Bloodstar

The same groups that pushed for the austerity packages, are the same groups now punishing the countries because the austerity measures are tearing the economy to shreds.

Irish and Portuguese government bonds fell, pushing the yields on 10-year securities to records versus benchmark German bunds, on concern European banks are vulnerable to losses on their holdings of so-called peripheral euro-region debt.

The extra yield investors demand to hold Greek 10-year government bonds rather than benchmark bunds reached the highest level in four months. Pacific Investment Management Co. fund manager Andrew Bosomworth said yesterday the Mediterranean nation faces a “substantial” default risk when its bailout program expires in three years.

This is going to get much worse.

Tags: Economics, Financial, bloodstar by bloodstar
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Ok, so the chart (Chart and article from Calculated Risk) is showing the bond spreads for various countries in Europe compared to Germany. The higher the number, the more money the company has to pay to borrow money compared to Germany. The solid black line was the intervention to keep Greece from falling apart and going bankrupt. As you can see, the spreads are creeping up again, and are approaching the same crisis levels that had everyone running around in fear.

While it doesn’t have the same feel as the previous shock, I am suspecting that you’ll see a grinding steady increase that is going to be much more devastating because it will be slower and people won’t respond to the slow steady increase until it’s too late and countries are defaulting.

Here’s hoping I’m wrong.

Tags: Economics, Financial, bloodstar by bloodstar
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So, about that fear of rising interest rates….

As 2010 began, there was nearly unanimous agreement in financial circles on at least one thing: Interest rates were sure to rise during the year.

Quite to the contrary. As Labor Day approaches, interest rates have collapsed, plunging along with economic optimism.

That turn of events, which has shocked savers and stunned investors, appears to indicate that financial markets’ worries are turning in a very different direction from those of many governments.

The governments are seeking ways to bring down budget deficits, fearing that without austerity they could go so far into debt that they would never be able to borrow again. Investors in the financial markets seem to be much more concerned by the possibility of renewed recession and a general deflation that could send asset values and prices down.

How bad has it gotten?

Bond investors seeking top-rated securities face fewer alternatives to Treasuries, allowing President Barack Obama to sell unprecedented sums of debt at ever lower rates to finance a $1.47 trillion deficit.

While net issuance of Treasuries will rise by $1.2 trillion this year, the net supply of corporate bonds, mortgage-backed securities and debt tied to consumer loans may recede by $1.3 trillion, according to Jeffrey Rosenberg, a fixed-income strategist at Bank of America Merrill Lynch in New York.

Shrinking credit markets help explain why some Treasury yields are at record lows even after the amount of marketable government debt outstanding increased by 21 percent from a year earlier to $8.18 trillion. Last week, the U.S. government auctioned $34 billion of three-year notes at a yield of 0.844 percent, the lowest ever for that maturity.

So, not only have the inflation hawks had their wings clipped, investors are now clamoring for stimulus funds to keep the economy moving forward. And, by happenstance, the ability to finance another stimulus has become much easier.

Tags: Economics, Financial, bloodstar by bloodstar
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Yeah yeah, correlation does not equal causation and all that. but it’s worth thinking about.

update: Here’s the Link

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Of course, people will argue that somehow the economists don’t know what they’re talking about, which could be true, but I suspect they know more about how to model and analyze than someone who argues that it can’t be true, just because they don’t want to admit that the Government needed to do something. Either way, in short, I’ll talk the recession and sluggish growth over a depression any day of the week:

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

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Why in the heck are people still worrying about inflation? There is nothing out there that signals inflation is a threat for anytime in the near future.

In fact, if the slack isn’t picked up soon, we’re going to risk a deflationary cycle. so there’s no point in raising the interest rates, but instead, the fear of inflation, which is non existent, is driving everyone to run for the hills

Equities turned lower when Bernanke’s prepared testimony was released at 2 p.m. While Fed officials plan to eventually raise interest rates from almost zero, “we also recognize that the economic outlook remains unusually uncertain,” Bernanke said today in testimony to the Senate Banking Committee.

