Federal Reserve Officials: Americans Are Saving Too Much Money So We Need To Purposely Generate More Inflation To Get Them Spending Again
by ilene - October 9th, 2010 2:01 am
Federal Reserve Officials: Americans Are Saving Too Much Money So We Need To Purposely Generate More Inflation To Get Them Spending Again
Courtesy of Michael Snyder at Economic Collapse
Some top Federal Reserve officials have come up with a really bizarre proposal for stimulating the U.S. economy. As unbelievable as it sounds, what they actually propose to do is to purposely raise the rate of inflation so that Americans will stop saving so much money and will start spending wildly again. The idea behind it is that if inflation rises a couple of percentage points, but consumers are only earning half a percent (or less) on their savings accounts, then there will be an incentive for consumers to spend that money as the value of it deteriorates sitting in the bank.
Yes, that is how bizarre things have gotten. It is not as if U.S. consumers are even saving that much money. Several decades ago, Americans typically saved between 8 and 12 percent of their incomes, but over this past decade the personal saving rate got down near zero a number of times as Americans were living far beyond their means. Once the recession hit, Americans very wisely started saving more money, and so now the personal saving rate has been hovering around the 5 to 7 percent range. This is well below historical levels, but the folks at the Fed apparently are eager for Americans to pull that money out and start spending it again.
In an article entitled "Fed Officials Mull Inflation as a Fix", Wall Street Journal columnist Sudeep Reddy described this bizarre new economic approach that some over at the Federal Reserve are now advocating….
"But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed’s informal target."
Does increasing inflation as a way to stimulate the economy sound like a good idea to any of you?…
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Want a Manufacturing Renaissance? Here’s How
by ilene - October 7th, 2010 4:38 am
Want a Manufacturing Renaissance? Here’s How
Courtesy of Charles Hugh Smith, Of Two Minds
The keys to launching a renaissance in manufacturing and industry in the U.S. are not just financial.
Given the widespread angst over the dwindling role of manufacture and industry in the U.S. economy, you’d think commentators and pundits might actually know something about manufacturing. Remarkably, they don’t.
I see precious little evidence that anyone on either side of the issue--those bemoaning the loss of industry, and those who brush aside the whithering as a positive consequence of globalization, wage arbitrage and free capital flows--has ever worked in a factory or even toured factories in various countries to see for themselves.
The standard-issue pundit/academic may well have glanced through the viewing window at some high-tech factory with robots and workers in clean jumpsuits, and this one slice of manufacturing colored their scanty experience: this must represent all factories nowadays.
Only it isn’t so.
Others (again, with no direct experience with manufacturing) are quick to point out the huge wage differential between Chinese workers (who have received substantial raises in previous years) and U.S. workers and pronounce the eventual death of all U.S.-based manufacturing just on the basis of wage arbitrage.
It isn’t that simple. And what exactly is that wage differential? Few note that the dorms and food services provided to workers at large-scale factories in China are subsidized and thus constitute an additional "wage."
Today we look at issues which rarely if ever see the light of day in the mainstream media.
I happened to see two video clips filmed inside Japanese and German factories on TV recently, on the Japanese English-language channel NHK and on the German English-language channel DW.
As we all know, Japan and Germany are the world’s powerhouse exporters of advanced machine tools and other high-technology equipment and goods.
In the Japanese plastics factory in Nagano Prefecture, neatly uniformed workers were shown cleaning plastic parts by hand.
In the German packaging factory, neatly uniformed workers were shown guiding cardboard boxes onto a conveyor by hand.
To the observer who knows something about either nation, both personally and as a mercantilist culture/economy, there is a wealth of information in these two short videos.
