Q1 GDP: Aggregate Demand (Final Sales) in Negative Growth Territory
The official headline for U.S. Q1 GDP growth says a positive 0.6% growth but the details are ugly and confirm that we are in a recession.
First of all, if you exclude the increase of inventory of unsold goods (that moved positive after a negative figure in Q4) the Final Sales of Domestic Product were a negative 0.2%. In other terms, inventories of unsold goods added an artificial 0.8% to Q1 growth boosting it from a negative 0.2% to a positive 0.6%. So actual aggregate demand (Final Sales of Domestic Product) – the actual measure of growth of true demand – fell in Q1. And this build-up of inventories in Q1 means that the fall in GDP in Q2 will be larger than otherwise as firms will have to reduce that large inventory of unsold goods via a further reduction in production and employment.
Second, residential investment is in total free fall, collapsing at an accelerating annual rate of 26.7%. But GDP figures underestimate the true fall in aggregate demand as they do not separate residential investment into true final sales of new homes and into the unsold inventory of new homes that are produced and not sold. Thus, all production of new homes is assumed to be sold in the national income accounts data. But we know that home sales are falling more than production of new homes, that cancellation rates (running at a rate of 20-30%) are not included in the new home sales figures and that the inventory of unsold new homes is actually rising. Thus, if the BEA had correctly measured final sales of domestic product, by having a separate line for the change in the inventories of new unsold homes (the equivalent of the change in business inventories), the figure for final sales of domestic product would have been even more negative than the already negative 0.2%, probably a negative 1.0%. So the national accounts make a methodological mistake in measuring final sales of domestic product by assuming that the change in inventories of unsold housing is always zero, something that is obviously wrong especially during a severe housing recession.
Third, now all components of fixed investment (residential investment, non-residential investment in structures and capex spending by the corporate sector (i.e. non residential investment in software and equipment) are now in negative growth territory. This is a major difference relative to 2007 when structures investment and capex spending were significantly positive. The investment recession is now clearly spreading from housing to non residential commercial real estate and to real capital spending by the corporate sector.
Fourth, since the quarterly GDP figure compare the average GDP in the first three months of 2008 to the average GDP in the last month of 2007 even a flat or slightly falling GDP in some months of Q1 is consistent with the average being positive relative to the previous quarter (that is the average of three growing months). And data on monthly GDP (say from Macro Advisers) show that GDP started to fall in February of 2008. This is the typical inertia in growth figures that comes from looking at quarterly, rather than monthly, figure. Thus, the Q2 GDP contraction will be larger than otherwise.
Fifth, both durables goods consumption and non durable goods consumption grew at a negative rate in Q1. What boosted an anemic 1% growth in Q1 consumption was a still positive growth in services consumption. Durable consumption spending is clearly collapsing (-6.1%) But the fact that spending on non durable goods is falling – something that has not happened in decades – is an ominous sign.
Sixth, the only good news on growth came from net exports. But with sharply rising oil prices in the last few months you are going to see a sharp rise in imports of oil and energy goods in Q2 that will further depress Q2 growth.
Finally, the NBER does not use the mechanical rule of two consecutive quarters of negative GDP growth in determining whether we had a recession or not. The NBER looks at a variety of economic indicators and puts more emphasis – among other variables – on employment and labor market conditions. We do know that employment in the private sector has now fallen for four months in a row and that overall non-farm employment (including the government employment) has fallen for three months in a row. So I do expect, leaving aside possible future downward revisions in the Q1 figures, that the NBER will eventually date the beginning of the 2008 recession to the first quarter of 2008.
110 Responses to “Q1 GDP: Aggregate Demand (Final Sales) in Negative Growth Territory”
http://bloomberg.com/apps/news?pid=20601087&sid=aFZ5qPxNMywA&refer=homeU.S. Economy Expanded at 0.6% Pace in First Quarter (Update1) By Shobhana ChandraApril 30 (Bloomberg) — The U.S. economy expanded at a 0.6 percent annual pace in the first quarter as an increase in inventories compensated for weaker consumer spending and a drop in business investment. …“We think we\’re in recession, but I don\’t know that the GDP numbers are going to turn negative at all in 2008,\’\’ said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, in a interview with Bloomberg Television. “If you were to take out the swing in inventories, these numbers would be negative.\’\’ Spending by households, the biggest part of the economy, grew last quarter at the slowest pace since 2001, when the U.S. was in a recession, as job losses mounted, food and fuel prices surged and property values tumbled. Federal Reserve policy makers are forecast to cut the benchmark interest rate today to limit the downturn…Consumer spending, which accounts for about 70 percent of the economy, rose at a 1 percent annual pace, the smallest gain since the second quarter of 2001 and less than half the 2.3 percent increase in the previous quarter. Americans have retrenched as employers cut payrolls by almost a quarter million workers so far this year, gasoline prices approached $4 a gallon and home foreclosures surged…. Companies also cut back. Business fixed investment, which includes spending on commercial construction and equipment and software, dropped at a 2.5 percent annual rate, the biggest decline since the first three months of 2004, after increasing 6 percent the prior quarter. Spending on new equipment and software fell at a 0.7 percent rate. Investment in residential construction projects fell at an annual rate of 27 percent, the most since 1981. The drop took away 1.23 percentage points from GDP, after a 1.25 percent drag in the prior quarter. Housing has subtracted from growth since the first three months of 2006. Inventories Rise Companies added to stockpiles at a $1.8 billion annual rate, after an annualized decline of $18.3 billion in the final three months of 2007. The figures added 0.8 percentage point to growth. The buildup may give way to cutbacks in production in coming months as businesses try to clear unwanted stockpiles. “As inventories are worked off, economic activity may decline outright this quarter,\’\’ Peter Kretzmer, a senior economist at Bank of America Corp. in New York, said before the report. Automakers already are pulling back. General Motors Corp., the world\’s largest automaker, this week said it is cutting production by 138,000 large pickup trucks and sport-utility vehicles this year at four plants in the U.S. and Canada. “A significant adjustment was needed to align our production with market realities,\’\’ Troy Clarke, Detroit-based GM\’s North American president, said in a statement.
I hope the stock market agrees with the Prof.Brian Wesbury (my least fav economist) said this morning that the odds of a recession are minute.
