The Australian economist Bill Mitchell has been following data sets to analyze US debt and who owns it and, as of March 2011, the largest owner of US debt is the US government, which owns 41.7% (including the FED which is not an actual government agency but a private bank authorized by Congress) of its own debt. China is third at 8% behind private domestic owners at 26.9%. He also provides in the link above not only a pie chart, but a succinct macroeconomic explanation of sovereign debt and how it is not like a household (you and me) or a city, county, or other form of regional government (such as the State of Illinois) which are revenue constrained but have a guaranteed revenue stream (unlike you and me) in taxes and fees which make it easier for them to borrow. Since sovereign debt is not the same as household debt macroeconomically, it is very counter intuitive for most people no matter how educated they are. Consequently, there is much useless discussion in public debate from individuals on both sides of the political abyss who do not understand what they are talking about.
Mitchell also has come unrelated comments at the end on the UK social unrest including the belief that it would be possible to forecast social unrest by mapping the failure of governments to provide services, good education, and jobs.
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Wednesday, August 10, 2011
Large UP and Down Market Days Since 1950
Calculated Risk has published two tables showing the largest one day percentage market declines and one day percentage market increases and what the market looked like six months later. If you are a believer in perspective and appreciate historical data you need to study those tables at Calculated Risk in the links above. They will not tell you what the market will look like six months from now, but if you use the information and keep your eyes on growth in the United States and globally, you will have a better concept on how growth or the lack of growth will affect the market long term and on day to day news and economic data releases and periodic scheduled reports.
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FOMC and the Thundering Herd
Since this last weekend, I have been privately commenting that the Tuesday meeting of the Federal Reserve Open Market Committee (FOMC) would little to say other than they were continuing to watch and are prepared to act. There have been no significant changes in liquidity needs. There is no need to buy US Treasuries with short tern yields negative as investors pay for safety. They cannot do anything to create jobs as that is primarily a fiscal policy issue and the failure of Congress and the President. I also said the announcement on Tuesday was likely to affect the market and, if I was the FED, I would make the usually very carefully worded announcement after the market closed to give the market overnight to digest it, because there is nothing more stupid than cows in a nervous herd.
The FED statement was as expected, although longer than usual, with an extension of low interest rates into 2013, no changes in policy, and a change in language acknowledging slower recovery (growth) over coming quarters than previously estimated. These were obvious and to be expected, although three members wanted to essentially keep prior statement language. The FED made this at 2:15 eastern time during the market, which almost immediately swung down from positive action as the cows failed to stop and think --- and the herd took off in a storm of fear.
The Tuesday market was volatile the whole day going up and down and up, which is not a good indicator of future market action. The market ended up 429 points at the end, as some of the cows woke up after the cowboys started buying and the realization that the FED was only stating the obvious about the reality of slowing (a soft word for declining) growth.
The economy has an increasing amount of uncertainty in it to the point that statements of truth are disruptive. Rather than deny truth and reality, we need to increase certainty and growth by creating jobs which provide the confidence for people and corporations to buy. Creating jobs requires increased sales in the private sector and spending in the public sector to directly provide job creation and sales.
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The FED statement was as expected, although longer than usual, with an extension of low interest rates into 2013, no changes in policy, and a change in language acknowledging slower recovery (growth) over coming quarters than previously estimated. These were obvious and to be expected, although three members wanted to essentially keep prior statement language. The FED made this at 2:15 eastern time during the market, which almost immediately swung down from positive action as the cows failed to stop and think --- and the herd took off in a storm of fear.
The Tuesday market was volatile the whole day going up and down and up, which is not a good indicator of future market action. The market ended up 429 points at the end, as some of the cows woke up after the cowboys started buying and the realization that the FED was only stating the obvious about the reality of slowing (a soft word for declining) growth.
The economy has an increasing amount of uncertainty in it to the point that statements of truth are disruptive. Rather than deny truth and reality, we need to increase certainty and growth by creating jobs which provide the confidence for people and corporations to buy. Creating jobs requires increased sales in the private sector and spending in the public sector to directly provide job creation and sales.
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Monday, August 8, 2011
Market Reacting to Declining Growth Not S&P Downgrade
As I have written extensively since August 3rd, the stock market is reacting to the problems and data confirming that the United States, Europe, China, and the Global economy is slowing down significantly. The market is not reacting to the S&P downgrade of United States debt, which was not economically warranted and was based on political perceptions and a corporate agenda.
