Category: Economy

It’s Jobless Thursday!!!

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Initial claims hit a 5 year low, with the 4-week moving average, continuing claims, and emergency claims falling as well.

Additionally, 2nd quarter GDP increase was adjusted up to a 1.7% annual rate (forcast was for 1.0%), though this was because the 1st quarter was revised down from 1.8% to 1.1%, meaning that the end position pretty much matched estimates.

It’s an artifact of the ill advised deal that gave us the sequester, because the federal spending cuts to a large degree offset good numbers from the manufacturing sector.

July job numbers come out tomorrow.

The Fed Speaks

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They won’t be stopping the stimulus, but the short version is that they will continue to keep their foot on accelerator, but maybe not quite so much:

The Federal Reserve, increasingly confident in the durability of economic growth, expects to start pulling back later this year from its efforts to stimulate the economy, the Fed chairman, Ben S. Bernanke, said on Wednesday.

 Mr. Bernanke, offering new details, said the central bank intends to scale down gradually its monthly purchases of Treasury securities and mortgage-backed bonds beginning later this year and ending when the unemployment rate hits 7 percent, which the Fed expects to happen by the middle of next year.

 The central bank would then take several more years to unwind the rest of its extraordinary stimulus campaign, slowly raising short-term interest rates from essentially zero to more normal levels after the jobless rate has fallen to 6.5 percent or lower.

 He emphasized, however, that the timing of the retreat depends on the health of the economy; if growth falters, the central bank would slow, or even reverse, the process. The expectations of Fed officials for the next several years, published Wednesday, are more optimistic than the consensus of private forecasters.

 Pulling back “would basically say that we’ve had a relatively decent economic outcome in terms of sustained improvement in growth and unemployment,” Mr. Bernanke said. “If things are worse, we will do more. If things are better, we will do less.”

I would prefer that they target a higher inflation rate until unemployment falls before 6%, but who listens to me.

This Comes as No Surprise

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Utilities are discovering that nuclear power plants are not economically viable:

The nuclear industry is wrestling with that question as it tries to determine whether problems at reactors, all designed in the 1960s and 1970s, are middle-aged aches and pains or end-of-life crises.

This year, utilities have announced the retirement of four reactors, bringing the number remaining in the United States to 100. Three had expensive mechanical problems but one, Kewaunee in Wisconsin, was running well, and its owner, Dominion, had secured permission to run it an additional 20 years. But it was losing money, because of the low wholesale price of electricity.

“That’s the one that’s probably most ominous,” said Peter A. Bradford, a former member of the Nuclear Regulatory Commission and a former head of the Public Service Commission in New York. “It’s as much a function of the cost of the alternatives as it is the reactor itself.”

While the other three, San Onofre 2 and 3 near San Diego and Crystal River 3 in Florida, faced expensive repair bills because of botched maintenance projects, “Kewaunee not only didn’t have a major screw-up in repair work, it didn’t even seem to be confronting a major capital investment,” he said.

This is a turnaround because until recently, the life expectancy of reactors was growing. When the Nuclear Regulatory Commission began routinely authorizing reactors to run 20 years beyond their initial 40-year licenses, people in the electricity business began thinking that 60 was the new 40. But after the last few weeks, 40 is looking old again, at least in reactor years, with implications for the power plants still running, and for several new ones being built.

………

Even if the economics do not result in retirements, they do mean setbacks. Exelon, the nation’s largest nuclear operator, set out a few years ago to invest $2.3 billion in its existing reactors and raise their generating capacity by 1,300 megawatts, a little more than one new reactor would generate. But after completing about a quarter of the plan, it dropped the rest, and said it would pay its suppliers $100 million in penalties for the cancellation, because the economics were no longer favorable.

The economics of nuclear power were never favorable.

When you look at the subsidies involved in mining, fuel processing, shipping, and in the disposal of the waste, nuclear power is arguably the only industry in the United States more heavily subsidized than agriculture, and it’s still not viable.

