|Mother Jones (@MotherJones)
10/30/11 11:13 AM
Brilliant, easy way to use paid postage to mount #OWS protest via the junk mail banks send you: bit.ly/sgOVyi
Beautiful example of the narrrative fallacy. More misguided and simply wrong analysis to mislead unsuspecting investors.
Inflation since 2007 has been about 5%. Thus the real GDP number adjusted for inflation is not 13.35T but rather 12.56 So the nominal level of GDP may be higher today than it was in 2007 but the real level of GDP is still lower.
Question should be how much of past recessions examples were the result of faster inflation or real growth. Would make an interesting study. My guess is that we probably inflated our way out of most recessions more than we grew out of them since the credit generation emerged.
Economy in U.S. Surpasses Pre-Recession Level After 15 Quarters
Oct. 28 (Bloomberg) — The value of goods and services produced in the U.S. surpassed its pre-recession level after 15 quarters, taking three times longer than the average for 10 previous recoveries since World War II.
Gross domestic product expanded at a 2.5 percent annual rate in the period from July through September, the Commerce Department reported yesterday, the fastest pace in a year and up from 1.3 percent in the prior three-month period. After adjusting for inflation, GDP climbed to $13.35 trillion last quarter, topping the $13.33 trillion peak reached in the last three months of 2007.
“The American economy finally has accomplished the recovery and has now entered the expansion,” said Neal Soss, chief economist with Credit Suisse in New York, who was an aide to former Federal Reserve Chairman Paul Volcker. “But the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.”
Consumers reduced savings to boost purchases and companies stepped up investment in equipment and software, even as the biggest drop in incomes in two years raises concerns about whether the spending increase will continue. The number of Americans with jobs last month, 131.3 million, was lower than the 138 million workers in December 2007, when the 18-month recession began, according to Labor Department data.
Stocks surged yesterday as European leaders agreed to expand a bailout fund to stem the region’s sovereign debt crisis. The Standard & Poor’s 500 Index jumped 3.4 percent to 1,284.59, extending the biggest monthly rally for the gauge since 1974. Treasuries sank, pushing the yield on the 10-year note up to 2.39 percent from 2.21 percent the day before.
The U.S. economy expanded at an average 0.9 percent rate in the first half of 2011, the worst performance since the recovery began in June 2009. Growth needs to exceed 2.5 percent to reduce the jobless rate, according to estimates by Kurt Karl, chief U.S. economist at Swiss RE in New York.
Unemployment stuck around 9 percent or higher for 30 months explains why Federal Reserve policy makers, who meet next week, and the Obama administration are considering additional measures to boost the economy.
“We are well below potential output,” said Ben Herzon, an economist at Macroeconomic Advisers LLC, the St. Louis-based forecasting firm cofounded by former Fed Governor Laurence Meyer. “The time to get excited is when everyone who is looking for work has got work.”
Corporate investment in equipment and software was a bright spot in yesterday’s report, climbing at a 17.4 percent pace, the most in a year.
Profits for companies in S&P 500 rose 16 percent on average in the three months ended Sept. 30, based on results reported so far. Earnings are beating analyst predictions by 5.5 percent, compared with a rate of 3.3 percent since 2005, the data show.
A pickup in investment hasn’t translated into more jobs. Payrolls rose by an average 96,000 workers per month last quarter, down from the 166,000 average in the first quarter.
Household purchases, the biggest part of the economy, increased at a 2.4 percent pace, more than forecast by economists.
“Because the strength was led by consumers, the economy’s outlook is much better than we had previously thought,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York.
The savings rate last quarter dropped to 4.1 percent, the lowest since the last three months of 2007. After-tax incomes adjusted for inflation decreased at a 1.7 percent annual rate, the biggest drop since the third quarter of 2009.
Keeping Prices Down
McDonald’s Corp., the world’s biggest restaurant chain, is among companies trying to keep prices down to attract budget- conscious customers. The Oak Brook, Illinois-based company this month said third-quarter profit gained 8.6 percent.
