Archive for April, 2010
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Greece – GIIPS – Eurozone – Big Problem
Greece is now “high yield”, “junk”, “below investment grade”, at least according to S&P. What I mean by that is S&P now rates Greece’s foreign and local currency sovereign debt at the BB+ level (with a negative outlook), below the sometimes-coveted investment grade status, BBB- is the minimum. Why did S&P feel the need to do this now? Just covering its _ss – Greek debt was rated A- as recently as December 2009.
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So the Senate Rebukes the VAT for What Exactly?
I don’t normally do politics – and Congress should be worrying about the fragile recovery rather than the public deficit – but this is just ludicrous. Senator McCain drafted bill H.R.4851 that was actually voted on – in favor of, no less – to do the following:
It is the sense of the Senate that the Value Added Tax is a massive tax increase that will cripple families on fixed income and only further push back America’s economic recovery.
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An Auspicious Sign: the Consumer (for Now) Is Back
I remain very skeptical about the sustainability of the recovery, as the labor market is in shambles and nominal wage growth is unlikely to facilitate “healthy” deleveraging – please see this recent post “Reducing household financial leverage: the easy way and the hard way”. I digress; because you can’t fight the data. And for now, the consumer is back.
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Final Destination “Rising Public Deficits” with a Stopover in “Falling Public Deficits”
Brad DeLong and Mark Thoma posit that a falling US public deficit is bad news – they are right!
Deficit hysteria is now mainstream thinking, while the more appropriate hysteria should be “jobs hysteria”. How in the world is nominal income growth expected to finance a drop in consumer debt leverage if the government supports a smaller deficit? TARP costs less and tax receipt growth is beating expectations. But that’s all it is, beating expectations.
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Macroeconomics: En Route
The Institute for New Economic Thinking (INET) hosted its inaugural conference this weekend at King’s College Cambridge, an experiment of sorts. I had the pleasure of attending the conference, my first time to Cambridge. John Maynard Keynes wrote his *General Theory* at King’s College. And as if that wasn’t enough, I dined with blogging legends, Mark Thoma and Yves Smith! The photo was taken at the conference by another attendee, Pierpaolo Barbieri: “Lord Skideslky, easily Keynes’ finest biographer”.
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Reducing Household Financial Leverage: the Easy Way and the Hard Way
In case you haven’t noticed, I have become slightly less “optimistic” about the prospects of a sustainable U.S. recovery. I used to think that the household deleveraging story was more of a decade-long project; the economy would cycle throughout. But recent deficit hysteria has me worried; income growth might lapse.
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The U.S. Economy: On the Surface and Under the Hood
The GDP recovery is underway. But below the GDP hood, the picture is not as bright. The labor market is weak, and income-generating prospects remain muted. The latter portends a back-up of consumer spending down the road without substantial policy support.
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The Saving Rate Paradox
Edward Harrison at Credit Writedowns is theorizing why the saving rate is falling when it should be rising, as households scram to deleverage their balance sheets. My reaction to this is twofold: first this is a meaningless exercise; but second, and worse yet, there’s likely something very “unhealthy” going on here.
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Can’t Help but Put ISM and Confidence Surveys Together: Looks a Little Off
I digress from my recent Eurozone obsessions to compare the U.S. Consumer Confidence report (released today) to the PMI production surveys, a “soft” comparison of supply and demand. According to the Conference Board today:
The Conference Board Consumer Confidence Index, which had decreased in February, rebounded in March. The Index now stands at 52.5 (1985=100), up from 46.4 in February. The Present Situation Index increased to 26.0 from 21.7. The Expectations Index improved to 70.2 from 62.9 last month. … Consumers’ assessment of current-day conditions was less negative in March. Those claiming conditions are “bad” decreased to 42.8 percent from 45.1 percent, while those claiming business conditions are “good” increased to 8.6 percent from 6.8 percent. Consumers’ assessment of the labor market was also less pessimistic. Those saying jobs are “hard to get” declined to 45.8 percent from 47.3 percent, while those saying jobs are “plentiful” increased to 4.4 percent from 4.0 percent.