If the stock market was reacting to debt problems, bond prices would be declining as well as equity prices. That is not happening. Bonds are stronger today while the stock market is showing the weakness of being overvalued in a global and national economy of declining growth. We have warned readers, newsletter recipients, and clients about the overvalued market and growth problems for an extended period of time.
Those who have not planned for investment growth consistent with risk tolerance, age, and quality of life needs with an individualized defensive growth diversification and limited losses on ETFs and stocks did not listen to me or did not take my advice.
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If the stock market was reacting to debt problems, bond prices would be declining as well as equity prices. That is not happening. Bonds are stronger today while the stock market is showing the weakness of being overvalued in a global and national economy of declining growth. We have warned readers, newsletter recipients, and clients about the overvalued market and growth problems for an extended period of time.
Those who have not planned for investment growth consistent with risk tolerance, age, and quality of life needs with an individualized defensive growth diversification and limited losses on ETFs and stocks did not listen to me or did not take my advice.
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Sunday, August 7, 2011
Feeds of Blog Posts
Evidently feeds of six blog posts after July, 2011 did not feed. I believe the problem has been corrected and Feedburner indicates a valid update ping.
The six posts were:
S&P's Rating Folly, Part 2: Grading Political Will
Links 8/6/2011:Eyes on Growth
Unemployment - July 2011: Less Workers=Less Unemployed
Links 8/4/2011: Eyes on Growth
Eyes on Growth: Update Links 8/3/2011
Keep Your Eyes on Growth: United States and Global Are Declining Not Slowing
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The six posts were:
S&P's Rating Folly, Part 2: Grading Political Will
Links 8/6/2011:Eyes on Growth
Unemployment - July 2011: Less Workers=Less Unemployed
Links 8/4/2011: Eyes on Growth
Eyes on Growth: Update Links 8/3/2011
Keep Your Eyes on Growth: United States and Global Are Declining Not Slowing
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S&P's Rating Folly, Part 2: Grading Political Will
In April, we thoroughly covered how a threatened S&P downgrade of US debt would be economically meaningless to a sovereign nation with debt issued in its own currency. The April S&P warning fueled the political divisiveness of public debate placing the S&P directly in the political game as a player influencing political debate. Credit ratings agencies are federally licensed and regulated businesses as NRSRO's (Nationally Recognized Statistical Rating Organizations) and they are not lobbyists, although they escaped financial reform after the Global Financial Crisis which they helped precipitate with misleading credit ratings for companies that failed and investments which were actually toxic.
On Friday, S&P downgraded United States debt from AAA to AA+ despite a $2 trillion S&P error in their analysis. Economically, this is meaningless. You only have to look at the low yields on Japanese bonds after losing their triple A credit rating almost ten years ago. Is the S&P engaged in a political agenda contrary to its regulated purpose?
It appears from the S&P report that the primary concern was the lack of political will by elected representatives and officials to come to a reasonable agreement prior to a repetitive political drama over extension of the debt ceiling. The job of the S&P, as a NRSRO, is to provide an independent statistical analysis of financial credit worthiness which can be relied upon by investors and they have not demonstrated any compelling analysis in the report.
Felix Salmon has noted that default is an act of political will not an econometric decision and that "...it’s fair to pin the lion’s share of the blame on the existence of the debt ceiling." The political debate over the debt ceiling was vicious and destructive and exactly why Section 4 of the 14th Amendment to the U.S. Constitution was passed after the Civil War. The debt ceiling law is not only destructively counter productive, it is legally superfluous. Conservative economic commentator, Megan McArdle, went so far in noting the lack of political will in the debt debate and the obvious necessity to increase the debt ceiling that she said, "...I'm afraid I think that the lion's share of the blame goes to the GOP, which escalated to this completely unnecessary showdown, and then gave up any hope of a grand bargain because it would have required some revenue increases." Given that President Obama believes, and has voted in the past to not raise the debt ceiling as a Senator, in deficit reduction and aided and abetted the deficit hawk elements, although he recognized the need for revenue increases, he appears to be getting off light in the lack of political will department, which is unfortunate since he has demonstrated little political will since assuming office.
Did the S&P downgrade United States debt on the lack of political will in the political process in the United States? On page four of the report which is linked above, the S&P states "We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the Act." They are saying the Republicans in Congress lack the political will to to do what is reasonably necessary to govern in a fiscally responsible manner consistent with the economic needs extant. The mainstream media has ignored this sentence in the report, because it exposes the political charade of the debt ceiling debate as economically incompetent wasted demagogic rhetoric on the debt rather than one of governance.
