by ilene - November 11th, 2010 9:08 pm
Courtesy of The Pragmatic Capitalist
This is a VERY interesting development in the corporate
**Cisco’sKeyTakeaways. (1) Cisco reporting notable weaknessinthe Public/Gov’t vertical, in which the company cited weakness particularly in the U.S. with a rapid change (deceleration) in State/Local Gov’t spending dynamics. Total public vertical accounted for ~22% of Cisco’s total product orders; total global orders up only 6% yr/yr vs. +23% yr/yr in the prior quarter. Within this, Cisco did report that it saw mid-teens/stable growth in the U.S. Federal vertical.
This quarter’s weakness was largely the result of declines in state & local
“The level of complacency around this issue is alarming. Most assume, as last week’s Buttonwood panel did, that the federal government will simply come to the rescue of the states without appreciating the immensity of the cumulative state-budget gaps. I expect multiple municipal defaults to trigger indiscriminate selling, which will prompt a federal response. Solutions attempted in piecemeal fashion, as we’ve seen thus far, would amount to constantly putting out recurring fires.
Rather than waiting for more federal intervention, states need to make their own hard decisions and not kick the can down the road. How will taxpayers from fiscally conservative states like Texas or Nebraska feel about bailing out threadbare Illinois or California? Let’s hope we never have to find out.”
Perhaps even more interesting in recent days is the action in the muni market, which has been priced for perfection:
[click on chart to enlarge]
by ilene - August 30th, 2010 8:31 pm
Courtesy of The Pragmatic Capitalist
Paul Krugman was on CNBC today calling for more stimulus. He wants to give
First of all, it’s clear that Krugman is still suffering from neo-classical bewilderment. Despite the operational evidence pointing to the contrary it’s clear that Krugman still believes we are living in a gold standard world where the USA’s deficits really are funded by taxes and bond markets. Unfortunately for Mr. Krugman, we now live in a non-convertible fiat monetatry system where the USA is the monopoly supplier of currency. Nonetheless, he still seems to make the connection that we can afford to spend even though it’s obviously not for the correct reasons.
Second, Mr. Krugman has no qualms about giving Congress the last call on where this money gets spent. This is astonishingly naive in my opinion. The efficiency of the original stimulus package was low to say the least and the latest CBO figures show that the impacts on the economy have been enough to keep us afloat, but far from enough to solve the actual problems. What we have here is a balance sheet recession due to a debt bubble and implosion. So, what we need is balance sheet repair. We don’t need more solutions that merely kick the can down the road. We don’t need to stimulate loan growth or to stimulate the banking sector. We don’t need to prop up the housing sector or to stimulate auto sales. If we’re going to let Congress pass a stimulus bill we should put money in the pockets of the people who need it. If we’re going to spend money on these plans we should actually target the problems as opposed to letting Congress chop up $800B so they can send 75% of it towards programs that will not even resolve the problem.
Mr. Krugman appears to be towing the political party line here by saying that tax cuts won’t help resolve the problem. As usual, he’s letting his politics get in the way of his thinking. I absolutely do not think…
by ilene - August 27th, 2010 1:41 pm
Courtesy of The Pragmatic Capitalist
This idea that the United States is the next Greece persists. We saw it several times this week from various analysts and the regular pundits who continue to trot out this argument despite having been terribly wrong about their hyperinflation and/or default thesis over the last few years. I think it’s very important that investors understand that the United States cannot default on its obligations in the same way that Greece, a US state or a household can. Why is it important to understand this? Because markets are psychologically driven. Regular readers know I am not the most optimistic prognosticator. Anyone who has read this site over the last few years knows that I have and continue to believe we are mired in a balance sheet recession. My outlook is not rosey, but it is not dire either. I do not believe doom is on the horizon and I most certainly do not believe the United States, as the sovereign supplier of a non-convertible floating exchange rate currency, will default on its obligations.