While the .6 GDP is nothing to be happy about on the face of it, anyone who reads the details should be downright sad. Even exports slowed from the 4th qtr pace.With inventory building adding 0.8 percentage points to growth, the headline GDP figure was stronger than the details of the report.Final sales of domestic product fell 0.2%, while final domestic sales dropped 0.4%, the first decline since the recession of 1991.Consumer spending increased 1% after rising 2.3% in the fourth quarter, the weakest growth since the 2001 recession and less than half its growth in the fourth quarter. Spending on durable goods fell 6.1%. Spending on nondurable goods fell 1.3%, the biggest decline in 17 years. as consumers cut back on the amount of food and energy they purchased. Business investment fell 2.5% annualized after a 6.0% increase in the fourth quarter. Investments in structures dropped 6.2%. Investments in equipment and software dropped 0.7%. Inventories increased by $1.8 billion after falling $18.3 billion. The change in inventories added 0.8 percentage points to growth.Residential investments fell at a 26.7% annual pace after falling 25.2% in the fourth quarter. Exports increased 5.5% after 6.5% growth in the fourth quarter. Imports rose 2.5% after falling 1.4%.The GDP price index rose at a 2.6% annual pace, the fastest inflation in a year. Consumer prices increased at 3.5% pace.JH
I told you, they would not have sent Bush out on national TV to vigorously deny we are in recession if this number was going to be negative. Nice work on picking apart the detail Nouriel, again, thanks for your hard work.
9:35 Treasury decides to bring back one-year bill
Citigroup needing to raise more $\’s at the expense of the shareholder once again!
9:48 Jones Apparel posts 59% profit plunge, lowers outlook
9:49 Stewart Info 1st Quarter Loss Widens; Cut 5.4% Of Workforce During 1st Quarter
US stocks are the biggest con game going right now. Vegas and Wall Thief should just merge and get it over with…
This will rally this hell out of stocks! Once again, negative, but positive…9:53 U.S. April Chicago PMI 48.3% vs. 48.2% March: reports
All of this con-data is now working against the Fed instead of for it. You can only tell lies for so long before the hammer of justice bonks you on the head!
Written by Softwarengineer on 2008-04-29 17:40:48From previous thread.I passed over your daughter\’s essay but went back to read it after several regulars made comment.Question. How old is your daughter and how much help did you give her? I was confused. It seemed circular to me. Starting with government bureaucracy being the problem and ending with the civil service being great.Finally, just how do you depopulate the U.S. and the world?
@AllBack to back negative GDP quarters defines a recession. What is the statistical definition of a depression?
global famine blane the fedhttp://blacklistednews.com/view.asp?ID=6406&ref=patrick.net
Iran dumps U.S. dollar for oil tradeshttp://edition.cnn.com/2008/BUSINESS/04/30/iran.oil.ap/index.html?iref=mpstoryviewSecond carrier group heading into Persian Gulf:http://www.reuters.com/article/wtMostRead/idUSN2937818820080430
Gloomy on 2008-04-29 18:00:58“There is more, but these are some basics. I would love to here your view on what you think will prevent a relentless downward spiral.”I think this kind of a “have you stopped beating your wife question”. Why should I present an argument about what will prevent a relentless downward spiral when we aren’t having one? The burden of proof is still on you / us because the evidence of a severe recession is still absent, and this absence is prima facie evidence against a relentless downward spiral. In order to have a depression, we would first need to have a recession (contraction in the economy) and we don’t even have that!The housing market peaked nearly two years now, and we can’t even get one quarter of clearly negative GDP. How will we ever have a severe recession / depression at that rate?It appears we are only tilting at windmills and supporting our outlooks with “shadow statistics” and speculation.In the GD they didn’t need to dig into the data to find evidence to support it, it was obvious; the proof was everywhere!I know the reasons why we should have a recession, but the proof is in the pudding; so where’s the pudding already?!I expect I will capitulate on all my short positions after the FOMC announcement today. I have been fighting the market and the Fed for over a year now, and I can’t take it anymore.
@KJFIf you capitulate, you run the risk of becoming another reverse indicator like AB St.L
Lets party! The loss was only $3.25 BILLION!!!! MADNESS!!!10:49 GM shares rally as $3.25 billion loss still tops targets
@GirafDo you see a change in sentiment? I notice that LEH and UBS soared on shareholder dilution and now Citi drops, but the market still rallies on any new, no?
\’on any news\’, sorry for my bad spelling
Giraf on 2008-04-30 09:45:05“If you capitulate, you run the risk of becoming another reverse indicator like AB St.L”Yes, I realize that, but I have no choice; it is a matter of capital preservation.The “great moderation” is alive!
A recession is defined by most of two consecutive quarters \"negative\" GDP. We\’ve had four years in a row of \"lower\" REAL GDP. Could this not also be proof we are in a recession? Also, does one rely on information from the government, like labor statistics, to accurately make predictions?
Look how MarkeWatch spins the Citi news!!! \"Swelling demand for fresh shares allows bank to raise $4.5 billion in new offering, with each share priced at $25.27. Tuesday close: $26.81\"The con game is in full swing! You watch, stocks will finish up 600 point today LETS PARTY!! Rampant inflation, mounting job loss, war starting with Iran, 8 other countries now with inverted yield curves, insolvent banking system, beating lowered estimates…LETS PARTY!! LETS PARTY!!!
It is an interesting subject to read: \"Short\’s story\".http://money.cnn.com/2008/04/29/news/companies/McLean_Bulldog_Shorts_Story.fortune/index.htm?postversion=2008043007
@AlessandroI think the Citi think is different because only 2 weeks ago their CFO said they\’d have no new capital needs. Clearly, they\’ve found another \"surprise\" on their books.
@AlessandroThat should have read \"Citi thing\" not \"Citi think\".
Look at the pictures of how people have to live and look at the incomes of those who are imposing those conditions on them. If you have any trouble deciding whose side you’re on, you’ve gone to the wrong website. CEO $209,371.58$172,458.86 $168,954.08$168,150.75CHIEF FIN. OFFICER $167,649.55$155,687.22 VP $137,594.97 MANAGER $132,640.46 MANAGER $132,400.28 GM $121,342.67, DIRECTOR $116,957.33DIRECTOR $116,957.29 MANAGER $110,793.54 DIRECTOR $108,907.52 DIRECTOR $106,978.35DIRECTOR $106,522.28 DIRECTOR $104,754.22$103,024.54 DIRECTOR $103,002.20http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20080425/WFIVE_landlord_080426/20080426/
http://www.marketwatch.com/news/story/citis-share-sale-shows-capital/story.aspx?guid=%7BF1C9C2CF%2D51AF%2D44F5%2D92BB%2D4CA9D0DE56C5%7D&dist=msr_10Citi said it\’s capital ratio is 8.5% and above 6% is well capitalized. It means there is alot more writedowns to come.\"Although the company indicated that it was raising the common equity to \’optimize\’ its capital structure, we struggle to see how selling more expensive common equity optimizes its capital structure unless it was at risk of having its debt downgraded by one of the rating agencies,\" said William Tanona, an analyst for Goldman Sachs (GS:Goldman Sachs Group, Inc in a note to investors
@K J Foehr on the depressionIn 1929 none knew a Great Depression has already started. My feeling is that, if we really get a GDII, future historians will date the beginning of the economic downturn in 2001 and will call a double dip depression.As for proof of a recession. The only way the US has kept its collective head out of the water (and GDP to zero) is thanks to massive borrowing from the poors of the world. This can\’t go on forever.
