Geithner’ Folly
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Aug 212011
Washington Post Crashed-and-Burned-and-Smoking Watch: …[The Washington Posts's] Fred Hiatt this morning:
Re-Stimulating. Unemployment is bad. More fiscal debt might be worse: At 9.8 percent, the unemployment rate is higher than it has been since it hit 10.1 percent in June 1983. Since the recession began 21 months ago, the economy has shed nearly 7 million jobs. Whole industries — cars, housing, finance — have been devastated and may never recover fully. Nevertheless, White House economists reported in September that “employment is estimated to be between 600,000 and 1.1 million higher than it would otherwise have been” because of the Obama administration’s stimulus plan and other government policies, especially the Fed’s monetary expansion. While no one can prove or disprove that — much less apportion credit between fiscal and monetary policy — basic economics suggests that things might have been even worse if the government had done nothing…
It does not necessarily follow, however, that the economy needs more stimulus now. Government has managed to blunt the recession, but at a cost — a higher national debt burden, which future Americans must pay off by working harder and saving more than they otherwise would have…
Ummm…
So far the stimulus spendout has been some $160 billion. The midpoint estimate by Christy Romer and company is that GDP is now 1% higher than it would have been otherwise. That higher level of production and employment than we would have seen otherwise is going to lead to the collection of an extra $80 billion in tax revenues. That means that the net effect of the $160 billion we have pushed out the door has been to raise the national debt by $80 billion. The Treasury can now borrow through its TIPS program for 20 years at an interest rate of 2% plus inflation. That means that taxes in the future have to be higher by $1.6 billion per year–by $5 per person per year.
Thus the stimulus package so far:
- Incur an extra forward-looking tax burden per person of 1.3 cents per day…
- Get an extra 800,000 people productively at work–and get all the stuff they make and do–this year…
That looks like a very good deal: buying an extra productive job for an American today at a cost of $2000 per year in higher taxes looking forward–particularly when you think that some of those extra jobs build up our productive capacity to make us richer in the future as well.
The stimulus arithmetic suggests we should be doing more of it. The benefit-cost ratio at current stimulus spending levels is very good…
But nobody on Fred Hiatt’s staff realized this. For nobody on Fred Hiatt’s staff thinks that doing any arithmetic is part of their job description. Indeed, nobody on Fred Hiatt’s staff is capable of doing any arithmetic at all.
May 062009
Via the Seattle PI:
The stress tests are done
Surprise — many banks are fine
Now, go buy that bridgeH/T Corrente
‘Conceived By Someone Who Never Worked in a Real Job’
Financial Armageddon has long highlighted the disconnect between Main Street and Wall Street. Even now, after an extraordinary number of banks and brokers have failed or are still being bailed out, and thousands of financial industry workers have lost their jobs (excluding those at the top, who should have been the first to go) or had bonuses and salaries slashed, there are still plenty of clueless “experts” running around — including those who have the power to invest other people’s money — who claim to see all manner of “green shoots” sprouting up throughout the economy. While I could be wrong when it comes to my admittedly pessimistic views about where the bottom is (and when we might reach that point), even a cursory glance at what is happening around the country makes me feel reasonably confident that we aren’t there yet. To cite just one example, I refer to the following post from Clusterstock, entitled “About That GDP Inventory Decline…”
An executive who works for a massive global industrial company observes that the much-celebrated decline in inventories in the GDP numbers should not be taken as a sign that GDP is suddenly about to start accelerating:
I watched with some amusement as analysts decided that reduced Inventories in the GDP data boded well for future GDP figures. While, all else equal, certainly lower would be better, the fact is we are slashing inventories (and trying to do so even more) because there are no orders. None. We do take “orders” (non-binding, no cash down payment) which are what is optimistically shared with the Street but binding orders with cash down payments do not exist today, haven’t for over 8 months now. When one lands it is company news and because a government entity somewhere backed it. And trust me, if we aren’t getting orders neither are the next 5 guys.
I suppose either the analysts – and the market, which has been juicing our stock (thanks for that) – are correct and the orders are about to start rolling in, or they are going to be somewhat disappointed later this year when our backlog starts to run dry. I hope they’re right. But I assure you the absolute last thing that’s going to happen is for us to start *growing* inventories without the orders - that strategy can only possibly be conceived in a cubicle somewhere, occupied by someone that never worked in a real job. [MP here: don't you just love that last bit?]