The S&P, however, used these same tactics, in combination with Moody's, in the 1990's in Canada to assist financial interests in slashing unemployment insurance and health care just as they used their power in 2000 to squash mortgage lending reform. As the economist Rajiv Sethi argues, perhaps, it is time that the credit ratings agencies, which were so instrumental in profiting from credit ratings which were so unreliable they directly contributed to the Global Financial Crisis, be stripped of their legally protected status and monopoly power and made to compete on merit of work with full legal fiduciary liability to the investing public in a democratic society. It is coming to a decision point about whether we are a corporatist market state or a republican democracy.
Jesse's Cafe Americain observed that Friday's market showed visible signs of movement of knowledge of a hidden agenda with respect to the expected S&P announcement, as Felix Salmon and Megan McArdle also mentioned, and concludes that the class war will only intensify now as governance is being cast aside.
Futures at this point in time are mixed with the DOW positive and the Nasdaq and S&P 500 negative. The German Dax futures are negative. The Middle East stock markets on Sunday were down with the Israeli stock market down 6.99% (TA-25), supposedly as a reaction to the US downgrade. Any down movement on Monday solely attributed to this downgrade would be foolish herd behavior and soon recognized as such. However, the eurozone meeting of Central bankers is this Sunday night and the professional market will be watching what the ECB does on Monday. Here are the economic reports, including retail, household debt, and FOMC meeting (which is expected to result in the FED saying they are watching and waiting), which will come out this week and could potentially impact the market.
Print Page
On Friday, S&P downgraded United States debt from AAA to AA+ despite a $2 trillion S&P error in their analysis. Economically, this is meaningless. You only have to look at the low yields on Japanese bonds after losing their triple A credit rating almost ten years ago. Is the S&P engaged in a political agenda contrary to its regulated purpose?
It appears from the S&P report that the primary concern was the lack of political will by elected representatives and officials to come to a reasonable agreement prior to a repetitive political drama over extension of the debt ceiling. The job of the S&P, as a NRSRO, is to provide an independent statistical analysis of financial credit worthiness which can be relied upon by investors and they have not demonstrated any compelling analysis in the report.
Felix Salmon has noted that default is an act of political will not an econometric decision and that "...it’s fair to pin the lion’s share of the blame on the existence of the debt ceiling." The political debate over the debt ceiling was vicious and destructive and exactly why Section 4 of the 14th Amendment to the U.S. Constitution was passed after the Civil War. The debt ceiling law is not only destructively counter productive, it is legally superfluous. Conservative economic commentator, Megan McArdle, went so far in noting the lack of political will in the debt debate and the obvious necessity to increase the debt ceiling that she said, "...I'm afraid I think that the lion's share of the blame goes to the GOP, which escalated to this completely unnecessary showdown, and then gave up any hope of a grand bargain because it would have required some revenue increases." Given that President Obama believes, and has voted in the past to not raise the debt ceiling as a Senator, in deficit reduction and aided and abetted the deficit hawk elements, although he recognized the need for revenue increases, he appears to be getting off light in the lack of political will department, which is unfortunate since he has demonstrated little political will since assuming office.
Did the S&P downgrade United States debt on the lack of political will in the political process in the United States? On page four of the report which is linked above, the S&P states "We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the Act." They are saying the Republicans in Congress lack the political will to to do what is reasonably necessary to govern in a fiscally responsible manner consistent with the economic needs extant. The mainstream media has ignored this sentence in the report, because it exposes the political charade of the debt ceiling debate as economically incompetent wasted demagogic rhetoric on the debt rather than one of governance.
The S&P, however, used these same tactics, in combination with Moody's, in the 1990's in Canada to assist financial interests in slashing unemployment insurance and health care just as they used their power in 2000 to squash mortgage lending reform. As the economist Rajiv Sethi argues, perhaps, it is time that the credit ratings agencies, which were so instrumental in profiting from credit ratings which were so unreliable they directly contributed to the Global Financial Crisis, be stripped of their legally protected status and monopoly power and made to compete on merit of work with full legal fiduciary liability to the investing public in a democratic society. It is coming to a decision point about whether we are a corporatist market state or a republican democracy.
Jesse's Cafe Americain observed that Friday's market showed visible signs of movement of knowledge of a hidden agenda with respect to the expected S&P announcement, as Felix Salmon and Megan McArdle also mentioned, and concludes that the class war will only intensify now as governance is being cast aside.