At the center of this argument is the actual workings of our monetary system. So, how does the United States actually fund itself? Unlike a household, the United States does not require revenue or debt to fund itself. The United States government simply credits bank accounts. They walk into a room and input numbers into computers – literally. This might sound counter-intuitive to the rest of us who fund our spending through debt issuance or revenue streams, but the same is not true for the Federal Government. This was best explained last week in an interview on BNN by Marshall Auerback, a portfolio strategist with RAB Capital:
“Governments spend by crediting bank accounts. The causation is that you spend money first. What happens afterwards is bonds are issued as a reserve drain. They don’t actually fund anything. This is one of the great myths that is perpetuated by most of the economics profession. So the idea that we have “unfunded liabilities” is ludicrous. If we declare a war, for example, in Iraq or Afghanistan, we don’t go to our bond holders. We don’t go to China to give them a line-item veto for what we can and can’t spend. We just spend the money. The implicit assumption here is that somehow we have some external constraint. The
by ilene - July 25th, 2010 3:20 pm
Courtesy of Karl Denninger at The Market Ticker
Snippets this time, since I’m on vacation….
The economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies. Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth. In particular, real consumer spending appears to have expanded at about a 2-1/2 percent annual rate in the first half of this year, with purchases of durable goods increasing especially rapidly. However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.
Uh huh. Note the word appears. In political circles this is known as a "weasel word", and gives the speaker an out if the claim turns out to be pure nonsense down the road (and it will.)
The most-important part of this paragraph, however, is the fact that it recognizes that the government has stepped in and replaced 11% of final demand with borrowed money.
Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers’ unit labor costs.
Note the direct contradiction with the above paragraph (does Ben really think we’re dumb enough not to notice?)
by ilene - July 24th, 2010 6:18 pm
These are some startling numbers, and, unfortunately, it seems if you have more than $1 million and plans to die soon, you may as well go before New Years (but WAIT till the last minute in case the rules get changed--and, yikes, they could be changed in retrospect as a cruel, cruel joke.) – Ilene
Courtesy of Michael Synder at The Economic Collapse
Unless the U.S. Congress acts, there is going to be a massive wave of tax increases in 2011. In fact, some are already calling 2011 the year of the tax increase. A whole host of tax cuts that Congress established between 2001 and 2003 are set to expire in January unless Congress chooses to renew them. But with Democrats firmly in control of both houses that appears to be extremely unlikely. These tax increases are going to affect every single American (at least those who actually pay taxes). But this will be just the first wave of tax increases. Another huge slate of tax increases passed in the health care reform law is scheduled to go into effect by 2019. So Americans that are already infuriated by our tax system are only going to become more frustrated in the years ahead. The reality is that the U.S. government will soon be digging much deeper into our wallets.
The following are some of the tax increases that are scheduled to go into effect in 2011….
1 – The lowest bracket for the personal income tax is going to increase from 10 percent to 15 percent.
2 – The next lowest bracket for the personal income tax is going to increase from 25 percent to 28 percent.
3 – The 28 percent tax bracket is going to increase to 31 percent.
by ilene - July 7th, 2010 11:35 am
Courtesy of The Pragmatic Capitalist
The latest data on global semiconductor
The Semiconductor Industry Association (SIA) reported today that worldwide sales of semiconductors in May were $24.7 billion, a sequential increase of 4.5 percent from April when sales were $23.6 billion and a year-on-year increase of 47.6 percent from May 2009 when sales were $16.7 billion. As expected, the year-on-year growth rate declined slightly from the 50.4 percent reported in April. All monthly sales numbers represent a three-month moving average.
“Global sales of semiconductors in May reached a new high and remain on pace to reach the SIA forecast of 28.4 percent growth to $290.5 billion in 2010,” said SIA President George Scalise. “Chip sales have been buoyed by strength in sales of personal computers, cell phones, corporate information technology, industrial applications, and autos. Unit sales of personal computers are now expected to grow by 20 percent this year and cell phone unit sales are predicted to be up 10 to 12 percent over 2009 levels.
