Once Again Sell-Off
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Thursday, 29 September 2011
Wednesday, 28 September 2011
Sunday, 25 September 2011
Thursday, 22 September 2011
Wednesday, 21 September 2011
Tuesday, 20 September 2011
The Boot
“The Boot” will be the topic that we are going to talk about. You are on day trading platform? Just check to see what the news we should care for our trading!
Larry Levin's Blog : The Boot
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Sunday, 18 September 2011
Day Trading Blog : Priceless
Back to day trading platform, Larry Levin will have a short talk with you guys. There was a lot of economic data today. Let’s have a look-see…
Inflation (CPI)? 100% WORSE than expected? – Check
Current account deficit horrible? – Check
Empire State manufacturing data 145% WORSE than expected? – Check
Industrial Production still in the toilet? – Check
Weekly jobless claims FAR WORSE than expected? Yes, AGAIN – Check
Philly Fed Survey WORSE than expected? – Check Global central banking INTERVENTION ignites the 3rd consecutive preposterous hopium rally with a Dow close of +186 points! PRICELESS!
I dropped the “free market” rhetoric years ago. Have you?
Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Top Stories
Inflation (CPI)? 100% WORSE than expected? – Check
Current account deficit horrible? – Check
Empire State manufacturing data 145% WORSE than expected? – Check
Industrial Production still in the toilet? – Check
Weekly jobless claims FAR WORSE than expected? Yes, AGAIN – Check
Philly Fed Survey WORSE than expected? – Check Global central banking INTERVENTION ignites the 3rd consecutive preposterous hopium rally with a Dow close of +186 points! PRICELESS!
I dropped the “free market” rhetoric years ago. Have you?
Trade well and follow the trend, not the so-called “experts.” Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Top Stories
Thursday, 15 September 2011
Larry Levin's Blog : Depression
It will be a long talk around day trading futures you today. There will be some points for us to note under the analysis by expert. I'll not take much of your time. Now, we go directly to Larry Levin's blog to learn. The topic we are going to talk is "Depression".
As I said yesterday I will not write (at length) about the European government central planning in Greece and other countries until it’s time. And there would have been plenty to say today. It roiled the markets from the open to the close, which made for a nice trading day.
While we wait for a truly major development and not BS rumor after BS rumor, enjoy Mr. Rosenberg of Gluskin Scheff.
From Breakfast with Rosie, of Gluskin Sheff
We just came off the weakest recovery on record despite the massive amounts of stimulus that the U.S. government has delivered in so many ways. That the yield on the 10-year U.S. Treasury note is down to 2% already speaks volumes because the last time we were at these levels was back in December 2008 when the downturn was already 12 months old. A period like the one we have endured over the past six months when bank shares are down 30% and the 10- year note yield is down 130 basis points has never in the past foreshadowed anything very good coming down the pike. If market rates are at Japanese levels, or at 1930s levels, then it’s time to start calling this for what it is: A modern day depression.
Look, that entire period from 1929-1941 saw several quarters of huge bungee-jump style GDP growth and countless tradable rallies in the stock market.
But that misses the point.
The point being that a depression, put simply, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on nearly $2 trillion of cash and yet there is no lending going onto the private sector. It’s otherwise known as a ‘liquidity trap’.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can’t see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don’t be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why we saw existing home sales slide to 15- year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.
In a recession, everything would be back to a new high nearly three years after the initial contraction in the economy. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let’s be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels. Just because the stock market embarked on a stimulus-led speculative two-year rally, which ended abruptly in April 2011— does not change that fact.
For all the chatter about whether the recession that started in December 2007 ended in mid-2009, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet— again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing any lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $5 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year is down to 2%. Instead of contemplating over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut, and at a time when the Treasury market is telling us we are the precipice of another recession.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple.
How’s that for a reality check?
This augers for capital preservation, defensive orientation in the equity market and a focus on income-yielding securities; something we’ve been advocating for some time. Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
As I said yesterday I will not write (at length) about the European government central planning in Greece and other countries until it’s time. And there would have been plenty to say today. It roiled the markets from the open to the close, which made for a nice trading day.
While we wait for a truly major development and not BS rumor after BS rumor, enjoy Mr. Rosenberg of Gluskin Scheff.
From Breakfast with Rosie, of Gluskin Sheff
We just came off the weakest recovery on record despite the massive amounts of stimulus that the U.S. government has delivered in so many ways. That the yield on the 10-year U.S. Treasury note is down to 2% already speaks volumes because the last time we were at these levels was back in December 2008 when the downturn was already 12 months old. A period like the one we have endured over the past six months when bank shares are down 30% and the 10- year note yield is down 130 basis points has never in the past foreshadowed anything very good coming down the pike. If market rates are at Japanese levels, or at 1930s levels, then it’s time to start calling this for what it is: A modern day depression.
Look, that entire period from 1929-1941 saw several quarters of huge bungee-jump style GDP growth and countless tradable rallies in the stock market.
But that misses the point.
The point being that a depression, put simply, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on nearly $2 trillion of cash and yet there is no lending going onto the private sector. It’s otherwise known as a ‘liquidity trap’.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can’t see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don’t be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why we saw existing home sales slide to 15- year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.