Written by Guest on 2008-04-30 10:26:10That`s the problem with public housing: no skin in the game, so no care and attention paid by the tenants. Same situation as on the native reservations.
Wall Street guys doesn\’t seem to be interested in ugly dteşail of GDP Q1 data. The only thing they are interested in is pushing the markets up.
Where have all those 100.000\’s of layed offs in banking, mortgage and real estate business gone? Walmart must be hiring as mad or is there a Bermuda triangle for lay offs, kinda like for the poisoned CDOh no\’s in the FED\’s vault. They can\’t all have been put in prison, can they? Anyone any statistics about arrivals in Guantanamo, lately?
This should help:\"TEHRAN, Iran – A top Oil Ministry official says Iran, OPEC\’s second-largest producer, has completely stopped conducting all its oil transactions in U.S. dollars. Iran has dramatically reduced dependence on the dollar over the past year in the face of increasing U.S. pressure on its financial system and the fall in the value of the American currency.\"Meanwhile, we are moving a 2nd carrier to the gulf. This ain\’t gonna be pretty.
Using pre-Boskin (1997) inflation adjustment, GDP growth was negative in Q4 07 and continues negative.By the way, the best definition of the difference between a recession and a depression I have heard is that in a recession you lose your job. In a depression, I lose mine.
Did you actually believe the GDP price index rose at ONLY 2.6% annual pace? And, Consumer prices increased ONLY 3.5%?? Thank God with these LOW inflation, we have a positive GDP.Oh by the way, look for Bernanke to come out today announcing excuse of INFLATION IS MODERATING and cut interest rates, and imply more cuts are coming. Bernanke and a few other evil FED governors/presidents (especially the lady based in San Franciso CA) really deserve your praying to die slowly in pain.
What is going on today with the manipulation of govt statistics is criminal. I blame the media for letting them get away with it cause they buy the garbage they are being fed. CNBC is a peice of garbage and the biggest propaganda machine around today. Since no one will expose the fraud that has been perpetrated against us, this will go on indefinately…the sheeple are being led to slaughter
Dow up 600 today…
Look at al the idiots who are publically supporting the bogus GDP number as evidence we are going to \"skirt\" a recession!!!! I am going to go balistic!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
have a nice rate cut everybody
This has become a vent board for short investors! Geez!
So Nouriel, how does knowing the truth help us to protect ourselves when the rest of the powers that be live in fantasy and the financial markets reflect their perception rather than reality? Knowing the horrible reality of the GDP numbers just doesn\’t matter because stocks are up 11% off the lows and about ready to go to new highs. Yet, those of us on the outside don\’t posess the inside information to stay on the right side of the trade? Help….
When the sow finally implodes it will be much uglier.http://edition.cnn.com/2008/SHOWBIZ/Music/04/30/music.lostflyingpig.ap/index.html
I beg to differ, this is not about being a trader, it is about protecting hard-earned assets like your 401K or money in the bank. It used to be \"being informed\" was being saved, now being informed seems to work against you.
@KJGood!! Let\’s have a dialog. I think your point is that the data does not show we are in recession. My support comes from NR (see above). Additional support is provided below. Now the ball is in your court.Congratulations! Its a Recession!Wednesday, April 30, 2008 | 09:49 AMin Data Analysis | Economy | Inflation It doesn\’t take too much advanced mathematics to note that by several historical methods for determining whether the economy is contracting or expanding, we are now in a recession. Consider a true inflation measure of GDP, per capita measure, or the NBER methodology. All three show economic contraction. Let\’s start with our \"Reality-based\" analysis: The only conclusion an honest read of inflation produces is that both Q4 2007 and Q1 2008 were positive in nominal terms, but negative in Real terms. Remember, the goal of GDP should be to figure out how much the economy is expanding or contracting — not how much prices rose. By any honest measure of inflation — and not the 3.5% BEA price index for gross domestic purchases — both of the past two quarters would have been negative. How can we have an understated inflation rate of 4%, and a GDP Price Deflator of just 2.6%? 2) The NBER methodology: The 2 consecutive quarters of GDP contraction is not the only metric for identifying recessions. According to the econo-geeks at the National Bureau of Economic Research, a recession is defined as a \"significant decline in economic activity spread across the economy, lasting more than a few months.\"Here\’s their specific language:\"Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, \"a significant decline in economic activity.\" Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.\" Hence, if we follow what the people who actually determine what is and isn\’t a recession say abnout the matter, and not just limit our analysis to GDP, then its pretty clear we are now experiencing an economic contraction.Rex Nutting reminds us that 1) After-tax inflation adjusted incomes have been stagnant since September; inflation-adjusted sales have fallen at a 5.2% annual pace in the past three months, and are essentially unchanged from six months ago; industrial output has stalled; UPDATE: Rex adds that spending on services rose 3.4%, including a 14% rise in real spending (seasonally adjusted) on household heating. It’s quite likely that this figure doesn’t accurately adjust for the rising cost of natural gas and heating oil this year. About one-third of the total increase in GDP ($17.4 billion) was an increase in the spending on heating costs ($5.5 billion). Hence, even more Inflation-driven GDP. By any reasonable measure of the NBER delineated metrics, we are already in a recession.3) Per Capita Measure, favored by Merrill Lynch North American Chief Economist David Rosenberg, is to simply look to see if the economy is expanding faster than the population. With the US population expanding by 1.0 – 1.5% per year, it takes economic growth of at least that merely to stay in place. Hence, Rosenberg\’s claim that GDP growth on a per capita basis is actually are contracting sine Q4 2007.http://bigpicture.typepad.com/comments/2008/04/congratualtions.html#comments
My definition of recession:
2 negative quarters of job growth
Stocks off to the races and the Fed dropped their line about \"downside risks to the economy remain\". So they must the combination of rate cuts and the \"stimulus\" package are enough to keep the economy out of \"negative growth\". I still am appauled at the inflation bull s$!& in the GDP calculation.
@ Guest on 2008-04-30 12:45:00-The easy answer to your question is you protect yourself and your family. Stop trying to make money on a rigged game – this isn\’t Vegas baby – you are not going to win if you keep playing.Spend some time thinking about what it is we are being told by our government. Add it all up and see if it makes sense to you. If it does and you see no reason to distrust those in power, then congratulations! All you will ever deserve is on its way.But if, like many here, you feel like the reality is different from what is being presented, then ask yourself why. Who benefits from calm masses? Who benefits from people leaving their money in the market? Who benefits from higher oil prices? Starting to get a picture yet?Follow me a bit further down the road…..How much money does the government pay out in Social Security each month?The Social Security system automatically adjusts payments up to keep pace with inflation by law. What would happen to the federal budget if recipients got real inflation-adjusted checks? Again, who benefits from the distorted figures?Here\’s another piece for you – since 1970, the lowest quintile of the population has seen their real income fall while the upper most quintile has seen a 50% increase. If you look at just the top 1% of earners (the wealthiest) they have seen an increase of 300% over the same time period.If people really knew and understood who was making all the money and held all the power and got all the perks and told all the lies – they would revolt. I have used this before, but think about France in the 18th century. She may not have said it, but the line \"let them eat cake\" that was attributed to Marie Antoinette is not much different than what the wealthiest Americans (and those in power) are saying to us now.