And While We Are On the Subject of Obama and Subverting Regulation………

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Gary Gensler surprised everyone when, as head of the CFTC, he actually enforced sensible rules.

So it it comes no surprise that Obama is firing him and replacing him with a corporate drone from the Vampire Squid:

Obama is no longer bothering to pretend that he is anything other than a stooge for banks and other big money interests.

 The president is effectively dismissing Gary Gensler, the ex-Goldman partner who headed the Commodities Futures Trading Commission. Gensler used his post at a secondary financial regulator to push for reforms. It was his office that blew the Libor scandal wide open by taking referrals from British regulators seriously (by contrast, Geithner, who heard about widespread, deliberate mismarking in 2008, passed the buck to the Bank of England). Gensler has also been making himself unpopular by taking the view that swap dealers, which includes foreign branches of US banks and parties that conduct business with US parties, must comply with Dodd Frank. ………

 Shahien Nasiripour at the Huffington Post describes how Gensler is being ousted for his position on swaps regulation, which was coming to a head in international meetings starting June 20, with a July 12 deadline looming. The industry was pushing for the usual “race to the bottom” approach, since the Dodd Frank provisions are more stringent than overseas requirments (the spin, of course, was that Gensler was acting unilaterally, as opposed to implementing what Congress mandated). Gensler faces varying degrees of resistance from three of his four fellow commissioners. International regulators were apparently also unhappy with Gensler’s tough stand, to the point where they were complaining to Treasury Secretary Jack Lew.

 Even if Obama fails in fast-tracking his chosen replacement, Amanda Renteria, Gensler’s lame-duck status will considerably weaken his ability to arm-twist the fence-sitters among his colleagues.

 And Renteria is a simply pathetic choice. Oh, she’s got a very appealing personal story, having worked her way up from a very disadvantaged background, a child of migrant workers who made her way to Stanford and later Harvard Business School. But there’s nothing in her background that qualifies her to act either as a senior regulator or as the head of a large operation (the CFTC has over 400 employees). This leap in responsibilities is tantamount to taking a promising law firm associate and making them the head of a large law practice. You’d never do that if you cared about the health of the firm. A move like this looks an awful lot like an effort not just to sideline Gensler’s push on swaps regulation, but to render the CFTC incompetent over time.

 Renteria’s knowledge of finance appears to consist of having worked right after college for a few years at Goldman. ………

And to this we add the bonus story that Barack Obama has nominated Walmart’s biggest fan to head his council of economic advisors:

On June 10, 2013, President Obama announced his intention to nominate Jason Furman to become the next chairman of the Council of Economic Advisers. This is a big-time, highly influential post. So what kind of economist is Furman?

One who thinks Walmart is the best thing since sliced bread.

For Furman, Walmart is nothing short of a miracle for America’s poor and working-class folks. For him, progressives should be cheering the firm: he even wrote a 16-page paper titled, “Wal-Mart: A Progressive Success Story,” which was posted on the Center for American Progress website. ………

In Furman’s view, “the US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.”

For the man who will have President Obama’s ear on vital matters like jobs, the evidence of whether Walmart’s wages and benefits are substandard is “murky.” And he doesn’t much care for those who question Walmart’s approach: In the 2006 dialogue with Ehrenreich on Slate, he upbraided activists who had pushed the firm to increase wages and offer better benefits:………

To complete the finger in the eye, the American Enterprise Institute has issued effusive praise on the choice.

I’m not surprised.  I’m disappointed, but not surprised.

Obama loves hippie punching.

It’s Jobless Thursday!!

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And initial jobless claims rose by 10,000 to 354,000, with the 4-week moving average rising 6,750 to 347,250, continuing claims rising by 63,000 to 2.99 million.

The number of emergency claims fell by 50,000 to 1.73 million, but much of that could be claim exhaustion.

So the numbers are a bit worse than they were last week, but still not too bad.