1. A staggering amount of "manufacturing" in advanced mercantilist economies still involves human labor.
2. Factory work is respected and not denigrated culturally.
factory work in the U.S. is widely viewed…
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FLECKENSTEIN: THE BANKS ARE STILL DANGEROUS
by ilene - September 4th, 2010 6:56 pm
FLECKENSTEIN: THE BANKS ARE STILL DANGEROUS
Courtesy of The Pragmatic Capitalist
Bill Fleckenstein discusses the US economy and why the banks are still dangerous investments. Fleckenstein says the market has become oversold in the short-term and sentiment is too negative, but says we remain mired in a trading range as many of our economic problems remain:
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CURIOUS RESPONSE TO VERY NEGATIVE ISM SERVICES REPORT
by ilene - September 3rd, 2010 9:00 pm
CURIOUS RESPONSE TO VERY NEGATIVE ISM SERVICES REPORT
Courtesy of The Pragmatic Capitalist
The
The headline figure came in at 51.5 which was 1.5 points lower than expected – still expanding, but down sharply month on month. A look under the hood shows more alarming trends, however. Just like the manufacturing report on Wednesday the leading indicators in the services report were weaker than expected. New orders tanked 4.3 points to 52.4. Inventories and backlog also showed declines. The employment index, which includes government employees showed a contraction.
This is much more in-line with the regional reports and is likely a better representation of the US
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WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?
by ilene - September 3rd, 2010 7:23 pm
WHY AREN’T EQUITIES SELLING OFF MORE SIGNIFICANTLY?
Courtesy of The Pragmatic Capitalist
The deterioration in the economy has been clear in recent months, but the equity markets have confounded many investors. Stocks are just 10.6% off their highs and have shown some remarkable resilience, particularly in the last few weeks. There’s a great tug-of-war going on underneath what appears like a potentially frightening macro picture.
A closer look shows that what we’ve primarily seen is deterioration in the macro outlook and not so much in specific corporate outlooks. Despite the persistently weak economy, earnings aren’t falling out of bed. Without a sharp decline in earnings there is unlikely to be a sharp decline in the equity markets (outside of some exogenous event such as a sovereign default).
The most distinct characteristic I can recall from the the 2007/2008 market downturn was the persistent deterioration in earnings. Like dominoes we saw the various industries go down one by one: housing, then banks, then consumer discretionary and on down the line. While the macro picture has deteriorated recently we haven’t seen the same sort of deterioration in earnings that we saw in 2007 and 2008.
In a recent strategy note JP Morgan elaborated on the divergence between the macro outlook and the earnings outlook:
“What matters for equities is earnings and not GDP growth. US GDP growth projections are being cut, but earnings projections have been little affected so far. Investors and analysts are hoping that, to the extent the soft patch in US GDP growth lasts for only a few quarters and does not spillover to the rest of the world, US companies will be able to protect their revenues and profits. Indeed, this is what happened during 2Q, when US companies were able to deliver strong top line and EPS growth even as US GDP grew at only a 1% pace.
It is a prolonged soft patch that poses the greater threat for corporate earnings and equity markets as it raises the specter of deflation and profit margin contraction. Why is deflation bad for corporate profitability? When nominal interest rates are bounded at zero, a fall in expected inflation causes a rise in real interest rates and the cost of capital, hurting corporate profitability. In addition, nominal wage rigidities mean that deflation reduces output prices by more than input prices putting pressure on corporate profitability. Indeed, the
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Winners And Losers
by ilene - September 3rd, 2010 1:55 am
Winners And Losers
Courtesy of Michael Snyder at Economic Collapse
When you mention the word "globalism" to most people, they think of something that is going to happen someday in the future. But the truth is that globalism is already here. At this point we essentially already have a one world economy. Goods and services flow across national borders more freely today than at any other point in human history. A major economic event on one side of the world instantly affects financial markets on the other side of the world. Labor has become a truly global commodity. You can go to the exact same fast food restaurant or buy the exact same iPod on six different continents. A whole host of international trade agreements are making national borders economically irrelevant.
Today our "big box" stores and shopping malls are jammed full with products that have been made overseas and it is becoming increasingly difficult to find American-made products. The reality is that it has now become undeniable that globalism has arrived and we are now part of a world economy that is integrating at lightning speed. Unfortunately, all of this globalism has created some very clear winners and losers. But most middle class Americans are in such a deep sleep that they don’t even realize that they are the losers.
The sad truth is that as work has become a global commodity, middle class American workers have been placed in direct competition with the cheapest labor in the world. For years the U.S. economy was so strong that nobody really noticed that it was bleeding thousands of jobs every single month. But now that 14 million Americans are unemployed and the U.S. economy is literally hemorrhaging jobs people are starting to sit up and take notice.
Let’s take a look at one recent example. Ford Motor Company has just announced the closure of a facility that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying jobs are going to be lost.
But isn’t Ford doing better these days?
Sure.