In a recession, everything would be back to a new high nearly three years after the initial contraction in the economy. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let’s be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels. Just because the stock market embarked on a stimulus-led speculative two-year rally, which ended abruptly in April 2011— does not change that fact.
For all the chatter about whether the recession that started in December 2007 ended in mid-2009, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet— again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing any lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $5 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year is down to 2%. Instead of contemplating over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut, and at a time when the Treasury market is telling us we are the precipice of another recession.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple.
How’s that for a reality check?
This augers for capital preservation, defensive orientation in the equity market and a focus on income-yielding securities; something we’ve been advocating for some time. Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Wednesday, 14 September 2011
Sunday, 11 September 2011
Larry Levin's Blog : More Debt
"More Debt", the topic we are talking about today may make you curious. Now, just have a look to see what Larry Levin is going to share with us!
More Debt
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Thursday, 8 September 2011
Wednesday, 7 September 2011
Larry Levin's Blog : Mark-To-Make-Believe
To continue with the trading topic about Europe that we discussed yesterday, today we keep the story going by Larry Levin around the talk: “Mark-To-Make-Believe”.
Mark-To-Make-Believe
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Tuesday, 6 September 2011
Europe
One more time Larry Levin mentions on Europe. There must be something new. Let’s see what should we - Traders around day trading floor - note for the new points to learn to how to trade!
Day Trading Blog : Europe
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Sunday, 4 September 2011
Larry Levin's Blog : Jobs
Again, we are back with the daily blogs of Larry Levin to get supportive information around day trading futures markets to help guide our work. As you see the topic we will discuss this time is a hot one: “Jobs”.
Day Trading Blog : Jobs
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Larry Levin's Blog : Levitation Act Part IV
Fraud Street pulled off another marvelous levitation act today to close out the month of August. Although both economic data points came in better than expected, they were neither wildly optimistic nor good enough to offset Tuesday’s horror show data. The intra-day low of just 4-days ago was 100 S&P points lower. So based on nothing but counterfeit hopium nonsense of the coming QE3, the S&P is nearly +10% off that low.
I noticed that the financial media began questioning this levitation act late yesterday and again this morning. Even they have temporarily put down the pom-poms to query the dodgy levitation act. One network had an analyst on (I believe from one of the major banks) this morning that was asked if he believed this QE3 rally could last – is it real? His response went something very similar to this “I know it is a fake QE rally, BUT I DON’T CARE. I don’t care what the Fed does as long as it makes the market go up.”
Let me rephrase that for you: To hell with economic fundamentals; to hell with proper accounting, to hell with counterfeit dollars; to hell with Fed generated commodity inflation; to hell with Fed induced bubbles, TO HELL WITH THE FREE MARKET…we at XYZ bank only care about what will make us money, and that is an ever-rising stock market.
Can this hopium-fueled rally last through Friday? Will Friday’s sure-to-be horrible jobs data also be ignored? I guess we have the bankster’s answer: to hell with everything, we want our rally!
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Wednesday, 31 August 2011
Larry Levin's Blog : Crack Pipe
Be back with the daily day trading blog with Larry Levin, the topic for us to discuss today is about “Crack Pipe”. Just note down the latest news to guide your trading decisions!
Day Trading Blog : Crack Pipe
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Larry Levin's Blog : Stacked Deck
"Stacked deck" will be the topic that is shared in Larry Levin's blog today. As you know Staked Deck” is a deck of cards that are prearranged to be dealt so that a specific person will win. The man who stacked the “financial” deck is Ben Bernanke and of course the winners will be the banksters.
There was no good news Monday to speak of, but there was another MASSIVE rally on Fraud Street. What’s more, the volume was once again abysmal so I guess it is getting back to normal.
Last Friday’s GDP report was horrible, a recession warning indeed. Monday’s rally was a continuation of Friday’s.
Personal income & outlays were slightly worse than expected.
Pending home sales were 30% worse than expected.
The Dallas Fed Survey was much worse than expected, coming in at -11.4 instead of -2!
And yet, the equity indices went higher tick, after tick, after tick. As mentioned above, Monday’s volume was pathetic, coming in 36% LOWER than the recent 10-day average and 50% lower than the 20-day average! Additionally, the aggressive buyers ended the day trading a net of nearly 3% more than the aggressive sellers despite the news above.
Oh, but there was one other piece of news: Hurricane Irene was a dud – New York wasn’t destroyed. This is good news to be sure, but is it worth today’s massive rally? The clueless clowns that litter the media, and I just heard this on the local news, would have you believe that today’s explosion was a “relief rally” due to the tame weather.
Sure. Whatever. Question: wouldn’t there have to be a steep decline PRIOR to the “relief rally” if it were true? Why yes, there would be. After all, what else is a relief rally? But what happened Friday? Looking at the charts we see there was a…rally! So this was a “relief rally” from a rally. The media no longer “reports” – it simply regurgitates whatever it is told to say.
The financial media started to get the real story out near the end of the day, which brings us back to Ben Bernanke and his stacked deck of cards. Despite Bernanke’s non-admission of QE3 on Friday, the market is pricing it in now.