An unalloyed good number however is that pending sales of existing homes sales hit a three-year high, though I am worried that the purchase of homes as rental properties might be the latest bubble.

Good Point

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C.P. Chandrasekhar, discussing the so called middle income trap, where developing countries stall out at a slightly improved standard of living.

Why did places like Hong Kong, Korea, Singapore, and Taiwan become prosperous, while newer partners to the dance don’t.

Money quote is at the end:

And there are many who argue that growth in Asia stalled not before they liberalized but after they did. This is based in particular on the evidence that dynamism in Asian economies other than China, and to an extent India, faltered after the 1997 crisis. That crisis, we must recall, was related to the financial liberalisation many of these countries were forced to adopt, either as a quid pro quo for continued access to the export markets on which they were excessively dependent, or because waning manufacturing export competitiveness as a result of rising wage costs and appreciating currencies, pushed them into liberalisation of financial policies in the hope of making financial services the new engine of growth. The result was vulnerability to boom-bust cycles of various kinds that led to the synchronised downturn in many countries (with Thailand, Korea, Malaysia and Indonesia, among them) in 1997-98.

 This should possibly lead to two conclusions. The first is that, beyond a point export-driven growth has a way of running into internally generated constraints. Second, that among the factors that can undermine a country’s growth prospects, even at relatively higher income levels, is excessive liberalisation, especially financial liberalisation. Possibly most countries, whether poor, rich or in some ‘middle income’ range, find their growth has stalled for reasons such as these.

(Emphasis mine)

Hong Kong, Korea, Singapore, and Taiwan experienced their growths during the 1960s and 1970s, before we had “liberalization” (deregulation) and expanding inequality.

I tend to come from this from a more sociological perspective than a classical economic one, and I would argue that a liberalized economic policies, and in particular financial liberalization, is analogous to the colonial regimes in the 1800s.

The expanded financial services industries suck the marrow out of, well basically everyone in an orgy of non productive rent sinking, much like the colonial Satraps in the time of Victoria.

Basically, the banksters are f%$#ing the rest of us like a drunk sorority girl.

It shows that Timothy Geithner’s, and Wall Street’s creepy vision of the future:

Geithner hunched his shoulders, pressed his knees together, and lifted his heels up off the ground—an almost childlike expression of glee. “We’re going, like, existential,” he said. He told me he subscribes to the view that the world is on the cusp of a major “financial deepening”: As developing economies in the most populous countries mature, they will demand more and increasingly sophisticated financial services, the same way they demand cars for their growing middle classes and information technology for their corporations. If that’s true, then we should want U.S. banks positioned to compete abroad.

Is a disaster for the rest of us.

Things that Pundits do Not Understand

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To paraphrase Paul Krugman, it’s not all about them.

He’s right, of course, but I think that he misses the dynamic:  Pundits are supposed to be narcissistic sociopaths.  It’s the nature of the medium:

Brad DeLong and Dan Drezner wearily continue the policing of Michael Kinsley. I’ll leave it in their hands. But may I say that there is a serious pundit lesson here — namely, that it’s not about you.

Basically, Kinsley has been on a jihad against Krugman because other people took apart Kinsley’s essay on austerity, which was both wrong on the basic history, and fetishized other people’s suffering.

I’m not sure why patron saint of dumb-f%$# mindless contrarianism is upset with Paul Krugman, but being wrong is what Michael Kinsley does best.

What a Repulsive Exercise in Truth Telling

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In the UK, an adviser for the (Conservative Party, what a surprise) Prime Minister has said that the recession is a good thing because it pushes wages of ordinary people down:

The prime minister’s adviser on enterprise has told the cabinet that the economic downturn is an excellent time for new businesses to boost profits and grow because labour is cheap, the Observer can reveal.

 Lord Young, a cabinet minister under the late Baroness Thatcher, who is the only aide with his own office in Downing Street, told ministers that the low wage levels in a recession made larger financial returns easier to achieve. His comments are contained in a report to be published this week, on which the cabinet was briefed last Tuesday.