Don’t people still need Ford Rangers?
Of course they do.
Minnesota Governor Tim Pawlenty even offered Ford a multi-million dollar incentive package full of tax cuts…
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Initial Jobless Claims Jump while Philly Fed Signals Economic Contraction
by ilene - August 19th, 2010 6:54 pm
Initial Jobless Claims Jump while Philly Fed Signals Economic Contraction
Courtesy of Rom Badilla, at Bondsquawk.com
The Philadelphia Federal Reserve released its manufacturing survey for August, which suggests economic contraction and may lead the Federal Reserve to promote additional stimulus measures. The Philadelphia Federal Reserve Outlook survey or simply “Philly Fed” for August plummets to a negative reading of 7.7 versus economists’ surveys of +7.0. This marks the third consecutive decline after the outlook survey peaked in May at 21.40.
Behind the headlines, components that represent economic growth were especially weak. Specifically, New Orders dropped further into negative territory to -7.1 from a prior month’s reading of -4.3. Inventories fell from +4.5 in July to -11.6 while the Number of Employees component dropped from 4.0 to an August reading of -2.7.
Inflation expectations should remain subdued and keep bond yields in check as price pressures fall, judging by some of the Philly Fed components. Prices Paid dropped from +13.1 in July to +11.8. In addition, the Prices Received component continues to drive deeper into negative territory. The Prices Received component fell to -12.5 following prints of -6.5 and -8.4 in June and July, respectively.
The Philadelphia Fed numbers carry significant weight since the index is heavily correlated to the ISM manufacturing index and the index of industrial production, which both measure the health of U.S. economic activity. ISM Manufacturing should it fall below 50 in the coming months may lead the Federal Reserve to act in providing stimulus measures via Quantitative Easing.
The number of people in the U.S. filing for employment benefits increased last week according to the Department of Labor. Initial Jobless Claims for the week ending August 14 jumped to 500k people. The number of people who recently became unemployed and are now accessing government benefits was revised upward in the previous week by four thousand to 488k. The increase, which the highest reading since November of 2009, highlights the beginning of deterioration of the employment landscape in the last few weeks as economists were expecting a reading of 478k. Furthermore, the 4-week moving average, which is used to smooth out volatility to establish a better reading of trends, continues to inch higher to 482,500 people and is on the higher end of the recent range of 450-500k that has been established since last November. With this in mind, the number is…
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Deceptive Economic Statistics
by ilene - August 18th, 2010 7:58 pm
Deceptive Economic Statistics
Courtesy of PAUL CRAIG ROBERTS, writing at CounterPunch
On August 17, Bloomberg reported a US government release that industrial production rose twice as much as forecast, climbing 1 percent. Bloomberg interpreted this to mean that “increased business investment is propelling the gains in manufacturing, which accounts for 11 percent of the world’s largest economy.”
The stock market rose.
Let’s look at this through the lens of statistician John Williams of shadowstats.com.
Williams reports that “the primary driver of a 1.0% monthly gain in seasonally-adjusted July industrial production” was “warped seasonal factors” caused by “the irregular patterns in U.S. auto production in the last two years.” Industrial production “shrank by 1.0% before seasonal adjustments.”
If the government and Bloomberg had announced that industrial production fell by 1.0% in July, would the stock market have risen 104 points on August 17?
Notice that Bloomberg reports that manufacturing accounts for 11 percent of the US economy. I remember when manufacturing accounted for 18% of the US economy. The decline of 39% is due to jobs offshoring.
Think about that. Wall Street and shareholders and executives of transnational corporations have made billions by moving 39% of US manufacturing offshore to boost the GDP and employment of foreign countries, such as China, while impoverishing their former American work force. Congress and the economics profession have cheered this on as “the New Economy.”
Bought-and-paid-for-economists told us that “the new economy” would make us all rich, and so did the financial press. We were well rid, they claimed, of the “old” industries and manufactures, the departure of which destroyed the tax base of so many American cities and states and the livelihood of millions of Americans.
The bought-and-paid-for-economists got all the media forums for a decade. While they lied, the US economy died.
Now, back to statistical deception. On August 17 the census Bureau reported a small gain in July 2010 residential construction housing starts. More hope orchestrated. In fact, the “gain,” as John Williams reports, was due to a large downward revision” in June’s reporting. The reported July “gain” would “have been a contraction” without the downward revision in June’s “gain.”