Remember, whatever the banking mafia wants the banking mafia gets – and it wants QE3. There is no “free market” but rather a market that is being hand delivered to the powerful few. Witness today’s ridiculous rally despite BAD economic data and wretched volume.
I’m just glad I know the score: it’s stacked against the average guy, but I’m not an average guy. I know how the game is played and I’m just trying to enlighten as many others as possible.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Tuesday, 30 August 2011
Larry Levin's Blog : Europe
Although there is a lot of important economic news coming out of the US each day this week, the market may get more volatility from European news. Greece is still a major drag on Europe (but gee, it was bailed out at least twice) and several other countries are growing tired of it.
From the Wall Street Journal we learn the following and the whole article can be found here…
http://online.wsj.com/article/SB10001424053111904199404576536362512060274.html?mod=googlenews_wsj
Greece has moved away from attempting to reach a bilateral deal with Finland, under which it would have provided collateral in exchange for fresh aid, Ms. Merkel told German newspaper Bild am Sonntag.
“The creditworthiness of the country would suffer further” if some aid is collateralized and other aid isn’t, Ms. Merkel was cited as saying by the paper on Sunday.
The proposed bilateral collateral deal between Finland and Greece was effectively taken off the table last week after several euro-zone member states, including Germany, opposed it. Officials from the 17-member currency bloc held talks last week in an effort to find a new solution that would be acceptable to all euro-zone members. Talks are expected to continue this week.
Finland’s collateral demands have opened a new rift within the currency bloc, threatening to derail a second €109 billion bailout package for Greece. Under the bilateral deal, Greece would provide several hundred million euros’ worth of cash collateral to Finland in exchange for the Finnish contribution to the bailout.
CSU leaders are set Monday to discuss a paper co-drafted by CSU General Secretary Alexander Dobrindt that rejects a so-called common “economic government” for the euro zone as recently suggested by French President Nicolas Sarkozy, and implied in Ms. von der Leyen’s proposals.
The paper contains other explosive ideas. CSU leaders, according to Der Spiegel, consider creating a bankruptcy procedure to kick out of the euro countries that aren’t willing to stick to the debt limits laid out in the euro zone’s Stability and Growth Pact.
Despite the internal squabbling, Ms. Merkel told Bild that her current center-right government will stay in power not only until the next elections in 2013, but beyond. The coalition currently trails the opposition Social Democrats and Greens by a wide margin in recent opinion polls.
Ms. Merkel also said she is confident she will persuade lawmakers from the CDU and from her junior coalition partner, the Free Democrats, to approve changes to the euro zone’s rescue fund.
Ms. Merkel also told Bild that common bonds for the euro zone are the wrong measure to overcome the current debt crisis.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Sunday, 28 August 2011
Larry Levin's Blog : Interesting
To share burdens with traders and investors in day trading floor, Larry Levin keeps sharing the latest news around the markets with you guys. And so I'm here with you. The topic we can learn today sounds interesting. Yes, that's also "Interesting".
Day Trading Blog : Interesting
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Friday, 26 August 2011
Larry Levin's Blog : Operation Twist
I will not take much of your now. There will be many things for us to take note from Larry Levin's blog today: "Operation Twist".
In just two days the S&P500 has rallied ~5.3% from its recent low, or nearly 60-handles. Yesterday I reminded folks of this Friday’s latest “super meeting” in Wyoming where I said “Apparently the news was so bad that the hyenas of Fraud Street went into a feeding frenzy – eating as many short sellers as the pack could tear apart. And why would the nasty hyenas do such a thing? The answer lies with Ben S. Bernanke and the J-Hole symposium of the central banking mafia.”
The market is clearly expecting the soon-to-be-released vapors emanating from the J-Hole conference of the banking mafia to yield some form of QE3. Apparently the recently announced ZIRP policy extension of another 2 YEARS isn’t good enough. Fraud Street wants more. One idea that has gained a lot of traction came from Dave Rosenberg’s idea of the Fed revisiting its “Operation Twist” policy of 1961.
From Breakfast with Rosie:
Since just about everything that has to do with the economy is either directly or indirectly priced off the 10-year part of the curve, it stands to reason that this is the segment that matters most for the economy. The 10-year part of the curve is the oxygen tank for the market and macro backdrop, yet the Fed in its latest QE round centered its efforts more on the front- and mid- part of the curve.
There is little doubt that the housing market is suffering from a variety of obstacles, but what is clear from the consumer survey data is that households do not believe that interest rates will come down any further. The Fed can only do so much to deal with a de facto vacancy rate of 10% for the homeownership sector (double the norm) but every little bit helps at the margin and certainly it can do a much better job at influencing affordability levels to stimulate some demand growth.
People need to be convinced that once they make the decision to finance a purchase that they won’t run into a period of rising rates that could impede their debt-servicing capabilities. This is where the Fed can play a role in influencing expectations and it is critical (this is particularly true for borrowers who are up for variable-terms mortgages).
Look, we know that: (i) Bernanke is a disciple of Milton Friedman, and (ii) one of Friedman’s classic pieces of economic research pertained to the ‘permanent income hypothesis’, which postulated that it is changes that are deemed to be permanent, not temporary, that induce a permanent change in economic behavior. This is why the “permanent” Bush income tax cuts in 2000 worked so much better than the temporary rebates unveiled in early 2008.