“The environment out there is still fragile,” James Skinner, McDonald’s vice-chairman and chief executive officer, said in an Oct. 21 call with analysts. “Consumers everywhere continue to be cautious and hesitant to spend.”
President Barack Obama this week said he is seeking ways to take action without congressional approval after the Senate blocked his $447 billion jobs bill earlier this month. The steps include altering a program to help homeowners refinance mortgages and easing the burden of student loans.
Fed policy makers are developing options for further monetary easing even as the economy picks up.
Vice Chairman Janet Yellen said last week that a third round of large-scale asset purchases “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.” Governor Daniel Tarullo said buying mortgage-backed securities “should move back up toward the top of the list of options.”
Policy makers pledged in August to hold the benchmark interest rate near zero through the middle of 2013 so long as joblessness stays high and the inflation outlook is “subdued.” On Sept. 21, they announced a plan to replace debt in the central bank’s portfolio with longer-term Treasuries to help cut borrowing costs.
Companies also kept a tight rein on stockpiles last quarter, making it less likely that production will have to be cut back. Inventories were built at a $5.4 billion annual pace, down from the second quarter’s $39.1 billion rate, according to yesterday’s GDP report. The reduction subtracted 1.1 percentage points from growth.
Excluding inventories, the economy grew at a 3.6 percent annual rate last quarter, up from a 1.6 percent in the April through June period.
A narrower trade deficit contributed 0.2 points to GDP. Government spending stagnated, continuing to restrain growth. A 2 percent gain in federal outlays was offset by a 1.3 percent drop in spending by state and local agencies.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz
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I don’t think the SEC is going to make the 100 best companies to work for. Unless of course they loosen the crackdown on office porn.
Funny how reading this distills thoughts of bankers circumventing their own internal controls. I suppose the SEC and Wall Street have more in common than either would believe.
Chanos Says China Property Is Slowing, Still Shorting Banks
Oct. 28 (Bloomberg) — China is on “a bigger and faster treadmill” than ever as property sales slow, said Jim Chanos, the hedge-fund manager who’s shorting banking stocks on a bet the market will crash.
“The Chinese are beginning to realize that property prices can go down as well as up and this is going to be a very, very troubling development for the Chinese property market,” Chanos, president and founder of $6 billion hedge fund Kynikos Associates Ltd., said in a Bloomberg Television interview from Singapore with Susan Li today.
Chanos has forecast since at least February 2010 that the property market will slump, saying that China is Dubai times a thousand and on a “treadmill to hell” because of its reliance on real estate for growth. Home prices rose in fewer than half of 70 Chinese cities in a nationwide survey in September as sales eased after the government restricted home sales and imposed curbs on some mortgages in an attempt to cool prices.
The hedge-fund manager’s views are at odds with those of Stephen Roach, non-executive chairman of Morgan Stanley Asia, who said in New York yesterday that the government has had some success in deflating a housing bubble and concerns of a hard landing are “overblown.” Chinese lenders led by Agricultural Bank of China Ltd. rallied today after reporting higher third- quarter profits and lower bad-debt ratios.
China’s “hard landing” has begun, said Chanos, adding that consumption as a percentage of gross domestic product is dropping and that fixed-asset investment is the driver of the Chinese economy. “Most China observers were not talking about any landing three months ago and now they are confidently talking about a soft landing.”
Shares of Chinese banks, insurers and developers, as measured by the MSCI China Financials index, have lost 21 percent in the past year on concern that slowing economic growth will spur bad debts after a three-year credit boom.
Chinese banks, led by Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, are set to report record annual profits after third-quarter earnings rose and bad-debt ratios shrank. Net income at ICBC climbed 28 percent from a year earlier to 54.4 billion yuan ($8.5 billion), the Beijing-based bank said yesterday. Bank of Communications Co., China’s fifth-largest lender by assets, posted a 31 percent gain to 12 billion yuan.
‘Grain of Salt’
Chanos said he takes the accounting of the Chinese banks “with a large grain of salt.”
“Western banks reported record profits in 2007 before collapsing,” he said. “It’s all about credit. The last two banking crisis in 1999 and 2004, China banks had 40 percent non- performing loans to total loans and there were no recessions in those periods.”