Futures at this point in time are mixed with the DOW positive and the Nasdaq and S&P 500 negative. The German Dax futures are negative. The Middle East stock markets on Sunday were down with the Israeli stock market down 6.99% (TA-25), supposedly as a reaction to the US downgrade. Any down movement on Monday solely attributed to this downgrade would be foolish herd behavior and soon recognized as such. However, the eurozone meeting of Central bankers is this Sunday night and the professional market will be watching what the ECB does on Monday. Here are the economic reports, including retail, household debt, and FOMC meeting (which is expected to result in the FED saying they are watching and waiting), which will come out this week and could potentially impact the market.
Print Page
Saturday, August 6, 2011
Links 8/6/2011: Eyes on Growth
US employment saw a modest monthly increase which should only take a little over 74 years to get unemployment down to 5%. Basically, the July report showed a decline in the working population which is translating itself into a decline in unemployment.
The employment report
Part time workers and duration of unemployment
Employment to population ratio has fallen to 1953 levels
as jobless benefits end, recession looms
still mystified over unemployment (Menzie Chinn)
study: unions decline increases wage inequality
Jobs report means FED will announce next week they will think about it for awhile (Tim Duy)
Inflation, what US inflation?(Paul Krugman)
Study: tax flight by businesses is a myth
James Galbraith on why economist's will not discuss fraud in financial sector
another explanation of why debt-to-GDP ratio is mathematically incorrect
Unofficial US problem bank list down to 988 banks
The Bank of America deathwatch
Bank of America has no clue what its mortgage losses will be
RBS losses on Greek writedowns
How different European banks treat Greek bonds
Dexia losses most in history
Balanced budget amendment in US would defeat economic purpose of government (Simon Johnson)
Austerity defeats the purpose of government which is to serve the people (Bill Mitchell)
Top ten misconceptions of eurozone crisis (take this with a critical grain of salt -- some people do not have the courage to default correctly if they prefer to be indentured servants for generations)
The contagion of bad ideas (austerity & protecting financial companies rather than citizens) since the Global Financial Crisis is destructive of economic fundamentals (Joseph Stiglitz)
Is the eurozone lost in the depth of structural reforms and the growth destruction of austerity (apply critical analysis to this piece) (Daniel Gros)
Will wage cuts with debt reduction decrease prices and make Greece more competitive in time to survive? Oh! the pain, the pain!
the liquidity problems of the eurozone without a central bank acting as lender of last resort = inevitable failure (Edward Harrison)
The argument for eurobonds issued by ECB, which has no authority to issue bonds (Yanis Varoufakis): why is the EIB not being considered as Rob Parenteau has suggested? Is it because the EIB is an investment bank run by investment bankers who do not understand a societal role?
Germany is in denial that it is a member of a monetary union
Meanwhile, Ireland tries to manipulate the price of distressed property owned by NAMA
The FED and the ECB are both behind the learning curve of debt deflation (Tim Duy)
Italian and Spanish growth slow as austerity pinches
sluggish growth threatens recovery
Why Italy? Why Spain? The EFSF will fail as long as the toxic debt-to-GDP ratio lives in its heart (Yanis Varoufakis)
Portugal's austerity fails to reduce bond yields (does the market understand it is hard to make interest payments if growth is impaired by austerity?)
Europe's plan will not cut Greek debt
Austerity and public safety in Athens
Spain cancels August 18th bond auction
Greece cannot recover on innovation because research, education, and innovation require spending
The Parade of the EU and ECB in the celebration of a Failure of Political Will as demonstrated this past week:
Trichet's purchase of Portuguese and Irish bonds fails to help Italy and Spain
ECB's shock-and-awe wimps into whimper
temporarily throws Italy and Spain to the wolves
the international markets react impatiently
Barroso constructively suggests reconsideration of EFSF and receives anger in return
Italy must cut services to people as condition for ECB to help
Italy will accelerate austerity and balance budget in 2013 (want to bet on the plunge in growth into recession?) to get ECB help
ECB agrees to buy Italian and Spanish bonds next Monday
Economically knowledgeable people internationally have been urging to buy Spanish and Italian bonds to constrain the market and provide support to their ability to make their debt payments in the future since they have no ability to exercise the normal sovereign nation's escape valves through fiat currency depreciation, because they use a foreign currency (euro) of a monetary union with no fiscal transfer mechanism to correct current account imbalances resulting from trade lack of competitiveness within in a currency union.
But these very same economically knowledgeable people also know this is only a very necessary stop gap and very temporary if the eurozone will not start acting as if all of its citizens are members of a single union:
We have seen this before (Cullen Roche).
