today.

  45. farfetched says:

    Yes DeDude;
    Models are based on the present and past, not the future. If models were accurate everyone would be wealthy and we wouldn’t have markets.
    If the current debt is $14 T +/- and the congress is spending/issuing debt at $960 Bln. every two months, and we subtract $4T over ten years, do we end up at $18T? ($22T-$4T). I don’t think so. If we project $960 B over ten years, it is conservatively (off the top of my head) $5T a year, or $50 T minus $4T. That assumes at current yields (like that will remain constant…NOT!).

    The model assumes auto sales falling are the result of oil price. There is no proof of linkage. What else happened in 2007-2008 that affected auto sales? How about the credit crisis, cessation of home equity loans and the destruction of employment? high oil and these other factors just happen to coincide. Is this surprising?

    The model assumes human nature will change and politicians will suddenly go cold turkey with the public mastercard or the wealthy will suddenly have a conscience and want to support the country that allowed them to become wealthy. We will have no emergencies, no wars, no increased expenses so the deficit will fall and the dollar will regain value.

    Oil supply will become a constant and not subject to supply contraints, war, hedging, greed or increased demand.
    It assumes a long standing trendline from 1913 in the devaluation of the $USD, will suddenly change.
    http://research.stlouisfed.org/fred2/series/CUUR0000SA0R

    There is perhaps only one constant to models involving humans. Human greed and fear don’t change. Human nature is the constant, everything else, which is a multitude of factors too numerous to quantify or list, can, do and will change. I don’t think models mean anything. They are like plans and rules, made to be broken.

  46. louis says:

    “Already happening. Banks are doing massive principal reduction”

    Massive?? Do not not be misled by what the banks release to the media. When you hear of principal reduction among the upper/mid level water cooler gatherings then you will know they are serious. It is not happening on a game changing scale yet.

  47. RW, DeDude … thanx for the very thoughtful comments.

  48. DeDude says:

    @farfetched;

    You forget that the issued debt to a large extend is reissuing of expired treasury bonds. If they issue 1 billion in 3 months treasuries they have to pay that back and issue another 1 billion 3 more times in a year. So they will have issued 4 trillion in a year but not increased the national debt by only 1 billion. So the spending/issuing debt at 960 billion every 2 months is just another one of those Fox/Kudlov “white lies”. Technically it is true but it entrap people like you to draw false conclusions.

  49. farfetched says:

    Luckily I don’t watch Fox or MSNBC. I’m just reading the daily treasury statement and doing some simple math. They list total debt redemptions (which is what you are talking about) and newly issued debt. The difference between the two is new debt. I doubt anyone at FOX or MSNBC reads the treasury statements. I was prompted to do so by a retired IRS agent. I can assure you, I’m not confusing redemptions and new issues. I’m netting out the redemptions.
    The false conclusion is worrying about the Fed when the Congressional spending eclipses the Fed.

    The point is that the congressional spending addicts love to point fingers, especially at Obama, but like all addicts they aren’t telling the truth.

  50. One cannot extrapolate net debt raised from selective MTS. Federal revenues are highest surrounding April and much diminshed at other times of the year, hence the variance in high surplus – high deficit monthly reporting.

  51. farfetched, the Barrel Meter’s (and Gas Pump model) prediction of a collapse in Light Vehicle Sales goes back 18 months. It predicted units sales would collapse upon a $90/barrel breach by the USA contract monthly price. This occurred in early February. Sales have declined from the 13.4 million pace in February to 11.4 pace in June. Call it coincidence if you will, but these results happened right on queue.

    Gas Pump chart forecast: http://trendlines.ca/free/peakoil/GasPump/GasPump.htm

    Light Vehicle sales chart: http://research.stlouisfed.org/fred2/series/ALTSALES

  52. Today’s trivia stat from the Recession Indicator: the TRI model projects an avg 4.6% GDP after Labour Day is req’d to bring Unemployment Rate below the infamous 7.2% by Election Day!

  53. [...] than post a reaction of my own to the lousy jobs number I’ll just direct you to Barry Ritholtz’s excellent piece. Read the whole thing—it’s terse. Here’s a snippet that may sound a bit familiar [...]

  54. [...] wild card in the US has been government rescues and the implicit (some say explicit) targeting of asset prices by the Fed. This has skewed the [...]