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Either Boehner has no concept of what happened in 2008, or he’s shilling for people who’ve paid him a lot of campaign funding.

Hours before expected passage Thursday afternoon of the Wall Street reform bill, the top House Republican called for the legislation to be repealed.

House Minority Leader John Boehner, R-Ohio, told reporters, “I think it ought to be repealed. There are common sense things that you should do to plug the holes in the regulatory system that were there, and to bring more transparency to financial transactions, because transparency is like sunlight. Sunlight is the best disinfectant.”

Boehner, who came under fire from Democrats for comparing the bill to “killing an ant with a nuclear weapon,” again slammed the bill as going too far.

This coming from the party that kept the entire Iraq war off the US budget books to make the deficit look better? this after watching the entire financial system teeter on the brink of collapse because corporations were too busy taking insane risks that would bankrupt the entire system if they ever crashed?

If anything the Financial Reform package doesn’t go far enough, it still permits banks to do things that can put the health of the entire financial system at stake, there are other issues with it, but at least it’s a start, which is better than sitting here claiming that more document dumps will help keep the system solvent.

Tags: Financial, Political, bloodstar by bloodstar
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Remember Scott Brown? The Tea Party Darling? Well, I suspect he’s not a Tea Party Darling anymore.

For all the talk of being the “41st Senator” (thus denying the Democrats their supermajority), Scott Brown sure has a knack for delivering numero 60 for Harry Reid and Co. in a pinch. You may remember the time he saved the Democrats’ jobs bill. Today the Massachusetts Senator, who won late-in-the-game concessions in conference committee, announced his intention to vote for financial reform.

The Tea Party forgot the most important thing about any political person, they want to be re-elected. Scott Brown knows that if he doesn’t work within the framework of his constituents, they’ll just fire him. So, of course he’s going to work to make sure that he can show he’s useful. Mind you had they also checked his voting history, they might have noticed he was fairly moderate, but the schadenfreude is still strong for this one.

Tags: Economics, Financial, Political, bloodstar by bloodstar
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(that title is Sarcastic BTW)

So, Here we are running debts and deficits, and we all “know” that when you run debt and deficits, that you end up having rampant inflation and devaluation. After all, considering how many bonds the US has to sell, surely we’re going to have to pay higher and higher yields to sell them, right?

Not quite. While everyone may be afraid of inflation, Bond yields have dropped down so 10 year bonds are now below 3% yield.

And yet people are still afraid of the debt. As the phrase goes, worry about the short run, because in the long run we’re all dead.

I hate to say it, but it may be time for a second stimulus package. We either need to get people employed or accept that we’re going to run the risk of a long steady contraction.

And I hate to say it, but we’re well and truly fucked if the people who want to go hardcore austerity on the US get into power.

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They’re struggling to keep from defaulting on their own debts. Not that it’s ever talked about. You see, in the past states didn’t have quite the problem on finding ways to ride out recessions and downturns, but with ballooning unemployment and dropping property tax values. States are finding their revenues dropping faster than ever. Toss in a dash of pure opposition to any tax increases, and you find the most you can get the law makers to do is to cut benefits to the poorest members of their state. Which reduces revenues even further.

People who are poor and desperate aren’t saving money, they’re spending money just to survive from week to week. Sure if you’re making enough money, but often times, stimulus works best at the lowest levels, because that group is the group that will spend it all. The Federal Government is about to end support for state and local governments. Few people realize that 1/3rd of the stimulus package was money sent directly to state and local governments. Once that money goes away, the state deficits go up dramatically and there’s not much that can be done with the state and local governments so hamstrung.

It’s not the end of the world, but I won’t be shocked to see some states default before this is over.

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I may just get me an apartment while i wait for this to sort itself out. Ugh

Inventory increased 1.1% YoY in May. This is the second consecutive month of a year-over-year increases in inventory. Although the YoY increase is small, I expect it will be higher later this year.

This increase in inventory is especially concerning because the reported inventory is already historically very high, and the 8.3 months of supply in May is well above normal. The months of supply will probably stay near this level in June, because of more tax credit related sales (reported at closing), but the months-of-supply could be close to double digits later this year.

