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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Consider the implications of these polls

Do you think government spending should be increased to help get business out of its present slump?

37% Yes
63% No

In your opinion which will do more to get us out of the depression: increase government spending, or reduce taxes on business?

15% Increase government spending
63% Reduce taxes on business
21% No opinion

When were these polls taken?

Gallup Poll, Mar, 1938

Just something to chew on

(HT: Krugman)

Tags: Economics, Political, bloodstar by bloodstar
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Yeah, it’s been a hectic couple of days at work, so here are a few things to read to keep you busy

McCardle makes a case that Obama has done about as much as he could.

Krugman explains that we’re still in a paradox of thrift.

Joshua Green Explains Linda McMahon’s steroid problem.

538 has moved to the New York Times and predict the Democrats are likely to lose 6 – 7 Senate seats. (I personally think you’re seeing a bit of over weighting from Rasmussen being over half the polls conducted, Rasmussen has a Republican leaning house effect, It’s hard to say what the house effect but typically it’s been about 4 points and then slowly reduced as the election draws near.)

Tags: Economics, Political, 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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If these numbers hold up, and there’s no reason that I can see to imply they wont, The housing market is about to undergo a blood bath.

Housing economist Thomas Lawler’s preliminary estimate for existing home sales in July is 3.95 million SAAR. If so, this would be fewest sales since 1996. Lawler’s estimate for inventory in July was 4.04 million (although it is a bit of a mystery how the NAR calculates inventory). That would mean 12.3 months of supply!

The main reason housing prices haven’t fallen further so far has been the programs that have kept the prices inflated. Those programs either have ended or are ending, and now you’re about to see the bottom fall out.

About the only silver lining I see is that if you have no need to move and can make your house payments, then the market value of your house wont matter. It’s the people who were planning on moving or planning on selling or in financial distress that are really going to get hurt.

Tags: Economics, 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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I mean, think about what they’re saying here

FX Concepts LLC, the hedge fund that bought the euro in June just as it began a 9.7 percent surge against the dollar, now says it’s almost time to get out of the currency.

The firm, which manages $8 billion in assets, expects the euro’s advance from a four-year low on June 7 to come undone by September, partly because European austerity programs will start to weigh on growth. Reports last week that showed Spanish consumer confidence falling to the lowest level this year and banks tightening credit standards in the region suggest the budget measures may already be undermining the recovery.

The same fiscal measures that helped restore confidence in the euro may soon weaken the region’s economies and torpedo the rally. A July 30 survey of 21 money managers overseeing $1.29 trillion by Jersey City, New Jersey-based research firm Ried Thunberg ICAP Inc. found 75 percent don’t expect Europe’s common currency to strengthen over the next three months.

“Austerity is really bad for growth,” said Jonathan Clark, vice chairman at New York-based FX Concepts, the world’s biggest currency hedge fund.

Think about what he’s saying, In the grand scheme of things it’s not about the currency, it’s about the idea that Europe has put this huge austerity program in place, you know, cutting everything and reducing spending in the hopes that some how, magically, spending less will make the economy grow more and everything will be all happy shiny rainbows and stuff.

It doesn’t quite work like that, it’s not even voodoo economics, this is insanity writ large. You’ll here phrases like soft landing and stuff, when the economy is heading down, and the government manages things to prevent it from crashing. Well the austerity measures are the equivalent of stalling the plane while in the middle of a dive. Of course people are going to run screaming from your economy, you’ve effectively taken out the last props that have kept things going.

So now everyone is fleeing and you’re left holding the bag saying, ‘but we did what you wanted’ Yep, and when the magical wand waving ends and people realize that the austerity measures have made things worse, you’ll get to try to explain just how breathtakingly stupid you were when you believed their light show and hand puppet act.

This is not to say spending shouldn’t be cut at some point, it needs to be, but the time to do it is NOT in the middle of a severe downturn. Yeah, deficits suck, but people keep forgetting that the vast majority of the deficits we’re running is precisely because of the economic downturn. We’re not getting the taxes from people who are out of work, and we’re spending money helping the people who are… you guessed it, out of work. Cutting spending that helps struggling companies will make more people… you guessed it, be out of work. In addition, if you cut spending to the people who are out of work, you’ll end up having the same struggling companies get less income because the people who are out of work can’t spend money. Also the rest of the people who actually have a job are going to be too worried to spend money. Which means the struggling companies go under and more people are… yep, out of work. And the cycle accelerates.

