America's Superiority Complex. Aaron Carroll has a very good takedown of an op-ed article by Senator Ron Johnson, who basically exploits his infant daughter’s medical experience to make an incoherent attack on the Affordable Care Act. His daughter received excellent treatment, and he asserts that she wouldn’t have received that kind of treatment under universal health insurance, because …. well, he doesn’t explain. Along the way he commits some of the classic howlers, like the one about how you can see how bad single-payer insurance is by the fact that Americans don’t have to wait as long as Canadians for hip replacements, which in Canada are paid for by the government, while in America they’re mainly paid for by … Medicare.
But what struck me about the whole piece was the assumption that modern medicine in general is something only we lucky free-market Americans have, while in Europe they’re still using leeches or something. And I found myself thinking about this, from Richard Florida: There Are Only 2 Ways to Save the Economy: Innovation or Inflation - Michael Mandel - Business. It all comes down to this: We have to match growth to debt. If we can't create miracles from growth, we have to consider inflation to reduce the value of our debt We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). Looking across the world, the underlying problem is that borrowers--households and governments--have taken on debt that they can't afford to pay back, given the current rate of income and economic growth.
In the U.S, too many homeowners are struggling with mortgages that far exceed the value of their homes and cannot be repaid from their current incomes. Down the road the same principle of matching growth to debt allows us to perceive potential financial crises to come. It's not easy to explain why lenders overestimated the ability of debtors to pay. The alternative to increasing growth is reducing the outstanding debt. THE TRILLION DOLLAR MEAN REVERSION. Ben Bernanke’s great reflation gamble appears to be working. Unfortunately, it appears to be working in all the wrong places.
While unemployment remains high, small businesses continue to struggle and the recession on Main Street endures , it’s back to business as usual at the banks. In 2007 & 2008 Jim Reid of Deutsche Bank issued a popular chart he called the “trillion dollar mean reversions”. The chart showed the excess profits in the financial sector when compared to the rest of the economy. Banks had massive excess profits and Reid’s thesis was simple – this is not sustainable and would revert to the mean – Reid was correct. He recently re-published the chart and the results are not pretty.
Reid isn’t all that concerned with the excess profits, however. “With hindsight it’s clear that had financial profits not rebounded in the manner they have done over the last 12 months then the Global Economy would still be mired in a deep recession with the risk of Depression high. S&P: Market Likely to Fall 10% - According to Standard & Poors, a three pronged government attack is likely to take stocks lower over the coming weeks. The three reasons for the potential for more downside are: Regulating the banks Chinese rate hikes Bernanke’s re-confirmation S&P’s Chief Technican, Mark Arbeter, says the S&P 500 is likely to correct 10% further to the 1035 area.
At these levels there are major trendlines, retracement levels and moving averages that should provide support to an uncertain market. The Nasdaq could fall to the 2050 level. The continuing dollar rally is only throwing fuel on the fire: We think a continued rally in the greenback will hurt those areas of the market that have provided a leadership role since the bear market bottom, namely emerging markets and commodities.
Sam Stovall sees the decline as a potential buying opportunity, however. As a result of government interventions worldwide, global equity markets are in retreat and have stalled the 10-month bull market. Source: S&P New! More Downside To Come. Global Liquidity Tightning. Four Notes on Expected Inflation's Downward Trend - El-Erian Says Retreat in Stocks Will Worsen as Economy Slumps - The POMO effect, charted. Goldman: The ISM Manufacturing Index Will Collapse By 2011. The ISM Index of U.S. manufacturing could collapse from its current 56.3 level to below 50, says Goldman Sachs. This would imply that manufacturing activity could contract, since any reading below 50 signifies shrinking output.
Goldman's Andrew Tilton: The vigorous rebound in industrial activity that began in mid-2009 has begun to fade in recent months. This is already quite evident in the growth rate of industrial production, and to a lesser extent in the decline of the ISM manufacturing index from its peak in April. We expect the ISM index to decline to 50 or below by early 2011. Note this is more than your run-of-the-mill growth slow-down double dip forecasts. No Wonder Many Americans' Economic Outlook Is Pessimistic -- See. Personal Bankruptcies Resume Upward Trend - Real Time Economics. Guest Post: No Wonder the Economy Isn’t Improving « naked capita. I’ve read countless news headlines recently about how economists are “surprised” over an “unexpectedly bad” economic indicator. But it’s not surprising at all.