Therefore, at the margin, in order to do even more to solve the ongoing depression in the housing market, which continues to pose as a dead-weight drag on the entire economy, it may well behoove the Fed in its next round of stimulus, whenever that may occur (but it will, just not at 1,330 on the S&P 500), to signal to the public its intent to take down and hold down the most critical interest rate of all for the mortgage market —and that is the 10-year note.
Don’t think for a minute that this not being discussed — Bernanke talked about embarking on such a scheme, if necessary, when he was still governor back in 2002:
Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time — if it were credible — would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt … Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities … Historical experience tends to support the proposition that a sufficiently determined Fed can peg or cap Treasury bond prices and yields at other than the shortest maturities. The most striking episode of bond- price pegging occurred during the years before the Federal Reserve-Treasury Accord of 1951. Prior to that agreement, which freed the Fed from its responsibility to fix yields on government debt, the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade.
Ben Bernanke, Deflation: Making Sure “It” Doesn’t Happen Here, speech to the National Economists Club, Washington, D.C., November 21, 2002.
This was otherwise known as ‘operation twist’. There is certainly nothing preventing the Fed from targeting the 10-year Treasury-note any more than the Fed funds rate. But the funds rate is already near zero and as such there is no incremental move there that can benefit the economy. But targeting the 10-year note in much the same fashion is probably worth a try and if there is anything else we know about Ben Bernanke. It is that…
(i) he will be late, not early. So, by the time this comes the economy may well be back in recession, which in balance sheet cycles tend to occur every three years, so mark 2012 down in your calendar;
(ii) he is willing to be very aggressive when the time comes — he has certainly proven that. Back in 2007 or 2008 for that matter, who believed that short rates were going to vanish entirely and that the Fed would be buying assets by early 2009?
Now it is doubtful that the Fed would ever target the long bond. In fact, the Fed may even want it to be higher in yield to ease the pressure on radically underfunded pension funds. While the Fed can either target its balance sheet, which it has been doing with these QE measures, or target interest rates, it cannot do both at the same time. So the next ‘QE’ will not be called ‘QE’ but rather something else — maybe Operation Twist 2 (072 — you heard it here first).
The Fed would buy up all the 10-year notes needed to clear the market at the target “price” (yield). So depending on supply conditions and demand from the private sector, the Fed would basically lose control of its balance sheet, but if in return this policy is the one that blazes the trail for a turnaround in the housing sector and a durable revival in the economy, so be it.
If the Fed were to be concerned about the impact that any further balance sheet expansion could have on the U.S. dollar, it could always nudge the short end of the Treasury curve up in support of the greenback (short-term spreads matter more in the FX market). By doing this, the Fed would also lend some much-needed support to the troubled money market fund industry (for more on this front, have a look at Low Rates Put Pressure on U.S. Money Markets Funds on page 13 of today’s FT). So much can be accomplished with such a policy—the upside potential will be worth it.
However, politically, the Fed has to wait for the next downturn in economic activity and reversal in the stock market so that those on Capitol Hill that are lamenting the Fed’s interventionist efforts end up begging for more. This could come sooner than you think, but likely not until we see the whites of the economy’s eyes — and early signs are showing a visible sputtering in growth.
One last item to note. If, say, the 10-year note were to be capped at 2 1/2%, where it was at ahead of the QE2 program last fall, compared with the current 3%-plus level, the total return for a 10-year strip would come to over 10% in a 12-month span. Now put that in your pipe and smoke it!
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Wednesday, 24 August 2011
Larry Levin's Blog : Rally Time
Keep going on with Larry Levin's blog with such the informative news that much support for our trading! Today, the topic we will discuss will be about “Rally Time”. Just have a look at the slide show!
Day Trading Blog: Rally Time
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Larry Levin's Blog : Fed Kleptocracy
Are you still there in day trading market? If yes, just keep going with Larry Levin's blog! Today we will learn about "Fed Kleptocracy".
I have written a lot about the Fed and its once-secret lending programs. Today, however, Bloomberg ran a piece on the Fed’s lending program that is a must read.
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages.
It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.
That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.
The full article can be read here. http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
Very little has changed, nothing material to be sure, so another banking “crisis” can be (read: is) right around the corner.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Monday, 22 August 2011
Larry Levin's Blog : Corruption
If this isn’t corruption then I don’t know what is. As you will read, the banking mafia will stop at nothing to get what it wants.
Has Rep. Darrell Issa (R-CA) turned the House Oversight Committee into a bank lobbying firm with the power to subpoena and pressure government regulators? ThinkProgress has found that a Goldman Sachs vice president changed his name, then later went to work for Issa to coordinate his effort to thwart regulations that affect Goldman Sachs’ bottom line.
In July, Issa sent a letter to top government regulators demanding that they back off and provide more justification for new margin requirements for financial firms dealing in derivatives. A standard practice on Capitol Hill is to end a letter to a government agency with contact information for the congressional staffer responsible for working on the issue for the committee. In most cases, the contact staffer is the one who actually writes such letters. With this in mind, it is important to note that the Issa letter ended with contact information for Peter Haller, a staffer hired this year to work for Issa on the Oversight Committee.