Chanos, who was one of the first investors to foresee the 2001 collapse of Enron Corp., said his company was shorting homebuilders and credit-related stocks in the West in 2005 to 2007. Shorting involves selling borrowed shares with the view their prices will fall and they can be bought back at a profit.
“All the way down, there were 30 percent and 40 percent rallies from new lows, yet things kept deteriorating,” Chanos said, adding that he’s nowhere near covering his short positions in China as “the property slowdown has just started in the third quarter. Stocks are going to go up and down like yoyos. But we are keeping an eye on the fundamentals and they have just started to deteriorate.”
Property Stocks Climb
The gauge tracking property stocks on the Shanghai Composite Index climbed 2.7 percent at the midday break, the most among the five industry groups on the benchmark measure.
Real estate transactions in the past two months, in the so- called tier-one, two and three cities the firm tracks are down 40 percent to 60 percent year on year, said Chanos.
“The property slowdown or worse has started,” he said. “The question is how it’s resolved.”
Chanos is on a trip to Asia, including Hong Kong and Singapore. He said trips to visit Shanghai and Beijing are “probably some ways away” because he has analysts going to China all the time.
To contact the editor responsible for this story: Andreea Papuc at apapuc1
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Maybe we should consider a wider social backstop to account for these types of productivity gains illustrated below. A guaranteed minimum standard of living might infact become a tangible solution for those willing to live that lifestyle. Imagine when food stamps change their image from those who need it to those who chose it for the betterment of society, a noble acceptance.
CNBC.com Article: More Jobs Predicted for Machines, Not People
A faltering economy explains much of the job shortage in America, but advancing technology has sharply magnified the effect, more so than is generally understood, according to two researchers at the Massachusetts Institute of Technology. The New York Times reports.
This is not sustainable. Nor do I see how the current recapitalization plan for Greece helps us avoid these scenarios in the future. Unless they are going to restructure all of the weak EZ countries along with the banks it will be a race between fiscal consolidation and then next Euro-sovereign insolvency/banking crisis.
U.S. Money Funds Cut Loans to French Banks by 44% Last Month
Oct. 14 (Bloomberg) — The eight largest U.S. money-market funds reduced their lending to French banks by 44 percent last month as the European sovereign debt crisis worsened.
Holdings in BNP Paribas SA, Societe Generale SA, Natixis SA and Credit Agricole SA dropped to $23.2 billion at the end of September from $41.5 billion the previous month, according to filings compiled by Bloomberg and published in today’s Bloomberg Risk newsletter. The biggest falls were for Natixis, at 74 percent, and Credit Agricole, at 64 percent, the data showed.
The funds, which control $592.4 billion in assets between them, disclose their holdings every month. They are reducing loans to European banks on concern the sovereign-debt crisis has undermined lenders’ ability to access wholesale markets. EU banks are increasingly tapping the European Central Bank for emergency cash as short-term funding evaporates. The ECB last week reintroduced yearlong loans, giving banks unlimited access to cash through January 2013.
“There has been a substantial decrease in access to the wholesale funding markets whether for money market funds, debt security issuance or securitization,” Huw van Steenis, an analyst at Morgan Stanley in London, wrote in an Oct. 10 report. “Banks expect that funding markets will continue to deteriorate albeit at a slower pace.”
The reduction in U.S. money-market lending forced the ECB last month to reintroduce dollar funding through longer-term three-month repurchase agreements. The central bank said Oct. 12 that six lenders asked for a total of $1.35 billion of three- month dollar loans in the first of three operations. The banks will pay a fixed rate of 1.09 percent for the funds. Separately, one bank received a $500 million week-long dollar loan.
The ECB last introduced a three-month dollar loan in May 2010 to calm markets roiled by the threat of a Greek default. It has been lending banks as much euro cash as they need at its benchmark rate since October 2008, when the collapse of Lehman Brothers Holdings Inc. triggered a global recession.