MODE OF CHECKMATE CHOSENIf the economy was not falling apart, why would the Fed lower interest rates in the face of skyrocketing food and energy costs? It is checkmate for Bernanke. By continuing to lower rates he has chosen to be taken by the rook in five moves (hyperinflation) rather than raising rates, leading to checkmate in 3 moves by the bishop (deflation). The results, however, will be the same, worsening of the recession and eventually depression.
History will prove that we are presently in a DEpression, just on the upper end of a particularly vicious correction that has everyone second guessing themselves and blaming gov\’t and corruption.
I wonder if the fed had not cut, the market would have sky rocketed because it gives them confidence that things are fine.The rate cut might have the opposite effect. Let\’s see if the street starts concentrating on the ecnomics instead of rates cuts as we have done for last 6 months.
@KJ“Good!! Let\’s have a dialog. I think your point is that the data does not show we are in recession. My support comes from NR (see above). Additional support is provided below. Now the ball is in your court.”Yes, I saw that on the Big Picture, and I agree that inflation is distorting a lot of the numbers we are getting. But in order to have a severe recession or depression, we need A LOT more than a slight negative GDP in “real” terms. That is just tinkering at the edges of it. We are not expecting a “technical” recession but a big one, right?My other point was that it is taking too long! Housing peaked nearly two years ago; I don’t think it should take that long to begin to see REAL signs of severe recession like rapidly rising jobless claims and unemployment, materially negative GDP, falling stock market, severely declining corporate earnings and earnings guidance, etc. It appears to me that what we have seen so far is consistent with a slowing economy, but not a collapse into depression or even severe recession.IMO, the longer this goes on without REAL economic damage that shows up in negative GDP and higher unemployment, the more likely it is that the accommodative rates and fiscal stimulus and injected liquidity will begin to significantly offset the economic damage done by housing and the CC.I was expecting something like 1974 or 1982, but at this point I would settle for ‘90-’91!
Roach: on cockroach hotel called Wall StreetQ1 GD
Hallelujah! Selling!Wonder of wonders, miracle of miracles-God took a bear’s hand once again,Stood by his and side and- miracle of miracles- Walked him through the mean bulls den!I covered one, but may not need to do anymore today!
@KJFair enough. But, let\’s look at what is propping the market up:1) Foreign trade. Economist Gary Schilling says foreign economies are lagging ours by about 6 months. I think the evidence is strong for this thesis. I think there is no question that this slowdown is occuring, if you start reading about what is going on overseas. So this leg holding up the stool is about to fall.2) Commodities. This is going to take longer as it is likely that we are entering into a prolonged period of inflation. However, commodities alone are not enough to hold up the market (see 1973-4). Eventually as the economic slowdown gets really deep, the commodity bubble will pop. With these legs gone, what will hold the market up? Your move.
Ted Spread dropped from 1.70 to 1.39 just days before cut, now moving up again. Dollar intervention talk seems hollow now.
KJ Foehr,If your basing your prediction that we are not headed for a severe recession based on the current GDP figures, than I would advise you to have a look at the historical GDP table at the following site:http://www.bea.gov/national/nipaweb/TableView.asp#MidNotice that Q4 of 79 and Q1 of 80 are similiar in terms of benign GDP figures, but then look what happened in Q2 of 1980, just one quarter later – a dramitic decrease in GDP growth. The point is that the Q2 1980 figure could not have been anticipated by applying your reasoning. If I\’m wring about your reasoning than I stand corrected.
Americans unload prized belongings to make ends meet By ANNE D\’INNOCENZIO, AP Business Writer Tue Apr 29, 6:04 PM ET NEW YORK – The for-sale listings on the online hub Craigslist come with plaintive notices, like the one from the teenager in Georgia who said her mother lost her job and pleaded, \"Please buy anything you can to help out.\" Or the seller in Milwaukee who wrote in one post of needing to pay bills — and put a diamond engagement ring up for bids to do it.Struggling with mounting debt and rising prices, faced with the toughest economic times since the early 1990s, Americans are selling prized possessions online and at flea markets at alarming rates.To meet higher gas, food and prescription drug bills, they are selling off grandmother\’s dishes and their own belongings. Some of the household purging has been extremely painful — families forced to part with heirlooms.\"This is not about downsizing. It\’s about needing gas money,\" said Nancy Baughman, founder of eBizAuctions, an online auction service she runs out of her garage in Raleigh, N.C. One former affluent customer is now unemployed and had to unload Hermes leather jackets and Versace jeans and silk shirts.At Craigslist, which has become a kind of online flea market for the world, the number of for-sale listings has soared 70 percent since last July. In March, the number of listings more than doubled to almost 15 million from the year-ago period.…http://news.yahoo.com/s/ap/20080429/ap_on_bi_ge/cashing_out_the_atticNow that sounds like a recession!
ohttp://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&FirstYear=2007&LastYear=2008&Freq=Qtrops, sorry the link to historical GDP table did not work. Here it is:You just have to plug in the suggested dates yourself.
http://www.cbc.ca/consumer/story/2008/04/30/gas-thefts.htmlThe rising price of gasoline has made it an attractive target for thefts, ranging from highly organized bulk heists to the siphoning of fuel from vehicle tanks.Thieves have stolen thousands of litres from a number of Montreal gas stations\’ holding tanks. Pierre Zarifeh\’s station on Saint-Michel Boulevard was the victim of a bulk theft, when a cube van pulled up and pumped thousands of litres of diesel fuel from an underground tank.Montreal police couldn\’t provide an exact number of stations hit, but Const. Anie Lemieux said several investigations are underway. The thieves are highly organized, she observed. \"You have to be pretty equipped to be able to get into the main tanks.\"Jane Savage, president of the Canadian Independent Petroleum Marketers Association, whose members sell about 6.5 billion litres of gas, diesel and heating fuel a year, said she hadn\’t heard anything specific about increased thefts, but it generally happens when prices go up.The national average cost of a litre of regular gas was $1.252 on Tuesday, up 2.2 cents from the previous week and 15 cents from a year ago, Calgary-based MJ Ervin & Associates said.Police in the Lake Charles, La., area have increased patrols after thieves stole gas from transports by cutting fuel lines or breaking into tanks, according to WDSU.com.Police are investigating at least nine thefts, said Lake Charles police Sgt. Mark Kraus.In Rock Hill, S.C., the Herald newspaper website reported that thieves cut fuel lines and stole gas from vehicles used to transport developmentally disabled adults.Zarifeh, the Montreal gas station operator, said he has spent thousands of dollars installing security cameras and plans to park cars over his tanks at night.But \"many guys are just closing the gas pumps\" because of the losses.He said he\’s considering that option.