 Young, who has already been forced to resign from his position once before for downplaying the impact of the recession on people, writes: “The rise in the number of businesses in recent years shows that a recession can be an excellent time to start a business.

 “Competitors who fall by the wayside enable well-run firms to expand and increase market share. Factors of production such as premises and labour can be cheaper and higher quality, meaning that return on investment can be greater.”

A Downing Street spokesman said Young was merely stating a “factual point and nothing else”. But the comments were described as “appalling and ill-timed” by union leaders, with job-market figures due out next week expected to show that the initial resilience of employment has faded while wages are being severely tightened.

If they said this in public, they would never serve in public office in ever again.

It’s nice though that someone was willing to leak this to the press.

He’s already been let go once by David Cameron for saying that ordinary folks “never had it so good” during the recession because of low rates, but they let him back in.

My guess is that this troll will be back again.

Wankitude from Bloomberg

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Yes, they are reporting about the panic in Japan because the aggressive action by their central bank has caused mortgage rates to skyrocket:

Bank of Japan Governor Haruhiko Kuroda’s stimulus policies are backfiring in the housing market, where mortgage rates are rising even as the central bank floods the financial system with cash.

While 35-year home-loan costs rose one basis point to 1.81 percent this month from an all-time low of 1.8 percent in April, any increase will be undesirable for the BOJ, according to Mizuho Securities Co. Federal Reserve Chairman Ben S. Bernanke’s monetary easing almost halved 30-year U.S. mortgage rates since 2008 to 3.35 percent on May 2.

Yes, one whole basis point (0.01%), and government debt rose by 4.5 basis points (0.045%).

Obviously, Abenomics, the idea of explicitly targeting increased inflation to attempt to defeat a decades long deflationary spiral, is a complete failure, after only 5 months, because interest rates rose by one basis point.

Anyone have a sense that this news organization has been determined to write this story since December, and used this as an excuse to push their agenda?

H/t Tim Duy’s Fed Watch.

Monthly Jobs Numbers are Relatively Decent

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176,000 jobs added to the non-farm payroll in April, which is somewhat better than natural growth in the labor force, and additionally, the adjustments to February and March added 100,000 to the NFP.

It should be noted thought, that this really is only a bit better than treading water:

The American economy continues to add jobs in proportion to population growth. Nothing less, nothing more.

 The share of American adults with jobs has barely changed since 2010, hovering between 58.2 percent and 58.7 percent. This employment-to-population ratio stood at 58.6 percent in April. That is about four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs. In other words, the United States economy is not getting any closer to recreating the jobs lost during the recession.

And here is the scary quote:

Furthermore, the projections were wrong. Participation has actually risen among people older than 55. The decline is entirely driven by younger dropouts.

So, better, but our economy still sucks wet farts from dead pigeons.

It’s Jobless Thursday!!!!

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Good news everyone!

The initial jobless claim numbers came out today, and the numbers are pretty good:

Initial jobless claims — a rough gauge of layoffs — sank by 18,000 to a seasonally adjusted 324,000 in the week ended April 27, the Labor Department said Thursday. That’s the lowest level since January 2008.

………

Meanwhile, the four-week average of new claims, which smooths out weekly volatility, fell by 16,000 to 342,250. That’s the smallest amount in six weeks.

The number of people already receiving benefits, known as continuing claims, rose by 12,000 to a seasonally adjusted 3.02 million in the week ended April 20. Most states typically offer 26 weeks of unemployment pay.

Decent numbers.

Confusopolies are Obamacare’s Achilles Heel

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At the heart of healthcare reform, it is the insurance exchanges, and your average consumer lacks the sophistication necessary to see how the insurance companies will f%$# them until it is too late:

One of the big reasons I’m so pessimistic about the new health insurance exchanges created under the Affordable Care Act is the principle behind them. The idea is that everyone will be well- informed dedicated shoppers who will know how to select the best plan to fit their needs, which will reduce cost for everyone. Aflac’s 2013 WorkForces Report shows how deeply misguided this assumption is in reality.