I really feel for anyone who bought a house in the last 5 years, it’s going to take a decade just to get you back above water. The Bubble never totally deflated, and the tax credits just delayed the continued deflation of the bubble. now that there is less external support, the prices will continue to settle down until we get the economy back in shape AND you have enough people who want to buy houses. As it stands, you have many more houses built than people looking. and with such a vast oversupply out there (don’t forget there is probably a huge pent of supply of houses that people would want to sell but haven’t tried, or pulled from the market when no one bit).

It sucks to know that people are going to take a bath on this, but what are the other options?

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We’re in a time of mixed signals, even as the EU struggles to avoid imploding The US economy continues to gain traction:

Inventories at U.S. wholesalers rose for a third month in March, and sales climbed even more, a signal companies will need to step up orders to try to meet demand.

The 0.4 percent gain in the value of stockpiles followed a 0.6 percent increase the prior month, the Commerce Department said today in Washington. Sales gained 2.4 percent, the most since November.

Heck if I know what this means. Personally, I think that barring a complete meltdown of the EU, the US should actually gain from the weakness over in the EU. A stronger dollar leads to lower oil prices, and even though the cost of goods for the US to export goes up, the over all costs tend to trend down as both imports are cheaper and the Dollar can buy more. Mind you, as I mentioned above, if there’s a total collapse in the EU, all bets are off as you could see some serious fear creep back into the system.

But right now, the US consumers aren’t as afraid, so, now they’re starting to spend money again. and as the velocity of currency picks back up, so does the economy.

Tags: Economics, Financial, bloodstar by bloodstar
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And don’t confuse what’s happening in Greece with what’s happening in the US. Basically, because Greece is no longer an issuer of it’s own currency (it uses the Euro), they, along with other nations in the Euro zone, are trapped because the governments literally cannot spend euros unless they either purchase or borrow them. They cannot make Euros. The US and other countries who issue their own currency, do not have this problem or issue. As the article points out, Japan is currently running a Public Debt to GDP ratio that’s well over 200% (which is 2.5 times worse than the US) and not running into fears of default. Loosely, Greece is more like California (or other States) and the crisis there when it comes to debt and solvency.

Marshall Auerback makes a ton of good points in the article. In addition, he makes good cogent arguments against premature deficit spending cuts.

Consider Ireland as Exhibit A in this regard. Ireland began cutting back deficit spending in 2008, when its banking crisis began to spread and its budget deficit as a percentage of GDP was 7.3%. The economy promptly contracted by 10% and, surprise, surprise, the deficit exploded to 14.3% of GDP.

Finally, why are there such large deficits?

Why do we have huge budget deficits across the globe? It’s not because our officials have all suddenly become Soviet style apparatchiks, but largely because the slower global economy has led to lower revenues (less income=less taxes paid since most tax revenue is based on income, and lower tax brackets) and higher spending on the social safety net. Gutting this social safety net because we extrapolate the wrong lessons from the euro zone’s particular (and self-imposed) predicament constitutes the height of economic ignorance.

It’s a good read, I promise.

Tags: Economics, Financial, bloodstar by bloodstar
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Because the the people aren’t prepared just starting to be felt

Zapatero has failed to carry out proposals for reining in spending this year as unions protested cuts. His plan to raise the retirement age to 67 announced in February is mired in negotiations. Finance Minister Elena Salgado overruled her deputy Carlos Ocana after he suggested renegotiating wage agreements for public workers.

Back to Greece, where Paul Krugman points out that Greece is still in serious trouble even if you forgave all their current debt:

Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit — taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit — 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity.

It’s going to be a long bumpy ride in Europe I suspect.

Tags: Economics, Financial, bloodstar by bloodstar
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Ta-Nehisi Coates is trying a neat little experiment, harnessing the interweb to learn and have conversations on topics that most of us know little about. In this weeks’ installment, they’re talking Financial Derivatives. Worth a gander if you want to learn a little about how some of the most esoteric, but critical, components of our economy works.

Tags: Financial, bloodstar by bloodstar
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