So, the overestimate of June housing not only made June look good, but also the downward correction of the June number makes July look good, because starts rose above the corrected June number. The same manipulation is likely to…
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Empire State Manufacturing Index Weaker Than Expected – New Orders, Sales, Prices Received are Negative
by ilene - August 16th, 2010 12:41 pm
Empire State Manufacturing Index Weaker Than Expected – New Orders, Sales, Prices Received are Negative
Courtesy of Mish
Prices received by manufacturers in the Empire State Fed Survey stood in negative territory for the second consecutive month, while new orders and sales dipped below zero for the first time in a year. Once again, ever-optimistic economists expected a better report.
Please consider the Empire State Manufacturing Survey
The Empire State Manufacturing Survey indicates that conditions improved modestly in August for New York manufacturers. The general business conditions index rose 2 points from its July level, to 7.1. The new orders and shipments indexes both dipped below zero for the first time in more than a year, indicating that orders and shipments declined on balance; the unfilled orders index was also negative. The indexes for both prices paid and prices received inched down, while employment indexes were positive and higher than last month.
In a series of supplementary questions, manufacturers were asked about their capital spending plans. Looking ahead to the next six to twelve months, 37 percent of respondents indicated that they expected to increase capital spending relative to its level in the past six to twelve months, while just 13 percent planned reductions. Of those predicting increased capital spending, 27 percent noted that "a considerable fraction" of the increase reflected investment that had been postponed because of the recession; 41 percent of respondents had given this same response in a similar survey back in January. Another 46 percent of those surveyed this month attributed "some" of the spending increase to the recession. The most commonly cited factors behind increased investment were high expected growth in sales and a need to replace capital goods other than IT (information technology) equipment.
In spite of a slightly rising index, this was a very weak report.The most encouraging thing was 37 percent expect capital spending to rise, but that needs to be balanced with 46 percent saying some increase in spending was on account of the recession.
Moreover, in January 41 percent of respondents delayed a "considerable fraction" of capital spending but that number is now down to 27 percent.
Squeeze on Profits
The diffusion indexes show a considerable squeeze on profits. Take a look at prices paid vs. prices received.
New Orders, Unfilled Orders, Shipments are Negative
The average workweek, capital expenditures, technology spending, and number…
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The Big Things That Matter
by ilene - August 13th, 2010 6:00 am
The Big Things That Matter
Courtesy of PAUL CRAIG ROBERTS writing at CounterPunch
I write about major problems: the collapsing US economy, wars based on lies and deception, the police state based on “the war on terror” and other fabrications such as those orchestrated by corrupt police and prosecutors, who boost their performance reports by convicting the innocent, and so on. America is a very distressing place. The fact that so many Americans are taken in by the lies told by “their” government makes America all the more depressing.
Often, however, it is small annoyances that waste Americans’ time and drive up blood pressures. One of the worst things that ever happened to Americans was the breakup of the AT&T telephone monopoly. As Assistant Secretary of the US Treasury in 1981, if 150 per cent of my time and energy had not been required to cure stagflation in the face of opposition from Wall Street and Fed Chairman Paul Volcker, I might have been able to prevent the destruction of the best communications service in the world, and one that was very inexpensive to customers.
The assistant attorney general in charge of the “anti-trust case” against AT&T called me to ask if Treasury had an interest in how the case was resolved. I went to Treasury Secretary Don Regan and told him that although my conservative and libertarian friends thought that the breakup of At&T was a great idea, their opinion was based entirely in ideology and that the practical effect would not be good for widows and orphans who had a blue chip stock to see them through life or for communications customers as deregulated communications would give the multiple communications corporations different interests than those of the customers. Under the regulated regime, AT&T was allowed a reasonable rate of return on its investment, and to stay out of trouble with regulators AT&T provided excellent and inexpensive service.
Secretary Regan reminded me of my memo to him detailing that Treasury was going to have a hard time getting President Reagan’s economic program, directed at curing the stagflation that had wrecked President Carter’s presidency, out of the Reagan administration. The budget director, David Stockman, and his chief economist, Larry Kudlow, had lined up against it following the wishes of Wall Street, and the White House Chief of Staff James Baker and his deputy Richard Darman were representatives of VP…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site