It is incredibly difficult to stabilize finances in a debt-deflation spiral (Tim Duy) if they cannot print their own currencies.
S&P downgrades United States to from AAA to AA+ despite $2 trillion S&P error is their analysis. Economically, this is meaningless. You only have to look at the low yields on Japanese bonds after losing their triple A credit rating almost ten years ago. Is the S&P engaged in a political agenda contrary to its regulatory constraints?
Print Page
The employment report
Part time workers and duration of unemployment
Employment to population ratio has fallen to 1953 levels
as jobless benefits end, recession looms
still mystified over unemployment (Menzie Chinn)
study: unions decline increases wage inequality
Jobs report means FED will announce next week they will think about it for awhile (Tim Duy)
Inflation, what US inflation?(Paul Krugman)
Study: tax flight by businesses is a myth
James Galbraith on why economist's will not discuss fraud in financial sector
another explanation of why debt-to-GDP ratio is mathematically incorrect
Unofficial US problem bank list down to 988 banks
The Bank of America deathwatch
Bank of America has no clue what its mortgage losses will be
RBS losses on Greek writedowns
How different European banks treat Greek bonds
Dexia losses most in history
Balanced budget amendment in US would defeat economic purpose of government (Simon Johnson)
Austerity defeats the purpose of government which is to serve the people (Bill Mitchell)
Top ten misconceptions of eurozone crisis (take this with a critical grain of salt -- some people do not have the courage to default correctly if they prefer to be indentured servants for generations)
The contagion of bad ideas (austerity & protecting financial companies rather than citizens) since the Global Financial Crisis is destructive of economic fundamentals (Joseph Stiglitz)
Is the eurozone lost in the depth of structural reforms and the growth destruction of austerity (apply critical analysis to this piece) (Daniel Gros)
Will wage cuts with debt reduction decrease prices and make Greece more competitive in time to survive? Oh! the pain, the pain!
the liquidity problems of the eurozone without a central bank acting as lender of last resort = inevitable failure (Edward Harrison)
The argument for eurobonds issued by ECB, which has no authority to issue bonds (Yanis Varoufakis): why is the EIB not being considered as Rob Parenteau has suggested? Is it because the EIB is an investment bank run by investment bankers who do not understand a societal role?
Germany is in denial that it is a member of a monetary union
Meanwhile, Ireland tries to manipulate the price of distressed property owned by NAMA
The FED and the ECB are both behind the learning curve of debt deflation (Tim Duy)
Italian and Spanish growth slow as austerity pinches
sluggish growth threatens recovery
Why Italy? Why Spain? The EFSF will fail as long as the toxic debt-to-GDP ratio lives in its heart (Yanis Varoufakis)
Portugal's austerity fails to reduce bond yields (does the market understand it is hard to make interest payments if growth is impaired by austerity?)
Europe's plan will not cut Greek debt
Austerity and public safety in Athens
Spain cancels August 18th bond auction
Greece cannot recover on innovation because research, education, and innovation require spending
The Parade of the EU and ECB in the celebration of a Failure of Political Will as demonstrated this past week:
Trichet's purchase of Portuguese and Irish bonds fails to help Italy and Spain
ECB's shock-and-awe wimps into whimper
temporarily throws Italy and Spain to the wolves
the international markets react impatiently
Barroso constructively suggests reconsideration of EFSF and receives anger in return
Italy must cut services to people as condition for ECB to help
Italy will accelerate austerity and balance budget in 2013 (want to bet on the plunge in growth into recession?) to get ECB help
ECB agrees to buy Italian and Spanish bonds next Monday
Economically knowledgeable people internationally have been urging to buy Spanish and Italian bonds to constrain the market and provide support to their ability to make their debt payments in the future since they have no ability to exercise the normal sovereign nation's escape valves through fiat currency depreciation, because they use a foreign currency (euro) of a monetary union with no fiscal transfer mechanism to correct current account imbalances resulting from trade lack of competitiveness within in a currency union.
But these very same economically knowledgeable people also know this is only a very necessary stop gap and very temporary if the eurozone will not start acting as if all of its citizens are members of a single union:
We have seen this before (Cullen Roche).
It is incredibly difficult to stabilize finances in a debt-deflation spiral (Tim Duy) if they cannot print their own currencies.
S&P downgrades United States to from AAA to AA+ despite $2 trillion S&P error is their analysis. Economically, this is meaningless. You only have to look at the low yields on Japanese bonds after losing their triple A credit rating almost ten years ago. Is the S&P engaged in a political agenda contrary to its regulatory constraints?
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