Haller, as he is now known, went by the name Peter Simonyi until three years ago. Simonyi adopted his mother’s maiden name Haller in 2008 shortly after leaving Goldman Sachs as a vice president of the bank’s commodity compliance group. In a few short years, Haller went from being in charge of dealing with regulators for Goldman Sachs to working for Congress in a position where he made official demands from regulators overseeing his old firm.
The full story can be read here…
http://thinkprogress.org/politics/2011/08/18/298485/exclusive-goldman-sachs-vp-changed-his-name-now-advances-goldman-lobbying-interests-as-a-top-staffer-to-darrell-issa/
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Sunday, 21 August 2011
Larry Levin's Blog: Bad Data
What's is the Bad Data? Now, just have a look at what Larry Levin wants us to note!
Larry Levin's Blog : Bad Data
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Larry Levin's Blog: Regulatory Capture
If you have wondered why the banking mafia is never found guilty of any wrongdoing of any kind, you probably haven’t heard of “regulatory capture.” After all, the regulators are the ones that are employed with the duty of bringing charges against the banksters.
Regulatory capture refers to the fact that government regulators often become more concerned with protecting an industry than protecting the public that the regulation was designed to protect. Additionally, these government workers OFTEN leave their jobs, once they have “cosseted” these industries (think banksters), and take jobs with them as a payoff for looking the other way.
If you’re not familiar with this concept, please read the full article from Matt Tiabbi at Rolling Stone http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817
Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.
That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”
Oh yeah, it’s “free market” alright…free to loot and steal as much as the banking mafia wants from the US Treasury with the approval of Tax-Cheatin-Timmy, Ben Bernanke, and Mary Shapiro of the SEC.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Thursday, 18 August 2011
Larry Levin's Day Trading Blog: Regulatory Capture
Besides day trading techniques, as you see we can learn news or information around day trading futures from Larry Levin. This is not strange to us any more. As usual, today we will have another topic to learn about: Regulatory Capture.
If you have wondered why the banking mafia is never found guilty of any wrongdoing of any kind, you probably haven’t heard of “regulatory capture.” After all, the regulators are the ones that are employed with the duty of bringing charges against the banksters.
Regulatory capture refers to the fact that government regulators often become more concerned with protecting an industry than protecting the public that the regulation was designed to protect. Additionally, these government workers OFTEN leave their jobs, once they have “cosseted” these industries (think banksters), and take jobs with them as a payoff for looking the other way.
If you’re not familiar with this concept, please read the full article from Matt Tiabbi at Rolling Stone http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817
Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – “Hey, chief, didja know this guy had two wives die falling down the stairs?” No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.
That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”
Oh yeah, it’s “free market” alright…free to loot and steal as much as the banking mafia wants from the US Treasury with the approval of Tax-Cheatin-Timmy, Ben Bernanke, and Mary Shapiro of the SEC.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: The 13th Floor
Learn to trade, we now continue with Larry Levin's blog to keep up with the markets we care. Today, the topic talked about is: "The 13th Floor".
Many people believe that the media is biased in favor of the left or the right, depending on which television station you’re watching, which is certainly true. One thing seems to be clear though, BOTH the left and the right sides of the media are dismissing the Libertarian running for president: Ron Paul.
The left hates his smaller government stance, while the right abhors his no war policy.
Time Magazine said this about the issue…
The sheer, smug dismissiveness with which the political press treats the libertarian Congressman in these clips is really something. And it’s yet another example of political media winnowing the pack in advance by deciding who is a “serious” candidate and who isn’t—in this case, seemingly, by deciding that Paul’s beliefs are too far out there or, maybe more likely, simply don’t easily fit the left-right narrative.
I’m not, by the way, making the argument that Paul would have a serious shot at the GOP nomination in any case. That hardly matters, though; a candidate with obvious significant support can still have a serious effect on the race, and its ideas, and that’s news. Or it should be, if the horserace handicappers didn’t insist on deciding their news angles in advance.
Jon Stewart displays the amazing dismissiveness here
http://www.thedailyshow.com/watch/mon-august-15-2011/indecision-2012—corn-polled-edition—ron-paul—the-top-tier
In other news, the European “emergency meeting” ended with no new news. Nothing in Europe was fixed but since it was discussed, it is no longer an issue.
Too bad that sort of nonsense doesn’t work in real life. Imagine you bet everything on black in Vegas and lose; then hold an emergency meeting with a counselor, talk about the debt, and then somehow your financial problems go away. Yes, make believe would be great.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Back To Normal
After the serious increase in volatility of the last two weeks, things seem to be getting back to normal.
How does Larry Levin mean? Let's count the ways…
Very large ranges have already shrank to “nothing.” The vast majority of Monday’s range was put in within the first hour of the day.
Vast sections of the day traded in miniscule 3-point ranges or less.
The S&P rallied almost +20.00 points.
Volume dropped like a stone. Including the Globex session and the closing volume surge, the total for Monday was still 56% LESS than the recent average.
HORRIBLY bad economic news was released before the open. It was ignored.
The S&P rallied almost +20.00 points.
The Euro zone is in recession.
Hong Kong is in recession.
The S&P rallied almost +20.00 points.