Do people really expect inflation when we’re teetering on the brink of a nasty deflationary cycle?

Tags: Economics, bloodstar by bloodstar
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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.

Tags: Economics, Financial, bloodstar by bloodstar
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It’s a little filled according to Bloomberg:

Sales of U.S. new homes rose in June more than forecast following an unprecedented collapse the prior month, a signal the worst of the slump triggered by the end of a government tax credit is over.

And mostly empty according to the folks at Calculated Risk:

Ignore all the month to previous month comparisons. May was revised down sharply and that makes the increase look significant. Here is the bottom line: this was the worst June for new home sales on record.

Say what you will, at best, the housing market sucks, at worst, the housing market is in total collapse and will be for the next couple of years. Either way, the repercussions to people who want to move are going to be staggering. After all, most of the mobility in the US came from people being able to upgrade their houses and make a profit on their old house.

Now, the shell game or Ponzi scheme has collapsed and anyone who wanted their house to be an investment has been left holding the bag. If you plan on staying in your house for a while, you’re fine, but if you wanted to move in the next 5 years, well… good luck because you’re going to take a bath.

Tags: Economics, bloodstar by bloodstar
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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.

Tags: Economics, Financial, bloodstar by bloodstar
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Because people completely ok with this mindset

Senate Republicans, committed as they are to preventing the debt from mounting further, can’t approve an extension of unemployment benefits because it would cost $35 billion. But they are untroubled by the notion of digging the hole $678 billion deeper by extending President Bush’s tax cuts for the wealthiest Americans.

It’s class warfare, except this time, instead of Democrats whipping up the poor over the idea that the rich have some sort of special unearned rights, the Republicans are whipping up everyone against the unemployed, claiming if they *only* tried hard enough, they’d all be working and they don’t deserve any hand outs unless we do something about the deficit, which they claim is so important that we can’t raise the debt any further. And that the richest people in America deserve to keep their money by extending tempoary tax cuts even though they’re supposed to expire, and will cost us almost 20 times the unemployment benefits.

Right. Anyone else think this is is just another variant of ‘I got mine, fuck you’?

Tags: Economics, 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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This chart should help explain why the US is not really in danger from defaulting. Sure the amount of sovereign debt is high for the US, but compared to other countries, the amount is much more moderate, with quite a few other countries in worse shape.

Sure, we could see some dangers if the debt ratios continue to get worse, but for now, the US is ok.

Tags: Economics, bloodstar by bloodstar
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That’s a meme I’m reading from time to time, What would happen if we actually did that right now. and applied it to helping reduce the deficit and the debt.

First, let’s do a bit of math here (please note these are all rough back of the napkin estimates), Increase taxes by 10% across the board our current tax burden is about 2.7 Trillion dollars, so you’re looking at a 270Bln Tax increase.

Cutting Government Spending 10% across the board would give a 310Bln decrease in the economy.

Before any multipliers, you’re looking at about a 600 billion dollar decrease in the GDP of the United States. Currently, it’s at about 15 Trillion, So a decrease of 600Bln would give a Real World Drop of 4% to the GDP of the US.

To give perspective, the GDP dropped about 1.7% for 2008 and 2009 (with the majority of it happening in 2008). So, effectively, you’d have a sudden recession that would be more than twice as bad as the one that we just went through. A recession without any ability of the Government to help cushion the blow. Then add in the additive shock of having decreased tax revenues from the recession itself (which was a significant part of the increase of the deficit in the first place), and you’ll look at increasing the deficit by the very effort to decrease it in the first place.

There is going to be a time and a place to reduce the deficit and the debt, but NOW is the absolute worst time to go for austerity measures.

Please note, these are very rough numbers and estimates, but I think the ballpark figures are right and illustrate the point.

Tags: Economics, 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.

Tags: Economics, Financial, bloodstar by bloodstar
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