MORE ON CHECKMATEFrom CNBC:The Dow industrials popped Wednesday after news of another Federal Reserve rate cut but gains quickly evaporated as interest-rate sensitive stocks declined.\"The Fed\’s decision to cut rates doesn\’t help support the dollar,\" said Tom Schrader, managing director for U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore. The market is responding to the fact that \"the dollar is probably going to lead to a rebound in crude prices,\" he said.
Written by Maundermin on 2008-04-30 14:34:05“If your basing your prediction that we are not headed for a severe recession based on the current GDP figures, than I would advise you to have a look at the historical GDP table at the following site:http://www.bea.gov/national/nipaweb/TableView.asp#Mid”Thanks for the good info. Actually I am not really basing anything on the number today. I am mostly intuitive; my decisions are heavily influenced by anecdotal evidence and my gut reaction to the sum total of what I see, hear, and read. This morning I was just very disappointed and frustrated that GDP was still positive and with the continuing six week rally in stocks. I mean the street and most talking heads (apparently) are looking for a recession in the first and second quarters, and then a rebound in the second half, so when the first Q comes in positive, what does that leave!? One quarter of negative GDP? That is not going to move stock prices down much, IMO; we need more than that! So I was worried the rally would really take off looking past the recession altogether.But, the sell-off this afternoon tells me they may begin focusing more on the fundamentals now instead of more rate cuts from the Fed.
\"If you opted to have your 2007 tax refund directly deposited into a retirement account, your stimulus payment will be sent to the same account — but you can withdraw the stimulus money without penalty, the Internal Revenue Service announced Wednesday.\"In other words: If you opted to save the money, you chose the wrong option. But no worry, you can still WITHDRAW and SPEND.
The battle goes on. Remember there is lots of noise in day-to-day data. IMHO, the analysis by the bear side has been deeper and more robust than that of the bulls (remember, subprime is well-contained etc.) Housing and its effect on the economy should continue to take its toll on the economy as evidenced in today\’s GDP report. And as Gloomy pointed out, the rest of the world should follow.The significance of today in the equity markets is that it wouldn\’t have taken much effort to paint the tape red on the last day of the month and that didn\’t happen. The bond market was happy about the move. In ended the day well on both counts:-)It is getting closer to departure time (Sunday May 4), will try to squeeze in a few posts until then.
Thanks Capone for noting and London Banker for commenting on the Jeremy Grantham article link from A not her Anonymous on 2008-04-29 10:53:37Later I wasn\’t able to get there via the link I posted. Here\’s a workaround: http://www.chrismartenson.com/headlines-april-28-2008Look for Immoral Hazard by Jeremy Grantham. Link was working this morning.He(Grantham)is clearly not a fan of Bernanke and/or Greenspan. I read most of everything on RGE and am enlighted, entertained and educated by what I find here. Oh yeah, delighted, too.A big \"Thank you!\" to all participants!A not her Anonymous
FDIC Offers Up Home Ownership Preservation Loanshttp://www.thetruthaboutmortgage.com/fdic-offers-up-home-ownership-preservation-loans/
@KJI will not waste my time responding to you in the future, as you seem to be unwilling to think logically and your thoughts sway with the breeze of the market in an undisciplined manner. Please do not address any further comments to me. I do wish you good luck.
@Gloomy,I think your point about lowering rates too much too soon became even more potent today. The Fed was not as hawkish as I expected. The USD may continue lower now, and oil and other commodities higher, putting even more pressure on tapped out consumers!US Dollar Index Futures Spot Pr(NYBOT: DX-Y.NYB) Index Value: 72.57Trade Time: 4:25PM ETChange: down 0.32 (- 0.45%)Prev Close: 72.895Open: 72.876Day\’s Range: 72.49 – 73.11
Gloomy on 2008-04-30 15:27:43“I will not waste my time responding to you in the future, as you seem to be unwilling to think logically and your thoughts sway with the breeze of the market in an undisciplined manner. Please do not address any further comments to me. I do wish you good luck.”Well that’s a surprise; so much for liking dialog I guess, but as you wish. Good luck to you as well.
4:36 Paulson says any U.S. growth remarkable given headwinds
Is it clear by the wording of the statement the Fed is on hold for a while or just implied by some minor tweaks made to the statement ? In other words, have they said enough now for a cut from the hips in the NEXT 6 WEEKS to make them appear even more fickle than they currently are known for ? Why bother with this line of reasoning – they will day trade until the very end of their rope if the equity market forces them to…
Thanks for the good info. Actually I am not really basing anything on the number today. I am mostly intuitive; my decisions are heavily influenced by anecdotal evidence and my gut reaction to the sum total of what I see, hear, and read. This morning I was just very disappointed and frustrated that GDP was still positive and with the continuing six week rally in stocks. I mean the street and most talking heads (apparently) are looking for a recession in the first and second quarters, and then a rebound in the second half, so when the first Q comes in positive, what does that leave!? One quarter of negative GDP? That is not going to move stock prices down much, IMO; we need more than that! So I was worried the rally would really take off looking past the recession altogether.But, the sell-off this afternoon tells me they may begin focusing more on the fundamentals now instead of more rate cuts from the Fed.Thanks for the reply. I can surely understand your frustration. The equity market continues to defy real economic fundamentals, but I believe that this period of \"irrational exuburance\" will dissipate fairly quickly as it must contend with a larger volume of malign economic news. The situition can be decribed in terms of chaos theory as it relates to pertutbations in initial, fluid-flows:A flapping butterfly cannot effect significant changes to the larger-scale atmospheric flow, because the the flapping-wings do not generate a coherent flow to the interacting non-linear larger-scale flow, sufficient enough to carry the generated heat (information) to the larger atmospheric flow. The reaason being that the heat generated within the micro-scale flow becomes quickly dissipated as it moves through a larger-volume, larger-scale fluid flow, such that while changes on the micro-scale become watered down so much that the larger-flow absorbes it into a homogeneous fluid-state. In economic terms, the current buzz on wall-street will become quickly absorbed into the larger, fundamental-scale economic flow.This seems to be playing out exactly according to classic, boom-bust historical scripts. As they say, Bear markets are seductive beasts and so, when the tide goes out it becomes clear who was swimming naked. My clothes are still on.