It’s no mystery. The government hasn’t taken the necessary actions, and has instead been doing all of the wrong things. Let’s recap. The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed’s open market operations). And BIS warned that the Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis. While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter like debts are a good thing. William K. The recovery cannot be sustained. Scary Housing Statistics Dampen Hope for Near-Term Recovery -- S.
Following the remarkably high 60 percent back-end debt-to-income ratio for homeowners whose loans have been made "permanent" via the government's HAMP program as noted here a couple of days ago come more scary statistics on the nation's housing market. From Diana Olick's Loans Going Bad Faster Than the Fixes comes word of how long the foreclosure process is being dragged out: More than 31 percent of loans that have been delinquent for six months are not yet in foreclosure, while 22.8 percent of loans delinquent for 12 months have not been moved to foreclosure status... More evidence of banks being hopelessly behind or not wanting to take market prices for REOs comes in California foreclosure starts rise nearly 20% in February from the LA Times: The number of properties scheduled for foreclosure sale also remained near record levels.
However, actual sales of foreclosure properties, whether back to the bank or those sold to third parties, dropped 11.9% in February from the month prior. New! Housing index bonanza. How Pimco Is Holding the American Homeowner Hostage. Some raids on the US Treasury by America's crony capitalists are so egregious as to provoke a rant -- even if you aren't Rick Santelli. One such rant-worthy provocation is Pimco latest scheme to loot Uncle Sam's depleted exchequer.
According to Bill Gross, who heads what appears to be the firm's squad of public policy front runners, the American economy can be saved only through "full nationalization" of the mortgage finance system and a massive "jubilee" of debt forgiveness for millions of underwater homeowners. If nothing else, these blatantly self-serving recommendations demonstrate that Matt Taibbi was slightly off the mark in his famed Rolling Stone diatribe.
It turns out that the real vampire squid wrapped around the face of the American taxpayer isn't Goldman Sachs (GS) after all. Instead, it's surely the Pacific Investment Management Co. There's no mystery as to how America got hooked on this 40-year mortgage debt binge. The HIDC subsidy system, then, has been doubly perverse. The Fatal Political Obsession With Home Ownership - 6 Things You Need to Know About Foreclosure Fraud - The foreclosure fraud crisis seems to escalate with each passing day now. It is being reported that all 50 U.S. states have launched a joint investigation into alleged fraud in the mortgage industry. This is a huge story that is not going to go away any time soon. The truth is that it would be hard to understate the amount of fraud that has gone on in the U.S. mortgage industry, and we are watching events unfold that could potentially rip the U.S. economy to shreds.
Many are now referring to this crisis as "Foreclosure-Gate", and already it is shaping up to be the worst thing that has ever happened to the U.S. mortgage industry. At this point, it seems inevitable that some financial institutions will go under as a result of this mess. In fact, by the end of this thing we might see a whole bunch of lending institutions crash and burn.
The truth is that there was fraud going on in every segment of the mortgage industry over the past decade. Is this author on the ball? Follow Michael T. Lawler: Existing Home Sales: “Consensus” vs. Likely. By Bill McBride on 8/23/2010 05:24:00 PM CR Note: This is from economist Tom Lawler. Given the various state/local MLS sales reports available for July, it seems INCREDIBLY likely that existing home sales last month were down a boatload from June’s pace. Every local realtor report I’ve seen showed a drop in sales from a year ago, with most showing YOY sales declines over 20%, and some reporting sales declines of over 40% from a year ago. (See last page for “raw” data) Yet amazingly the “consensus” forecast for existing home sales in July calls for a SAAR of 4.65-4.66 million, which would be down just 9.3-9.5% from last July’s seasonally adjusted pace. With so many state and/or local MLS publicly reporting YOY sales declines massively higher than that, how can the “consensus” be as high as it is?
Click on graph for larger image in new window. So … where does the “consensus” come from, and why does it appear to be so far off? So… what did we learn from the home buyer tax credit? A Perfect Storm: Where the Markets Are Headed and What Actions t. Market action in the last several weeks is signaling that the underlying trend is changing. This is good news, as it will offer new opportunities to exploit the market’s opportunities. For the last several weeks, the market rally has been getting weary as it kept testing the rising trend.
