Archive for November, 2008
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The irony: EU gets a stimulus package together before the USA
The European Commission will decide on a coordinated fiscal stimulus worth up to $US 164 billion. The sovereing governments would have flexibility in their enactment of the fiscal stimulus – from a cut in value-added tax rates, increased welfare benefits, or perhaps loan aid. It is a fiscal bill for all sizes – S, M and L.
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Consumers still adding leverage to income; when will this stop?
The NY Times published an interesting article written by an anonymous banker in the credit card industry. It highlights the pitfalls in the credit industry, where lax lending standards are partially to blame for the massive delevering that is likely on the horizon. I simply wonder when consumers will be forced to reduce debt? The massive Fed and Treasury measures designed to shore up real estate and consumer credit markets are clouding the data. It is not clear if/when consumers will stop drawing on existing lines of credit.
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It’s official: the Fed is monetizing government debt
On November 2, I wrote an article about the new-found relationship between the Fed and the Treasury. Here is a bit from the article:
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Big price tag, little information
I used to think that the government had some super secret bag of statistics that I was not privy to. They – Bernanke, et al., Paulson and Treasury, Inc. – are running around like chicken with their heads cut off, and for each moving part that could potentially cause disaster – the government adds to the list.
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8% growth will challenge China’s social structure
Usually I am fiscally conservative, but right now is no time to adhere to an economic “code of conduct.” To be sure, deficit spending can lead to problems down the road, but at what cost does an economy stave off expansionary spending? Congress is dragging its feet – how much output must we give up to get funding for new infrastructure and for those who need it – the unemployed.
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Has the Fed changed its policy unannounced? PART 2
This post continues an article from last week titled Has the Fed changed its policy unannounced: Poole says yes. Further evidence – a huge shift in nonborrowed reserves since October – suggests that the Fed may have shifted its policy target away from the federal funds rate.
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The CBO’s outlook on housing starts
The housing market continues to be a big thorn in the economy’s side. Housing starts maintain their downward trend, sales have hit an undecided bottomed and vacancy and delinquency rates surge. There’s still a lot of overhang to work off, and the big remaining question is for how long?
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The next shoe to drop in the labor market: the insurance industry
Asset managers, brokers, investment bankers, analysts and insurers alike will see massive job cuts into 2009. From Bloomberg:
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The deflation threat is extremely small
Bloomberg published article today that suggests deflation is a real threat to the U.S. economy. In my opinion, deflation is not going to be a real threat until falling prices become embedded into expectations. However, there is a growing risk that the current credit crisis contracts the money supply enough to drive prices downward over a period of many consecutive months, resulting in negative inflation expectations. But that outcome has a low probability. From Bloomberg:
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New and improved capital loss data
World capital losses are rising. Nouriel Roubini expects $3 trillion in losses, while the IMF expects half that, $1.4 trillion. The Bloomberg data recently added insurer and government sponsored entity (GSE) losses to the list of bank and broker losses, rendering Roubini’s estimate a little less far-fetched.
Admittedly, the banks/brokers account for 73% of world capital losses, but that is not the whole story. As Fannie Mae and Freddie Mac report record third quarter losses and American Insurance Corporation writes down tens of billions, the reporting of GSE and insurer losses becomes increasingly important in gauging world capital losses.