News of last week’s Spain and Italian bond bailouts surfaced Monday. Yes, they are broke but the ECB is buying all their bonds.
The Dow rallied +213 points.
All of last week’s losses have been regained (snap fingers here) like that. Yes sir, the market is back to normal. All is well.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Wednesday, 17 August 2011
Larry Levin's Day Trading Blog: Italy
Last week’s economic data had some good news and some bad news. I would expect more of the latter in the weeks to come. That bad economic data (if materialized) can move the markets, especially if Italy continues to be in the headlines. This week the markets could be roiled by Italian protests organized by labor unions.
ROME (AP) — The leader of Italy’s largest union is threatening a general strike against an austerity package that Premier Silvio Berlusconi’s government hastily pushed through to balance the budget by 2013 and avoid financial collapse.
The threat came amid mounting criticism Sunday of the euro45.5 billion ($64.8 billion) package passed Friday in response to demands by the European Central Bank.
Critics say the package — a mix of spending cuts, job cuts and tax increases, including a “solidarity tax” for high-earners — will strangle Italy’s stagnant economy, which is now expected to grow by only about 1 percent this year.
…”We wouldn’t have gotten here if we had had Eurobonds,” Tremonti told reporters, calling for more “integration and consolidation of public finances in Europe.”
Notice Tremonti didn’t say if it wasn’t for tax evasion and overspending by the government “We wouldn’t have gotten here…” Uh huh, if only Italy had the ability to kick the can down the road via Eurobonds all would be well. Pathetic. The full article can be found here http://finance.yahoo.com/news/Italian-unions-threaten-apf-2642381265.html?x=0&sec=topStories&pos=4&asset=&ccode=
Will Italy become the next Greece and all the market upheaval that came with it?
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Downgrade
As you know there are many reasons, perhaps dozens, why the markets have been falling but the main reason was the downgrade of US debt by S&P. If the US was downgraded and there were no other reasons supporting it, surely the action would have been dismissed. But that didn’t happen. In fact everyone, even those griping about it, know that the US is insolvent but for the ability to default on its debts via devaluation of the currency.
Of course that reality will not stop the idiots in Congress from dragging S&P through the mud, as well as holding a circus on the Hill to grill its executives about the decision. When that happens I hope the S&P executives tell Congress that it’s lucky they don’t rate the US like they would a private bond, for it would be worthless.
In the meantime, the markets exploded for these dozen reasons: umm, ahhh, *cricket’s chirping.* http://www.soundboard.com/sb/crickets_sounds_audio.aspx (no reason was needed)
This article explains what I mean…http://mises.org/daily/5547/Day-of-Reckoning
The trigger that apparently caused the market meltdown was the ever-so-slight suggestion from Standard & Poor’s that the US government’s fiscal health might not be all it’s cracked up to be.
This was not a case of the little boy noting the emperor has no clothes. It is more like the little boy suggesting that the emperor’s clothes, while beautiful, might have been more carefully tailored to suit the imperial dignity. Hysteria followed, and the entire Obama cult called for the kid to be stoned.
Finally the emperor himself spoke in defense of his raiment. That’s when the market crashed.
But the downgrading of a government’s debt from AAA to AA+ can only have triggered a market avalanche if the truth is in fact much worse, and most everyone knows it.
S&P doesn’t have clean hands, of course. It holds a government monopoly, wants higher taxes, and rated those crazed housing bonds AAA. But imagine, for just a moment, that US government debt were rated in the same way that municipal bonds or regular corporate debt are. Imagine that government bonds, like normal bonds, carried a default premium. Imagine, in other words, that the Federal Reserve were not in a position to pay everyone from welfare recipients to banksters with newly created money.
Under such actual market conditions, federal debt would not be rated as AA+. It would be worth even less than junk bonds. In fact, it wouldn’t even qualify for a market rating at all, because it would be utterly worthless: and the institution that issued it would be in default, and the whole rotten apparatus of the state would be seen to be bankrupt at its very core, in every sense.
We know this for one simple reason: there is no way that the government can fund its debt on taxes alone. There would be a revolution in this country in a heartbeat. And, probably, the entire American empire, domestic and foreign, would come crashing down, along with its banking and monetary systems.
If this actually happened, there would be no more “ongoing negotiations” about the budget and the debt. The cuts would be swift, extreme, gigantic. The federal government would have to behave like state governments, balancing the budget year to year. There would be no more plans for fake cuts in the planned increases, gradually phased in over ten years. The federal government would face actual market discipline. The S&P downgrade is only a slight taste of what would follow.
And let’s not just look at the downside. Hundreds of billions in resources would be freed from government control. The private sector would experience a huge infusion of energy. Interest rates would probably go through the roof, which means that people would actually be rewarded for saving; and saving is exactly what people would do while hundreds of banks went belly up, large portions of the business sector had their credit lines cut, and merchants of death had to close their bloody doors.
There would be wailing and gnashing of teeth, but there would be no turning back. Within a few months, we would start seeing massive resource shifts, and pockets of growth would return. New jobs would be available. New businesses would spring up. New financial firms would displace the old ones. Within a year or 18 months, we would be on a growth path, and this time it would be real and sustainable.