Finally, some surprising news forced more sellers into the market and we have a new ball game for 2010. The surprise election in Massachusetts told government officials what everyone else already knew. It is the economy and jobs. Two weeks before the election the democrat contender was leading by double digits according to some polls. Reaction from the U. Claiming that the proprietary trading by the banks caused the recession is not based on fact. The reaction from the financial sector was a swift drop in the prices of their stock causing the market to fall through the rising uptrend. Actually, blame for the recession belongs to many. The banking system is sorely in need of better regulation. Deficits as Far as the Eye Can See - Yesterday, the Congressional Budget Office released its much-anticipated projections for the budget.
As usual, the headline figure is CBO’s estimate of the budget deficit, now projected to be $1.35 trillion for the fiscal year, about 9.2% of GDP. That’s slightly better than last year–when $1.4 trillion deficits amounted to 9.9% of GDP–but is still the second-worst since World War II. And, as CBO notes, new legislation could easily lift the 2010 figure higher. For example, Congress will likely consider further extensions to unemployment benefits and more war spending, not to mention a possible jobs bill.
CBO also projected deficits for the next decade. They are large and persistent: The blue line shows CBO’s official budget baseline. It’s also completely unrealistic given Washington’s current policy predilections. The official baseline is built upon two key assumptions: that existing laws execute exactly as written and that discretionary spending increases with inflation in future years. AUSTERITY VS DEFICIT SPENDING – A CATCH 22. The Capital Spectator: THINKING ABOUT DEFLATION. It’s important to distinguish between “good” and “bad” deflation, the former being a byproduct of improved technology, higher productivity, and other factors that can generally be lumped under the heading of “progress.”
Bad deflation, by contrast, is the blowback from a shock of one form or another that produces a financial crisis, such as the one that occurred in 2008. In those cases when deflation threatens, it’s almost always a problem when it’s triggered by a financial crisis. Several centuries of history speak loud and clear on this point. But is the threat from deflation limited to those instances when broad measures of prices are currently falling? Will the crowd’s prediction turn out to be accurate? , “sustained deflation is only possible when the rate of money growth falls behind the rate of growth of output and money demand.” Risk of Inflation Is Higher Than Expected -
Over at his blog, Tim Duy is worried about the risks of persistently low inflation or deflation and asks if the Fed is underestimating the macro risks of deflation. He concludes that: [T]he Fed did find ways to maneuver around the zero bound constraint this time, I am more concerned with the next recession than this one. Recent history suggests that each recession necessitates lower interest rates than the last. I would prefer to pull the economy up to a point where we had some distance from the zero bound such that we did not have revert back to managing economic activity via ballooning the balance sheet.
What do you mean by inflation? I firmly believe that central bankers are looking at the issue of inflation and deflation in the wrong way. If central bankers monitor these kinds of core inflation measures, they will conclude that inflation is well under control. That’s why my Inflation-Deflation Timer model focuses on commodity inflation as an indicator of inflation for investors. New! Even at 10%, The Unemployment Rate Is Highly Misleading -- Seeki. 'Contained Depression' - Kevin Feltes, an economist for the Jerome Levy Forecasting Center, solicited my opinion on a couple of their recent articles. Levy comes down on the side of deflation, as do I. However, the devil is in the details, as always.
I will go through one of their articles in a point-by-point fashion, stating where I agree and disagree with their analysis. This is a long post. Please give it some time. Please consider Widespread Fear of the Wrong Kind of Price Instability. Levy: It is not inflation but more disinflation and ultimately deflation that lie ahead in the 2010s.Inflation worries remain a major part of the market backdrop, and the past year has brought new price stability concerns to investors. Receive future articles by this author via email: Follow and be the first to know when they publish. Follow Michael Shedlock (1,012 followers) (You’ll be notified by email with new articles from your favorite authors.) To Optimists on the U.S. Economy: Curb Your Enthusiasm -- Seekin. 4 REASONS THE “GOOD” GDP IS WORSE T. Reality Check: Benchmarking the January Employment Report -- See.
“More Empires Have Fallen Because Of Reckless Financ. The most serious wave of commercial real estate di. The Economic Propaganda Game - Fed is now almost out of all options | 19 May 2010 | www.commodi. The Real Costs of Printing Money | Pater Tenebrarum. Will Nothing Stimulate This Dead-Horse Economy? - Is Fed Preparing to 'Shock and Awe'? -