“Emerging markets, including China and India, are fueling sales of computation and communications products,” Scalise continued. “The automotive market is also slowly recovering after several years of weak sales. Demand from the corporate information technology and industrial sectors that had pushed out replacement cycles during the global economic recession is beginning to come back.”
SIA once again noted that the industry year-on-year and sequential
growthrates are likely to continue to slow during the second half of 2010. “Recent chip sales have shown robust demand, but the year-on-year growth rates also underscore the very depressed market conditions of the first half of 2009. Going forward, the year-on-year growth comparisons will reflect the industry recovery that gained momentum in the second half of last year.
“Growing concerns about issues such as government debt, declining consumer confidence, and pressures on government spending do not appear to have affected worldwide semiconductor sales to date, but given the semiconductor industry’s growing sensitivity to macroeconomic conditions, these issues bear watching in the second half of 2010,” Scalise concluded.
by ilene - July 7th, 2010 2:55 am
In his latest post, John Hussman takes a well deserved swipe at illegal Fed operations, Geithner, Bernanke, and Keynesian stimulus.
Please consider a few snips from Implications of a Likely Economic Downturn.
…. With regard to "stimulus" plans, my difficulty with last year’s policies is not so much an aversion to government spending as it is a rebuke of the notion that government spending is by its nature stimulative or beneficial to the economy. The issue is how this real value is used. Is it used to advance socially useful outcomes which private individuals, through some failure of coordination, could not achieve? Or is it used to defend bondholders, industries, and institutions with which the policymakers are most closely aligned?
The Keynesian view is that government spending is simply a monolithic letter "G." Keynes cared little about the productivity or lack thereof to which public resources were devoted, even writing " If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… there need be no more unemployment." The only difference between Keynes and Tim Geithner is evidently that Geithner prefers to place the bottles a bit closer to Wall Street.
…Meanwhile, I continue to believe that both Bernanke and Geithner’s hands should be tied quickly. If we have learned anything over the past 18 months, it is clear that these bureaucrats can misallocate an enormous quantity of public resources with mind-numbing speed. The diversion of public resources to the bondholders of failing financials – to precisely the worst stewards of capital in society – is not stimulative, but ruthless. A second economic downturn should encourage the repudiation of the policies that Bernanke and Geithner pursued during the first.
Basic ethical principle dictates that policy makers should not burden ordinary Americans to pay the losses that well-informed bondholders voluntarily took when they lent money to failing institutions. From my perspective, it is urgent to recognize that Fannie Mae and Freddie Mac obligations are not legally obligations of the U.S. government, that its backing was always at best implicit, and that even the Treasury’s distressingly generous 3-year promise
by ilene - July 3rd, 2010 3:35 pm
Courtesy of Simon Johnson at Baseline Scenario
The G20 communiqué, released after the Toronto summit on Sunday, made it quite clear that most industrialized countries now have budget deficit reduction fever (see this version, with line-by-line comments by me, Marc Chandler and Arvind Subramanian). The US resisted the pressure to cut government spending and/or raise taxes in a precipitate manner, but the sense of the meeting was clear – cut now to some extent and cut more tomorrow.
This makes some sense if you think that the global economy is in robust health and likely to grow at a rapid clip – say close to 5 percent per annum – for the foreseeable future. With high global growth, it will matter less that governments are cutting back and unemployment will come down regardless. Taking this into account, the IMF is actually predicting (as cited prominently by the G20) that budget “consolidation” actually raise growth over a five-year horizon.
There is no question that some weaker European countries, such as Greece, Portugal, and Ireland, had budget deficits that were out of control. Particularly if they are to pay back all their foreign borrowing – a controversial idea that remains the conventional wisdom – these countries need some austerity. But what about those larger countries, which remain creditworthy, such as Germany, France, the UK, and the US? If these economies all decide to reduce their budget deficits, what will drive global growth?The answer in Toronto was obvious: China. China is only about 6 percent of the world economy, measured using prevailing exchange rates, but it has a disproportionate influence on other emerging markets due to its seemingly insatiable demand for commodities. It also has a relatively healthy fiscal balance – and its fiscal stimulus, working mostly through infrastructure investment, did a great job in terms of buffering the real economy in the face of declining world trade in 2008-09.
