Posts filed under “Think Tank”

Who? What? When?

Who? The Fed, the ECB, the BoE, etc, What? Unwind the large amount of policy accommodation. When? We don’t know but when the time comes whenever that might be. Fed Gov Warsh in the WSJ laid out what’s ahead for the Fed and said they will be aggressive in raising rates when the time comes. With US debt to GDP at 360%, we’ll see about that. Geithner said the US has an obligation to make sure “we are unwinding and reversing the extraordinary actions we were forced to take.” He also said “a strong dollar is very important in the US.” The FX market trades $3T daily so only actions not words will influence the $’s direction and today the $ is lower even with the comments. The Yen is at a 7 month high as the Japanese Minister reiterated that they don’t mind a strong Yen and the Euro is up after German consumer confidence rose to the most since June ’08. The Pound is the only currency the $ is seeing continued gains against.

Category: MacroNotes

Aug Existing Home Sales and what happens next?

Existing Home Sales totaled 5.1mm annualized, 250k less than expected and down from 5.24mm in July. The chief economist placed some blame for the shortfall in closings relative to expectations on “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.” The NAR said 30% of…Read More

Category: MacroNotes

Government Spending is the Solution–Not the Problem

Marshall Auerback is a Denver, Colorado-based global portfolio strategist for RAB Capital plc and a Fellow with the Economists for Peace and Security (http://www.epsusa.org/). He is a frequent contributor to the blog, Credit Writedowns, and the Japan Policy Research Institute (www.jpri.org):

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Government Spending is the Solution–Not the Problem
By MARSHALL AUERBACK

Tens of thousands of people marched to the U.S. Capitol on Sunday, carrying signs with slogans such as “Obamacare makes me sick” as they protested the president’s health care plan and our so-called “out-of-control spending”. The marchers were chanting “enough, enough” and “We the People.” Others, channeling their inner Joe Wilson, screamed “You lie, you lie!” while waving U.S. flags and the now omnipresent images of Obama as Hitler, Obama as the Joker, along with the usual placards decrying the “march to socialism”.

And the reaction against the expansion of the state is by no means restricted to America.  According to the London Sunday Times, voters are overwhelmingly in favor of cutting public spending rather than tax rises to close the budget “black hole”. Sixty per cent want to shrink the size of the state to curb the £175 billion deficit amid mounting government disarray over the public finances.  Naturally, there is also growing support for this line of thinking in the financial community, despite having successfully received tens of trillions of dollars, even for deeply insolvent financial institutions.  The large banks and brokers lobbied for special treatment and got it.

To the extent that government spending is being used to prop up these economic zombies, I sympathize with the prevailing orthodoxy about wastage of our money.  However, the fasct remains  that the principle opposition to increased government spending is predicated on the simplistic notions about  fiscal activism. We need to get past the deficit myths and wrongheaded notions of “national solvency” so that we can move forward in other areas.  In the words of economist Bill Mitchell of the University of Newcastle, Australia:

“Within a modern monetary economy, as a matter of national accounting, the sovereign government deficit (surplus) equals the non-government surplus (deficit)…In aggregate, there can be no net savings of financial assets of the non-government sector without cumulative government deficit spending.  The sovereign government via net spending (deficits) is the only entity that can provide the non-government sector with financial assets (net savings) and thereby simultaneously accommodate any net desire to save and hence eliminate unemployment.”

A seemingly growing populist drive toward a return to fiscal orthodoxy follows a stream of similar pronouncements from Wall Street, the Fed, the European Central Bank, the OECD, all of whom are legitimizing a campaign against further public spending and mobilizing support for “exit strategies” as they confidently pronounce the end of the recession. Implicit is the view that somewhere along the line ongoing government involvement in the “free market” reaches a tipping point where fiscal “intrusions” no longer act as a stabilizing force, but serve to impede the natural tendency of the market to equilibrate to recovery. The major hypothesis is that anytime the government is involved in the economy, eventually things go bad.  But markets do not self-regulate in ways that avoid major financial upheavals and activist government is required as a counterbalancing force.

President Obama himself has legitimized this line of thinking himself, committing himself to the goal of “fiscal sustainability” (whatever that means) as a medium term policy objective.  He said as much last Wednesday again during his speech on health care.  Having failed to understand what got us into the crisis, and equally having failed to appreciate the extent to which government spending actually prevented an economic catastrophe along the lines of the Great Depression, our policy makers who are championing this move toward neo-liberal fiscal orthodoxy are almost certain to drive us into the next recession if they take these demands to shrink government too aggressively.
Deficit hawks fail to understand that not all debt is created equally. As James Galbraith, L. Randall Wray and Warren Mosler have argued, there is no legitimate analogy to be drawn about the budgets of the government, which issues the currency, and the budgets of the non-government sector (households, firms etc) which uses that currency. The former does not have a financial constraint and can spend freely whereas the latter has to “finance” all spending either through earning income, drawing down savings or liquidating assets.

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Category: Bailouts, Economy, Think Tank

Jobless Claims

Initial Jobless Claims totaled 530k, 20k less than expected and down from 551k last week which was revised up by 6k. It is now at the lowest level since early Jan not including the July distortions. Continuing Claims fell by 123k and was 45k below estimates BUT those that are receiving Emergency Unemployment Compensation rose…Read More

Category: MacroNotes

jobs, Housing and the Fish That Saved Pittsburgh

Following yesterday’s negative outside day in the S&P’s (trade above the prior day’s high and close below the prior day’s low and sometimes a technical short term reversal sign), the market faces the two major big picture issues that our economy has, jobs and housing. Initial Jobless Claims are expected to total 550k vs 545k…Read More

Category: MacroNotes

FOMC

The FOMC statement was little changed relative to the August meeting. The data “suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased.” They follow with the caveats of strained household spending due to “ongoing job losses, sluggish income…Read More

Category: MacroNotes

IS JIM GRANT THE LATEST TO BE DRINKING THE KOOL-AID?

David Rosenberg is a 20 year veteran of the Street, David most recently was Merrill Lynch’s chief North American Economist, where he correctly warned about the Housing and Credit Collapse and Recession in advance. He is the Chief Economist of Canada’s Gluskin Sheff > > The Weekend Journal ran with an article by James Grant,…Read More

Category: Think Tank

Let’s get real about dollar-equities causation

The following is a guest post from a market strategist at a major research firm . . . ~~~ The dollar rallied, did it? That was the “cause” of yesterday’s weakness in the energy and metals commodities, which in turn “caused” the related equities to sell off? Hogwash! Stocks are calling the tune here, folks….Read More

Category: Currency, Think Tank, Trading

Mortgage rates below 5%, Fed high five!

The MBA said the average 30 yr mortgage rate for the week ended Friday fell below 5% for the first time since late May, at 4.97%. In response, refi’s rose 17.4%, the highest since May while purchases were up 5.6%. This news comes as the FOMC discusses the fate of their purchases of MBS/Agency debt…Read More

Category: MacroNotes

The Dollar’s Role in Rising Risk Appetites

Good Evening: After a couple of wobbly sessions on Friday and Monday, U.S. stocks resumed rising on Tuesday. With little in the way of economic news, it was left to a falling dollar to buoy investor risk appetites. The greenback obliged by setting a new low for 2009, and commodity prices understandably reacted by heading…Read More

Category: Markets, Think Tank