They will come after I form the Brian J. Schuettler Bank Holding Company LLC and get my first 10 Million from TARP.
Thanks, Tim!
The evidence is building that global growth has stalled. And it’s about to get much worse.
I think the most notable development this week was Thursday’s big release of global factory activity surveys. It wasn’t pretty. Overall, the JP Morgan Global Manufacturing PMI dropped for the third straight month and fell below the 50 level — the line of demarcation between growth or contraction in monthly factory activity — for the first time since recession was descending upon us back in early 2008. Scary stuff.
Although U.S. activity was buoyant (no doubt a remnant of the sentiment tailwinds enjoyed from the market rally in October), we cannot remain an island of tranquility as Asia and Europe fall into the abyss.
Here are the highlights (any reading under 50 indicates a drop in activity):
*Brazil PMI: 48.7 vs. 46.5 prior
*Ireland PMI: 48.5 vs. 50.1 prior
*Sweden PMI: 47.6 v. 49 estimated
*Norway PMI: 48.6 vs. 50.2 estimated
*Denmark PMI: 47.7 vs. 43.6 prior
*Poland PMI: 49.5 vs. 51.7 prior
*Spain PMI: 42.8 vs. 43.9 prior
*Swiss PMI: 44.8 vs. 46.6 estimated
*Czech PMI: 48.6 vs. 51.7 prior
*Italy PMI: 44 vs. 42.8 estimated
*France PMI: 47.3 vs. 47.6 estimated
*Germany PMI: 47.9
*Greece PMI: 40.9 vs. 40.5 prior
*South Korea PMI: 47.1 vs. 48 prior
*Taiwan PMI: 43.9 vs. 43.7 prior
And, now for the big boys:
*Eurozone PMI: 46.4 — lowest reading since recession ended in July 2009
*U.K. PMI: 47.6 vs. 47 estimated — lowest since June 2009
*China PMI: 49 vs. 49.8 estimated — lowest reading since February 2009
*China HSBC PMI: 47.7 vs. 51 prior — 32-month low
In addition to signs of economic weakness — which was enough for a Chinese vice finance minster to say the global economy faces a “worse situation” than in 2008 — there was evidence that the financial system remains under severe stress despite the freak out over Wednesday’s move by the Federal Reserve to lower dollar funding costs for foreign banks (which, as I discussed at the time, wasn’t really a game changer). The European Central Bank reported that eurozone banks borrowed nearly €9 billion in overnight emergency cash — up from €2.7 billion earlier this week. Not good.
Other signs of strain could be seen in the way German 12-month bill yields dropped below zero on Wednesday as European investors were willing to pay Berlin for the luxury of lending it money. The motivation is that, if you’re holding a big wad of euros, German short-term debt is one of the few “sure bets” left out there. It’s a sign of extreme risk aversion and fear.
Of course, the epicenter for all this is Europe.
Adding to concerns were comments this week from new ECB chief Mario Draghi that while downside risks to the economic outlook have increased, he cannot ride to Europe’s rescue by engaging in unmitigated money printing and bond buying; instead, it must adhere to its founding principles, including an inability to engage in monetary financing of government debts (exactly what the likes of Italy would love right now).
Draghi’s comments were akin to yelling “fire” in a crowded theater before announcing all the fire extinguishers are empty. Whoops.
According to the team at Capital Economics, based in London, the eurozone economy is on track to contract by 1% next year and by 2.5% in 2013, with risks to the downside for both forecasts. Recession will only deepen the budget deficits at the center of the eurozone debt crisis. The only way out is growth. And the only way the likes of Greece, Portugal, and Italy can restore growth is via massive currency depreciation and domestic inflation — something that’s not going to happen as long as they’re in the eurozone.
Sure, there will be distractions like Wednesday’s move by the Fed or additional stimulus measures out of places like China and Brazil. That’s just how the market gods like it. All the better to keep the masses confused and complacent as the fundamentals just get worse and worse.
To put it differently: When you look around the theater, everyone’s still focused on center stage blissfully unaware what’s happening around them. Turn around. The balcony level is in flames.
The Economy Is About To Get A Lot Worse – Anthony Mirhaydari, MSNBC