Of course, this is not going to happen. Instead, the powers that be will continue their long game of “let’s pretend” as the economy sinks deeper and deeper, incomes fall, and the United States gradually heads toward third-world, basket-case status.
It’s not only the government that is bankrupt, of course; it’s the entire ideological apparatus that backs the state and its eternal expansion. The New York Times struggled for something to say about the obvious failure of the second stimulus. All they could come up with was a cry to “shift every available resource toward jobs,” and a call for “increased investment in infrastructure,” more relief for homeowners, and another extension of unemployment benefits.
The only thing that this asinine editorial left out was the need to lower interest rates. And that’s because interest rates are already zero percent, which has killed saving, terminated growth, and denied the public the fundamental freedom to sock away money in time deposits and let it earn something in exchange. The Federal Reserve is completely out of policy options, unless it is ready to embrace the Zimbabwe-Weimar solution.
Of course, the whole theory that the government can stimulate through control and robbery is wrong and counterproductive. It only ends up rewarding government and its friends while the rest of us suffer. If we ever get out of this depression, it will be because government is forced to stop this nonsense, and the economy is really stimulated by taking a meat axe to the planning-spending-inflating apparatus.
This is the underlying reality that informed traders understand. The whole system is being propped up by the power to print, and by that power alone. No matter how many miracles some people think that paper money can accomplish, there is an underlying realization that the whole system is a hoax.
But don’t take my word for it. Let S&P and many more competitive rating agencies go to town on US bonds and rate them as they would any bond in the private sector or even the public sector not backed by a printing press. Let reality speak, and let us listen.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Sunday, 31 July 2011
Larry Levin's Day Trading Blog: A New Low
Congress is doing a bad job. You know where I stand on that clown-posse, but as it turns out most Americans agree with me. In the following article we read about the Rasmussen poll, with a few highlights below.
Congressional Performance
http://www.rasmussenreports.com/public_content/politics/mood_of_america/congressional_performance
Voter approval of the job Congress is doing has fallen to a new low – for the second month in a row.
Just six percent (6%) of Likely U.S. Voters now rate Congress’ performance as good or excellent, according to a new Rasmussen Reports national telephone survey. Last month, Congressional approval ratings fell to what was then a record low with eight percent (8%) who rated its performance good or excellent.
Sixty-one percent (61%) now think the national legislators are doing a poor job, a jump of nine points from a month ago.
Most voters don’t care much for the way either party is performing in the federal debt ceiling debate. The majority of voters are worried the final deal will raise taxes too much and won’t cut spending enough.
Only 11% of voters believe this Congress has passed any legislation that will significantly improve life in America. That ties the lowest ever finding in nearly five years of surveys, last reached in January 2009. Sixty-nine percent (69%) think Congress has not passed any legislation of this caliber, a six-point increase from June and the most negative assessment ever. Nineteen percent (19%) are not sure.
With divided control of Congress, neither party’s voters are very happy. Eight percent (8%) of GOP voters give Congress positive marks, compared to five percent (5%) of Democrats and six percent (6%) of voters not affiliated with either of the major parties.
No doubt people are upset but who wants to bet me that most of these clowns will be reelected?
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: No Deal Pt. 2
Continue the last post "No Deal", we will learn about "No Deal Pt. 2" with Larry Levin. Now, let's learn to trade!
Monday was a very low volume day with a decent move shortly after the open. Once that initial rally slowed, the normal type of (recent) day resumed: low volume and absolutely no volatility. I believe the reason for this is that the market was waiting on news of a real debt-ceiling “deal;” however, there was once again no deal.
On the other hand, there was more bickering.
The first salvo came via Senators Reid and Schumer. There were two segments in the plan that was surprising; no new taxes from Democrats, and a huge “savings” that in my opinion is not “savings” at all.
To the Democrats credit, it would certainly look like they want to get this deal done since they are proposing a deal with no new taxes. The second segment, however, I found ridiculous even though it is par for the course in DC: no real cuts, just less increased spending.
In Washington DC if next years budget had been scheduled to increase by $200 billion for example, but Congress agrees on a budget with a $190 billion INCREASE, it is heralded as a 5% spending cut. Moreover, some politicians will use a ridiculously high presidential fiscal spending proposal as a baseline – even if it is NOT written into law – and then lie about so-called “cuts” while not telling the electorate exactly how these phantom cuts were derived.
Senators Harry Reid and Charles Schumer surprisingly acknowledged that $1 trillion of the so-called cuts in their plan will be from the removal of troops from Afghanistan and Iraq. Why should we believe them now, when 2009 presidential hopeful Barack Obama said they would be removed shortly after he was elected? But even if we can all agree that they will be coming home soon; doesn’t that mean that this was scheduled and therefore is not a new spending cut? On top of that, an additional $400 billion of saved interest payments are included – because of the aforementioned “cut.” This was all going to happen anyway.
George Will nailed this type of nonsense with the following comment in the Washington Post in 2009 “Why, one wonders, not ‘save’ $5 trillion by proposing to spend that amount to cover the moon with yogurt and then canceling the proposal?”
In the press conference Senators Reid and Schumer repeatedly claimed that the Republicans had also used the war savings in their own plans. Congressman Paul Ryan disagrees and fires off his salvo here http://budget.house.gov/News/DocumentSingle.aspx?DocumentID=253640
Claim 1: “Winding down the wars in Iraq and Afghanistan will save $1 trillion.”