Two numbers from the report really stick out. The survey found 54 percent of workers would prefer not to be more in control over their health insurance expenses and options because they will not have the time or knowledge to effectively manage it. This is completely understandable. Selecting the best insurance plan requires not only significant knowledge about every component of insurance, but also the ability to accurately predict the likelihood of future medical needs.

One thing that you can be sure of is that the insurance companies will do their level best to confuse customers so that they will make a decision that will increase their profits.

As John Maynard Keynes noted, “Capitalism is the theory that the worst people, acting from their worst motives, will somehow produce the most good.”

The health insurance industry is one of the best examples of this, and the health insurance reform plan requires us to rely on their good will.

Pleasant dreams.

Schadenfreude

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Gold prices are falling off a cliff, and Ron Paul is getting hosed:

A few weeks ago, we figured out what was happening to the Ron Paul portfolio — the former Texas congressman’s 64% investment in gold and other rocks — and it wasn’t pretty.

………

All told, the average loss was -40.3% over the past six months

Given that The Wall Street Journal reported that Paul’s portfolio was worth between $2.44 million and $5.46 million — and that 64 percent of his assets were in these precious metal stocks — a very loose estimate is that Ron Paul has lost between $624,640 and $1,397,760 over the past six months, based on the average loss of his mining holdings. This assumes a 40.3% loss on 64% of his holdings.

It’s not nice to feel pleasure at someone else’s misfortune, but I am a bad man.

Heh.

Gold buggery does not make you money, but selling gold buggery to rubes does.

What a Surprise, Right Wing Economists Fudged their Data………

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The lead on the mass media stories is that Carmen Reinhart and Kenneth Rogoff’s paper showing that debt levels above 90% of GDP have slower growth was an “Excel spreadsheet error”, but every single error reinforces their pro-austerity arguments, which indicates that these omissions and errors were deliberate:

In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, “Growth in a Time of Debt.” Their “main result is that…median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan’s Path to Prosperity budget states their study “found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth.” The Washington Post editorial board takes it as an economic consensus view, stating that “debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.”

Is it conclusive? One response has been to argue that the causation is backwards, or that slower growth leads to higher debt-to-GDP ratios. Josh Bivens and John Irons made this case at the Economic Policy Institute. But this assumes that the data is correct. From the beginning there have been complaints that Reinhart and Rogoff weren’t releasing the data for their results (e.g. Dean Baker). I knew of several people trying to replicate the results who were bumping into walls left and right – it couldn’t be done.

In a new paper, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff’s data was constructed.

They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don’t get their controversial result. ………

………

So what do Herndon-Ash-Pollin conclude? They find “the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim].” [UPDATE: To clarify, they find 2.2 percent if they include all the years, weigh by number of years, and avoid the Excel error.] Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly

The actual Excel error might be real, but the rest of this is a case of hypocritically massaging the data to get the results that they really wanted.

You Remember When it Was Reported that Germans Were Amongst the Poorest People in Europe?

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Well, Wolfgang Münchau has made what should be an obvious observation, that, “if the same unit of account gives us a higher wealth figure for Spain than for Germany, and when you also know that this cannot be true,” which means that on a very deep level, a Euro in Spain is worth something different (less) than one in Germany:

A European Central Bank survey shows that households in northern Europe have a much lower net wealth than those in southern Europe. Average German net assets per household are just under €200,000, while they are €300,000 in Spain and €670,000 in Cyprus. No, this not a typo.

 German newspapers screamed that poor Germans are bailing out rich Cypriots. This interpretation is wrong but the truth behind these counter-intuitive findings is even more disturbing. What the survey shows is not wealth differentials but the de facto exchange rates between the eurozone economies. They are not measures of net wealth but of imbalances. And they are enormous.