The funds’ holdings in Societe Generale declined by 51 percent to $3 billion, and BNP Paribas by 20 percent to $14.8 billion, the filings show. Over the last 12 months, there has been an 83 percent decline in Societe Generale funding from U.S. money market funds and a 40 percent fall in funding for BNP Paribas. Spokesmen for Paris-based Societe Generale, BNP Paribas and Credit Agricole declined to comment on the reduction. Officials at Natixis didn’t return calls for comment.
“Even if it were to go to zero, there would be no problem,” Frederic Oudea, Societe Generale’s chief executive officer, said in a Sept. 13 interview. The bank could withstand an indefinite withdrawal of U.S. money market funding, he said.
European banks, including BNP Paribas and Societe Generale, have said they have reduced their reliance on U.S. money market funding. They are also increasingly using other sources of dollar funding to finance their U.S. operations.
The premium European banks pay to swap euro funding for dollar liabilities rose to within 4 basis points of the highest level since December 2008 earlier this month.
The funds also reduced their holdings in KBC Groep NV, Belgium’s biggest lender, by 80 percent to $587 million. KBC spokesman Stephane Leunens declined to respond to a request for comment.
The money market data are based on the most recent portfolio disclosures from Fidelity Cash Reserves Fund, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Find, Fidelity Institutional Money Market Portfolio, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund. The figures include repo loans that are backed by government collateral.
Federated Investors Inc. said that its funds would continue to invest in European banks. The use of “carefully selected” securities from major global European banks poses a “minimal credit risk,” said Meghan McAndrew, spokeswoman at Pittsburgh- based Federated Investors.
JPMorgan declined to comment. Fidelity Investments, Vanguard, BlackRock and Wells Fargo didn’t return requests for comment.
The funds’ assets dropped 1.7 percent in the month. U.S. money funds held $2.61 trillion in assets as of Oct. 11, including $1.45 trillion in funds eligible to invest in non- government debt, according to research firm iMoneyNet in Westborough, Massachusetts.
To contact the reporters on this story: Radi Khasawneh in Londont .
To contact the editors responsible for this story: Edward Evans at eevans3 Ted Merz in New York at tmerz
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Excellent summary of comments from the March 8th, 2011 hearing on Principles of Efficient Tax Reform before the Senate Finance Committee. The statement comes from a powerful group within academia, and generally offers prudent, insightful and seemingly sound advice. In fact some of it looks very familiar given recent proposals from Washington. These are the people you want informing decisions.
However the more I read and hear, the more I am convinced that our democratic process may in fact be fueling our economic fire. Partisan politics will be the only thing that gets in the way of meaningful reforms in time to help get our economy back on track in time to have an opportunity to “grow” our way out of all of this.
These notes are a must read for anyone interested in knowing where US Tax Policy may be headed under Obama. Among the proposals I favor and have written about in the past is a larger estate tax with a higher minimum for enforcement and a VAT tax on carbon in some form. These notes argue strongly against VAT taxes in general, but with some understanding that such a tax on carbon would dually encourage domestic energy security as well as help impact the US effect on Climate Change. I would go further to uncover more VAT taxes on other externalities that currently exacerbate misallocation of capital and resources. Cigarette smoking is already under assault by layers of taxes and yet these high levels of taxation have not impinged tobacco company profitability due primarily to the inelastic demand of cigarettes . I think we could find similar programs that could directly fund areas in dire need of support. i.e. carbon related taxation should subsidize grid parity (which is now on the horizon) for a host of alternative energy sources. Nicotine, alcohol, junk food, and even drugs provide inelastic demand that would serve as great platforms for VAT taxes to support local sustainable food development and healthcare costs directly impacted by the negative health affects of consumption of those items.
Additionally, we ought to consider taxing post consumer waste to better account for the end of life and cost of land of retiring natural resources that will never be reclaimed (in anyone’s lifetime). A better understanding of the cost of buying, owning and disposing of consumer goods would enhance R&D into cradle to cradle manufacturing processes and indirectly incentivize both corporations and consumers to make better capital allocation decisions in a more sustainable manner.
My extrapolation from an open dialogue in taxation is that taxes ought to be used to dis incent the unsustainable economy, and used to accelerate the sustainable economy. Rethinking taxation on debt would likely have to be a large part of that kind of thinking.