4:37Paulson continues to urge financial firms to raise capital4:36Paulson sees \’more bumps in road\’ for financial markets
Ok Allesandro…They did it today! They broke through that 13,000 ceiling that I didn’t think would happen. (In defense of my call from January 24th, they have since added Chevron and BoA, and removed Altria and Honeywell from the DOW. The run on CVX has aided the DOW’s return to 13,000.) That prediction held for 3 full months and was challenged quite a few times by the irrational markets.To quote: “If the current “rules” don’t change, and I were to make a long term prediction, (i.e. the bubble is forced to fully deflate in a controlled manner), I see DOW somewhere between 10,800 and 10,100. (S&P 1,180 and 1,100) If control is lost, I see a bottom at DOW 8,500 and S&P 900. Short term, I have a hard time seeing us back above 13,000.”With that said, I believe equities are near or at their turning point. …so my advice to the gansta formerly known as JMa, a conservative shorting approach may start to pay. …but then again… I’m no Eliot Ness. Either way, don’t forget to pay your taxes, because the Gov’ts gonna need their share to cover the rebate checks.Distressed debt just got as cheap as it will likely get with borrowed dollars. IMO, Un-invested cash will look at the Equity RvR models unfavorably. …so those chasing return will likely return to the debt products.Miss America@ Miss Italy – no problem at all.
\"it\’s not a buyer\’s market unless you buy.\"
@MA, i am intentionally refraining from specific calls at the moment and have actually been sending them to myself rather than posting them(weird, strange, whatever…) the sun is shining here in Chicago, it is starting to warm up again – it will be an enjoyable evening and could perhaps be a great Spring. it was a very looonnnggg end of winter and early spring the past few months – things were really stretched out.
Did anyone see that Mortgage applications dropped to lowest since Dec. 2007.It\’s amazing how the MSM tries to bury this story. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity dropped 11.1 percent to 567.0 in the week ended April 25, its lowest since the week ending Dec. 28.
As the day traders and short sellers here might say;What does the mortgage market, consumer insolvency, unemployment, and the general economic health of America for that matter have to do with the stock market…
Hi I\’m in the UK and Mr Blanchflower (member of the MPC that sets interest rates) thinks the BoE should cut lots and soon and that Mr Bernanke was behind the curve doing too little too late. My question is, has cutting actually done any good in the USA since the cuts have not been passed on by the banks to the people with mortgages and the banks are borrowing at even higher rates through preferred shares?And the cutting has cost a lot in terms of the devaluation of the dollar.I feel that Gordon Brown is right to resist cutting interest rates in the same manner as the Fed. It won\’t help the housing market and will of course devalue the pound.What advice would you give Gordon Brown and Mervyn King?
For interesting discussion of the FED:http://globaleconomicanalysis.blogspot.com/
@Miss AmericaWell, they barely scratched 13,000 today. If we don\’t bounce firmly above today high you will still be the king top and bottom caller of the blog
http://www.cnbc.com/id/24380310Big Investors See Recession, Wall Street Depression
http://www.cbc.ca/money/story/2008/04/28/vacancy-up.htmlseems all that over flip frenzy created a oversupply of condos http://img85.imageshack.us/img85/4922/calgaryinflationadjustede7.png
The kings of consensus forecasting are out with what I consider to be a fairly good picture of the short term and associated fixed income strategy:http://media.pimco-global.com/pdfs/pdf/MSF023-041608_Market%20Outlook.pdf
If Paul Kasriel and the BEA have been close to correct, YOY growth rate in nonfinancial corp profit growth has been progressively slowing. I\’m fairly certain this was negative \’growth\’ 3Q07, 4Q07, and will be still moreso 1Q08, which are not captured in this chart which does indicate the slowing:http://www.financialsense.com/ec…15/1015.h24.gifbut even if the mass of profit were rising, it needs to be placed into relation with total capital to obtain some better idea of the rate, which I feel certain has also been falling.I\’d mention as well that the Chicago Fed\’s National Activity Index (CFNAI) 3-month moving average has been negative for 23 consecutive months but only into recession territory since November 2007.Then there\’s joblessness over 13 percent and rising: Men in the prime of their working lives are now less likely to have jobs than they were during all but one recession of the last 60 years. Most of them do not qualify as unemployed, but they are nonetheless without jobs. … In the latest report, for March, the Labor Department reported the jobless rate — also called the “not employed rate” by some — at 13.1 percent for men in the prime age group. Only once during a post-World War II recession did the rate ever get that high. It hit 13.3 percent in June 1982, the 12th month of the brutal 1981-82 recession, and continued to rise from there.http://www.nytimes.com/2008/04/12/business/12charts.html?_r=1&oref=sloginAdd slowing/falling capex, inventory build, consumer weakness, slowing world trade.The Bureau for Economic Policy Analysis (CPB) which, along with others, has pointed out the volume decline in world trade: From 9.8 percent in 2006 to 7.1 percent in 2007 to an expected 4.75 percent this year. (Netherlands Bureau for Economic Policy Analysis (CPB), March/April 2008 International Cyclical Analysis)And there\’s no question that the U.S. has been/is in recession which, given 30 years of financialization should not be confused with how stock indices perform as these latter are not the economy — contrary to some earlier periods, such indices now tend to lag reality, even move inversely relative to the real economy.Depression? Can be a ideological term but might, in the present case, be thought of as the phase following what has been a Long Stagnation. Cycles take place within the latter but the general tonality is not one of growth. U.S. and world GDP entered this phase decades ago.Between 1965 and 1973, the U.S. manufacturing sector\’s rate of profit fell by 40%, a decline that worsened with the 1974-5 recession, was hit again by the severe early 80\’s slump, began recovering in the 1990s but peaked in 1997, falling into 2003 since which there has been some rise but – in all cases over the last decades – never to pre-1965-73 levels.Andrew Glyn considered the world to have been \"suddenly projected from boom to crisis” with the first phase of above. Among others, J. Crotty has pointed out the decade by decade slowin in U.S. and World GDP:\"Real global GDP growth averaged 4.9%a year in the Golden Age years from 1950 through 1973, but dropped to 3.4% annually in the unstable period between 1974 and1979. Dissatisfied with the instability, inflation, low profits and falling financial asset prices of the 1970s, advanced countryelites pushed hard for a switch to a more business friendly political-economic system; global Neoliberalism was the result. World GDP growth averaged 3.3% a year in the early Neoliberal period of the 1980s, then slowed dramatically to 2.3% from 1990-99 as Neoliberalism strengthened, making the 1990s by far the slowest growth decade of the post war era.\"As would be expected, the post-1973 annual growth rate of world real gross domestic investment fell substantially.With the exception of parts of Asia, economic development throughout the world failed to gain traction, chronic excess capacity on one hand and credit fueled financial exuberance on the other. Given the system\’s inability to create employment so rapidly as required, a glut of labor and expanding informal sectors as well. All the \’better\’ to intensify the international (and domestic) competition among workers, drive and hold wages down so also make consumer credit increasingly important to retention of living standards, no matter that this has been only another transfer to loan capital.Average weekly earnings, constant 1982 dollars, for all private nonfarm workers in the U.S. peaked in 1972 at $331.59, falling to $257.95 in 1992 until \’recovering\’ to $277.57 in 2004 and likely having faltered again since then.It is at least interesting that conditions of surplus labor, lower wages, deficit funding, tech innovations, etc, have not been able to generate another long wave expansionary phase. One might even suspect that finance has been \’pumping\’ too much from the real.Just as each cycle is superficially different, so also depressions. This is the third since 1870.