 Since the start of the eurozone, wages and consumer prices have remained broadly constant in Germany. In southern Europe, the general level of wages and prices has increased year in, year out. Over the period, this persistent inflation gap has led to a large discrepancy in asset prices. This is why an apartment in Milan costs much more than one in Munich, the city with the highest property prices in Germany. A German euro buys more real estate in Munich than an Italian euro buys in Milan.

 In the frantic German debate about these figures, the focus is on median wealth – the statistic that pinpoints the exact middle if one were to rank households by wealth. Looking at the median, the gap becomes even more extreme. In countries with extremely large wealth differentials such as Germany, where a few super-rich people own a large share of the land and real estate, the median is significantly lower than the mean.

When I mentioned that the Germans set up the Euro to export inflation to aid exports, I neglected to mention the obvious, that inflation is a devaluation of currency, and the inflation, largely caused by what the Germans demanded when the Euro was created.

Münchau correctly notes that the only way for this to be corrected is for Germany to inflate, or Spain (and the rest of them) to deflate, and since the Germans are opposed to any sort of meaningful inflation, this means crushing deflation in the rest of the Euro zone.

Of course, this doesn’t mean that the Germans cannot come up with a way to make the situation even worse:

Professors Lars Feld and Peter Bofinger said states in trouble must pay more for their own salvation, arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. “The rich must give up part of their wealth over the next ten years,” said Prof Bofinger.

 The two economist are members of Germany’s Council of Economic Experts or “Five Wise Men”, a body that advises the Chancellor on major issues. There is no formal plan to launch a wealth tax but the council is often used to fly kites for new policies.

Yes, German “Wise Men”.

Now there’s a concept that makes the rest of us feel so confident about the future of the EU.

Prof Bofinger told Spiegel Magazine that it was a mistake to target deposit holders in banks, the formula used in the EU-IMF Troika bail-out for Cyprus where those with savings above €100,000 at Laiki and Bank of Cyprus face huge losses. “The canny rich in southern Europe just shift their money to banks in Northern Europe to escape seizure,” he said.

 Prof Feld said a new survey by the European Central Bank had revealed that people in the crisis countries are richer than the Germans themselves. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.

Only, as Münchau notes, it’s all about inflation and a market flaws created in the Euro Zone at German insistence.

The study shows how EMU states have twisted themselves into a Gordian Knot under monetary union, and why Germans feel a strong sense of grievance over escalating bail-out demands. Yet it is also highly controversial since it relies on data before the housing crash in Spain, and may understate implicit wealth in Dutch pensions or German life insurance.

Oh, yes, here is another reason why the numbers are bullsh%$.

Any attempt to enforce a wealth tax in future rescue talks will be seen by Club Med as further evidence that the Northern powers will try to impose all the burden of crisis adjustment on those in trouble rather than accepting their own shared responsibility for the failings of the EMU. This comes a day after Germany said over the weekend that there could be no banking union after all without a fresh EU treaty, effectively kicking the issue into touch for years.

 Critics have long argued that North Europe is equally to “blame” for the crisis since it flooded the South with cheap credit, and they accuse Germany of destabilizing the intra-EMU trade system by screwing down German wages and running a current account surplus of 7pc of GDP.

(emphasis mine)

As I’ve said many times, it’s exporting inflation to the periphery.

It’s why kicking the Germans out of the Euro probably the only thing that will keep the EU together.

Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich. The ECB bond buying policy has largely rescued the wealthiest strata while the full brunt of EMU austerity has fallen on ordinary people and the unemployed.

 The political debate on euro membership may change dramatically if rich Cypriots, Italians, Spaniards, and Portuguese start to see EMU as a threat to their property, rather than a defence.

This is seen as a problem. I see it as a solution.

The sooner that the Euro Zone breaks up, the more likely it is that we will not see the break up of the European Union and a return to conflict in Europe.