Now, however, the Chinese government is trying to slow the economy down – there is fear of “overheating”, which could mean inflation or rising real wages (depending on who you talk to). Chinese economic statistics are notoriously unreliable, so reading the tea leaves is harder than for some other economies, but most of the leading indicators suggest that some sort of slowdown is now underway.
by ilene - June 20th, 2010 4:56 pm
Courtesy of Karl Denninger at The Market Ticker
Referring to the G20 summit in Canada next weekend, Merkel said in a videotaped message that "we are going to discuss when to quit the phase of short-term measures and go on to lasting budget consolidation."
Such a move was "urgently necessary, in the view of the Europeans and particularly of Germany," she said.
Obama urged the world’s leading economies Friday to avoid scaling back government spending too quickly or risk derailing the global recovery.
Heh heh heh….
Oh Mr. President? Yes, you Mr. Obama.
Chancellor Merkel appears to have figured out the meaning of this graph:
That is, more than two years of attempting to force credit creation to expand, thereby once-again restarting the Ponzi Scheme, has failed.
All further exercises in this vein will do is make the damage worse, exactly as I said it would in 2007 initially.
"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Obama said in the letter dated June 16, but released Friday amid concerns about the pace of the global recovery.
There is no recovery Mr. President. There has not been and will not be until the speculators and banksters that have taken on excessive debt, either as creditors or debtors, are forced to disgorge same.
The below chart lays forth the wasteland you are creating:
You (and you predecessor, George Bush) have replaced 11% of final demand (in the form of GDP) with deficit spending. You have no credible plan to stop doing it as final private demand has failed to rebound, just as it did not in the 2003-2007 years and thus George Bush was unable to withdraw his bogus "stimulus" measures.
You are now trapped in an exponentially-deteriorating credit picture Mr. President. The only question remaining is whether you and your idiot "advisors" will recognize this and act in time to prevent the destruction of the political system of The United States.
There is no means by which you can avoid the pain and adjustment that has to be taken. It is not possible, mathematically, to continue to increase the total systemic indebtedness, irrespective of the manipulations and games you attempt to pull on the body politic.
by ilene - June 18th, 2010 12:05 pm
As usual, Steve presents a very balanced view of economic matters. Always worth reading. – Ilene
Courtesy of Steve Randy Waldman at Interfluidity
I’ve been on whatever planet I go to when I’m not writing. Don’t ask, your guess is as good as mine.
When I checked out out a few weeks ago, there was a debate raging on “fiscal austerity”. Checking back in, it continues to rage. In the course of about a half an hour, I’ve read about ten posts on the subject. See e.g. Martin Wolf and Yves Smith, Mike Konczal, and just about everything Paul Krugman has written lately. While I’ve been writing, Tyler Cowen has a new post, which is fantastic. Mark Thoma has delightfully named one side of the debate the “austerians”. Surely someone can come up with a cleverly risqué coinage for those in favor of stimulus?
Here are some obvious points:
Austerity is stupid. Austerity is first-order stupid whenever there are people to whom the opportunity cost of providing goods and services that others desire is negative. To some economists, that sentence is a non sequitur. After all, nothing prevents people from providing goods and services for free, if doing the work is more beneficial to them than alternative uses of their time right? Economists who make this argument need to get out more. Doing paid work has social meaning beyond the fact of the activity, and doing what is ordinarily paid work for free has a very different social meaning. It is perfectly possible, and perfectly common, that a person’s gains from doing work are greater than their total pay, so that in theory you could confiscate their wages or pay them nothing and they would still do the job. But in practice, you can’t do that, because if you don’t actually pay them, it is no longer paid work. The nonmonetary benefits of work are inconveniently bundled with a paycheck. Under this circumstance, having the government pay for the work is welfare improving unless the second-order costs of government spending exceed both the benefits to the worker in excess of pay and the benefit to consumers or users of the goods and services purchased.