Written by J. on 2008-04-30 17:49:05great post! IMO, the post of the day. Your mentioning of Kasriel reminded me to check his take on the GDP number/FED action:http://www.northerntrust.com/popups/popup_noprint.html?http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0804/document/dd043008.pdfThe best dissection of the FOMC statement I have seen so far. Their analysis of Q1 GDP is the most detailed I have seen as well. Just the first few lines:U.S. Economy Has Stalled For the Second Quarter in a RowThe U.S. economy grew at an annual rate of 0.6% in the first quarter, matching the gain seen in fourth quarter of 2007 and the first quarter of 2007. Effectively, the economy has grown in only two quarters of the last five quarters. The important difference to note between the first and fourth quarters is that inventories added substantially to the growth of the economy ($1.8 billion vs. -$18.3 billion in the fourth quarter) in the first three months of 2008 while it subtracted from GDP in the last three months of 2007. The implication is that in an environment of significantly weak economic conditions, the big build up in inventories in the first quarter entails a likely cutback in production in the second quarter. Real final sales (GDP less inventories) declined 0.2% in the first quarter, indicative of a contraction in demand. A larger contraction of real final sales last occurred in the third quarter of 2001, excluding the Katrina-related 0.5% drop in real final sales in the fourth quarter of 2005….
Guest on 2008-04-30 12:16:39What is going on today with the manipulation of govt statistics is criminal. I blame the media for letting them get away with it cause they buy the garbage they are being fed. CNBC is a piece of garbage and the biggest propaganda machine around today.It is just as brought out in the DVD \"WMD: Weapons of Mass Deception\" (by Danny Schechter), that as far as the U.S. government is concerned, the mass media is just a tool for delivering to the masses what the government wants them to hear.To advertize an announced 0.6% growth as \"growth\" is just stupid. The CPI numbers have nothing to do with actual inflation, and therefore there was no 0.6% growth.Another thing that is funny:On one hand the U.S. government claims that there are Islamic militants that hate Americans because of the freedoms Americans have.On another hand the Bush government have been working hard since 9/11 to remove civil liberties from Americans.So while scaring the population with the Islamic bogeyman (yes you better look THAT way folks to keep an eye on your enemy), the government has increased their powers to a level needed to handle the \"depopulating\" of the U.S. referred to in that essay by \"Softwarengineer\" (previous thread).
The depopulating is just a plan by US, UK, and UN to solve issues such as the urgent need to reduce greenhouse gases, the economy, etc. It\’s one of the reasons for the urban warfare training done in U.S. cities and a big reason for all the law changes excused on 9/11. I guess their depopulation target will be the organized religions.
plenty of good stuff at da\’ bear http://www.prudentbear.com/
Written by Guest on 2008-04-30 18:53:57r u da moonie guy wit da funky website trolling again?
How does an economy grow with 2% interest rates? anyone? bueller?
Written by Octavio Richetta on 2008-04-30 18:19:53Thanks, my above was a condensed version of a number of posts that I\’ve made elsewhere over the last few months.And, you know, when speaking to Gross Domestic Product, a lot depends upon what is taken to constitute \’product\’. From what Shaikh and Tonak published in 1994, Measuring the Wealth of Nations: The Political Economy of National Accounts, it\’s evident that quite a bit of what modern national accounts consider to fall within that category should not but, rather, be classified as social consumption:Consider the basic difference between production and consumption. Production activity uses up wealth to create new wealth (i.e., to achieve a production outcome). Personal consumption uses up wealth to maintain and reproduce the individual (a nonproduction outcome). In like manner, military, police, administrative, and trading activities use up wealth in the pursuit of protection, distribution, and administration (also nonproduction outcomes). The issue is not one of necessity, because all these activities are necessary, in some form or the other, for social reproduction (Beckerman 1968, pp. 27-8). Rather, the issue concerns the nature of the outcome; protection, distribution, and administration are really forms of social consumption, not production. At the heart of this discussion is a distinction between outcome and output. Not all outcomes are outputs. This is evidently the case with personal consumption, whose outcome is the maintenance of the individual, not the production of new wealth. It is our contention that the same reasoning applies to the other social activities listed. It should be emphasized that the distinction being made is between production and nonproduction activities, not between goods and services. We shall see that a substantial portion of service activities (transportatinn, lndging, entertainment, repairs, etc.) will be classified under production, whereas others (wholesale/retail, financial services, legal services, advertising, military, civil service, etc.) will be classified as nonproduction activities. The real distinction is between outcomes and output. All activity results in outcomes. Some outcomes are also outputs, directly adding to social wealth. But others preserve or circulate this wealth, or help maintain and administer the social structure in which it is embedded. Our general approach is rooted in the classical tradition, parts of which can be found in Smith, Ricardo, Malthus, Mill, Marx, Sismondi, Baudrillart, and Chalmers, among others (Studenski 1958, p. 20). Although its presentation was incomplete and occasionally inconsistent, it was nonetheless part of “the mainstream of economic thought for almost a century” (Kendrick 1968, p. 20). Only when neoclassical economics rose to the fore was the classical distinction between production and nonproduction activities displaced by the notion that all socially necessary activities, other than personal consumption, resulted in a product (Bach 1966, p. 45). Under the neoclassical definition, an activity is considered a production activity if it is deemed socially necessary. This in turn rests on the conclusion that (at least some) people would be willing to pay for it directly (Bach 1966, p. 45). It follows that, within neoclassical economics, all potentially marketable activities are considered to be production activities. * The ideological convenience of a definition of production which treats all market activities as productive is obvious.You can see where this line of analysis might lead — how much growth is not-growth?
http://bloomberg.com/apps/news?pid=20601039&sid=aRFzA5qJQyd8&refer=homeJust change the rules, hide-n-seek shell gaming.
Far from being the shock absorber, Europe may prove to be the accelerator of this post-bubble denouement.Once you add Europe to the Anglo-Saxon and Japanese sick list, you reach 60pc of world GDP, and two thirds world demand.This leaves the global boom on tenuously narrow ground. Who is going to buy all those exports from China? Who is going to keep pushing commodity prices into the stratosphere? This bear growls on.
Medic- We have our pellet stoves, but have you considered solar? We are both in New England and I am not sure the sun is good enough, i.e., that we do not have to put a dozen panels on the roof at 20k+ … How do they work with snow?
Plus, decoupling as it is good news for multinational companies, it is a catastroph for consumers as demand for energy and food from emerging markets will keep prices in the roofs.
\"I wonder if the fed had not cut, the market would have sky rocketed \"If you notice the action today … the Dow had a good rise before the Fed announcement, then immediately dropped.First, the reaction of the market to the news tells a lot more than the news itself (as always).Second, this was a classic \"pump and sell to the dumb money\" action. Their ploy was to suck in the dumb money in anticipation of a big market swing (up) after the Fed results, then sell off their own stocks to whoever would buy them.There was some data recently (don\’t have the link … FinancialSense.com I think) showing that individual investors are getting tempted to buy back in – but large institutional investors are definitely getting out.PeteCA
Yankee,I am looking into solar now. We have cut many tall pines that had obscured our southern exposure and we now are wide open to the south. I am interested in solar for electricity for now, perhaps hot water later. I do not know how well they work with snow – I have contacted a local installer for more information. Right now, Maine is offering a 25% tax rebate on installation of solar equipment.I would like to have storage (battery back-up system) as well as feed what I don\’t use into the grid and have the local utility pay me for it. But I am not sure if we can do both.All I know for sure is that I can\’t afford another winter like this one. As oil continues to rise, I want to be free of its hold as much as possible.Nice to see you posting again, by the way.
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vZnYRArH8ChASomehow, somehow the market is not giving indication of the depth of problems and systemic injuries. All the indicators are in (except negative market performance) but….
Kind of funny but in todays world you can publicly criticize even God without problems, but try criticizing Israel…
@ KJ Foehr and gloomyYou two seem to agree far more than you disagree.@ CaponeThe sun is shining here in London too. I stopped trading actively in January as it was becoming too unpredictable and therefore too stressful. I\’ve been very happy since, and althought I might start up again, I\’m in no hurry. I want a clear trend established first that shows that TPTB are running out of tricks and distractions and accounting/statistics frauds.@ bleakhouseIt is Mervyn King and the MPC who make monetary policy here since authority was transferred from the Treasury in 1997. My advice to Mr King would be to stick to his principles – castigating the banks for excessive leverage, skewed and damaging compensation practices, undercapitalisation and follow-the-herd stupidity. In the meanwhile, reforms are in train to strengthen the speed and flexibility of the tools available to the Bank to deal with the next Northern Rock.The biggest problem the Bank faces is that it has no discretion to enforce tougher regulation on the banks as that authority rests now with the FSA. And the Bank cannot threaten the banks with liquidation as the Chancellor has made it all too clear he can be easily panicked into a bailout via nationalisation.The Bank is stuck between the incompetence of the FSA and the incontinence of the Treasury.@ J.Good post. You made me think of something that has been bothering me. The media keeps saying that the \"traditional\" thing to do in a slowing economy is slash central bank interest rates. This is true only because in the past lowering rates discouraged savings in favour of consumption, leading to higher levels of current spending.In the savings-less modern USA, where all increases in expenditure must be borrowed first, lowering rates may be counterproductive to the objective of increasing demand as lower rates discourage foreign creditors from lending more to finance US consumption. This is especially true as lending is based in the devaluing dollar.A steep fall in demand/consumption may be inevitable. This may be the key reason why the economy continues to slow despite some Fed success in relieving the credit crunch and stabilising the banking sector. As long as the dollar is falling, foreign creditors won\’t want to lend. And without lending, expenditure for consumption can\’t rise.Once again, we go back to Bagehot, who warned that where a credit crisis and currency crisis occurred together, the right policy prescription was to raise rates to maintain the appeal of the currency to foreign creditors.
To All (especially those that know anything about international money `flows`).The following comment by LB prompted me to write this post: “lowering rates may be counterproductive to the objective of increasing demand as lower rates discourage foreign creditors from lending more to finance US consumption.“There is widespread misconception about international money `flows`.The reality is that apart from the US$ held in tourists wallets, in drug dealers caches and those used as a medium of exchange in lesser developed countries, international holdings of US$ are held in the U.S. and U.S. securities. Money doesn`t flow in or flow out of the country. The ownership of dollars may change and the owners` investment preference may change but unless the U.S. Treasury intervenes in the FX market by buying U.S.$, there can be no net sellers of US$. Think about it. You buy a Chinese widget and write a cheque to the supplier for $100. Money leaves your bank account and enters the supplier`s. Supplier pays the Chinese manufacturer and the money moves to the manufacturers bank account, either in the US or in China. If it is the latter, the bank in Beijing has a correspondent bank in the US and that is where the deposit resides. The Chinese company sells the US$ for Yuan. The Chinese bank`s NY correspondent bank moves the US$ to the US$ buyer`s account. But the US$ remain in the U.S. banking system. Whether the new owner of those US$ keeps the money on deposit, buys Treasury Bills or takes a flyer on CROX, the money remains in the system. No inflows, no outflows.Dr. Robert Parks of Pace wrote extensively about the subject 25-30 years ago.
@GirafSo the Chinese are really at our mercy because we can confiscate their trillion dollars any time we want?
Gloomy,Interesting point. Now that pretty much all securities are `book based` any government can confiscate assets with a simple computer key stroke.The point I was trying to make is that money doesn`t flow. Only the ownership and investment preference changes.
@LB, keep your eyes open for that trend… that is the way to play it, patience and discipline are such keys to this game – i remind myself of this each and every single day – along with go with the flow (thanks to Giraf reminding me a few weeks ago of this) REGARDLESS of news. it is a very, very tough game even if you are well stocked in the mental toolbox to play. @KJ and all, To reiterate PeteCA\’s point about reaction to news that matters and remind people of a very fresh example of just how much of a casino the markerts are. This is a repost. This is a repost from a few days ago.U.S. ship opens fire on patrol boats near IranWritten by K J Foehr on 2008-04-25 10:26:00@KJ this may be a good story for a near term top on oil from a purely contrarian perspective. IF you were to short, only with very tight stop above. IMHO…Written by Capone on 2008-04-25 10:30:22Guess what the firing on the Iranian ship by US ended up being folks, along with Nigerian pipeline issue, along with Strike in Europe(?) ? The tri-fecta of bullish news for oil was indeed the near term top. Just like Chavez nationalizing oil put in that crazy 50ish bottom a while back. Just like one of the hurricanes and the end of what was nearly WWIII in the Summer of 2006 were near term tops. I personally was too greedy trying to short this latest one gosh darn it and had a small loss. I hope the call worked for somebody ! They make it very, very tough to play the game. shoot i got to get to work !!! this happened to me once before no more RGE before getting to work
Hello people, I am new to this forum and its been really great reading you people. I really wonder when would the dow crash to 9400, perhaps in September or October this year.
Hello! I’ve been following your weblog for a long time now and finally got the courage to go ahead and give you a shout out from New Caney Texas! Just wanted to tell you keep up the great job!