Reality: The Reid plan relies on the inaccurate assumption that surge-level spending in Iraq and Afghanistan is scheduled to continue over the next decade. An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent. Senate Democrats are employing a budget gimmick that will not fool the credit markets and does not address the urgent need for Washington to get its fiscal house in order.
Claim 2: “Paul Ryan’s budget also included this savings in its deficit reduction calculation.”
Reality: False. The House-passed budget cuts $6.2 trillion in spending relative to President Obama’s Fiscal Year 2012 budget request. This $6.2 trillion figure assumes ZERO savings from the global war on terror relative to the President’s budget.
Read that last part again. Did you catch the scam not mentioned by Republican Ryan? He is counting PHANTOM cuts from a FY2012 “request.” How can you count “cuts” from – well, let’s use his own words against him – An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent. OK, it may have been requested but that doesn’t make it valid: it was never written into law!
And this sort of childish bickering and blatant lying by both sides is why I rarely write about politics. At the present time, however, the clown-posse in DC is directly affecting the market.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: No Deal
Last ditch efforts to finalize a deal that would raise the debt ceiling have failed Sunday evening. Although the market is down a little Sunday evening, it has not fallen apart. Surely a deal will get done sometime this week.
http://www.nationaljournal.com/boehner-finishing-six-month-debt-plan-despite-obama-opposition-20110724
Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., met at the White House for a meeting at 6 p.m. that lasted a little more than an hour. The meeting started an hour after the first of the Asian global markets opened. House Speaker John Boehner, R-Ohio, on Saturday had asked for a debt framework before then, intended to give the Asian markets time to process a last-ditch bid to ward off the market turmoil.
Reid is taking a proposal for “at least” $2.5 trillion in spending cuts as part of a debt-ceiling deal, seeking Obama’s approval, according to an aide.
Both Reid and Boehner are advancing plans to raise the debt ceiling. The biggest difference is that the Reid plan would increase the borrowing limit through at least the November 2012 election, while the Boehner proposal would have two stages – with the debt ceiling increase coming early next year and allowed only if matching spending cuts are enacted. Democrats have said that carrying the borrowing authorization past the election is a make-or-break provision. Republicans want two votes, saying they hope to wring more savings.
In a conference call with rank-and-file GOP House members on Sunday afternoon, Boehner said the House and Senate were nearing agreement on a six-month solution, according to one participant.
Boehner said he was ready to proceed with that short-term deal, without Obama’s sign-off, the participant said.
In the conference call, Boehner asked for support. He said compromises were necessary, but he promised to use the “Cut, Cap, and Balance” amendment as a basis for any compromise, according to a source familiar with the call.
Pointing out that the Senate had brushed aside the Cut, Cap and Balance amendment, Boehner said: “So the question becomes – if it’s not the Cut, Cap, and Balance Act itself – what can we pass that will protect our country from what the president is trying to orchestrate?”
But the more Boehner’s plan relies on House GOP support, the less likely it would be to clear the Senate. Democrats in the House, Senate, and White House have all signaled unwillingness to sign off on a debt-ceiling hike that does not carry into 2013. Obama has vowed to veto an extension of borrowing authority that does not last into 2013 — after the presidential election.
Geithner laid out two paths: a two-tiered approach involving a savings package followed by a tax code and entitlement reform, and another option that hews to the one-swipe “grand bargain” that Obama and Boehner had been hashing over before talks fell apart late on Friday.
The first and more likely path could establish a powerful special committee to devise a blueprint for additional savings and revenues, fanged with deadline authority and tools to circumvent the traditional legislative byways.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Euro-Tarp
Because the 6th or 7th Greek bailout was about to unravel yet again, the Euro-snobs got together for a power meeting. In this meeting they decided on not only a Greek bailout but what sounds like a full fledged Euro-TARP and their very own Plunge Protection Team (PPT).
Partial draft statement.
Since the beginning of the sovereign debt crisis in the euro area, important measures to stabilize the euro area, reform the rules and develop new stabilization tools have been taken. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures. We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole. We also reaffirm our determination to reinforce convergence, competitiveness and governance of the euro area.
Today, we agreed on the following measures:
Greece
1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures recently adopted by the Greek Parliament. These are unprecedented, but necessary efforts to bring the Greek economy back on a sustainable growth path.
2. We agree to support a new program for Greece and to provide an additional amount of up to [xx] euros. This program will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to contribute to the financing of the new Greek program in line with current practices.
3. We have decided to lengthen the maturity of the EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years. In this context, we will ensure adequate post program monitoring. We will provide EFSF loans at lending rates equivalent to those of the Balance of Payment facility (currently approx. 3.5 percent) without going below the EFSF funding cost. This will be accompanied by a mechanism which ensures appropriate incentives to implement the program, including through collateral arrangements where appropriate.
4. We call for a comprehensive strategy for growth and investment in Greece. Structural funds should be re-allocated for competitiveness and growth under a European “Marshall Plan”. Member States and the Commission will mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms.
5. Greece is in a uniquely grave situation in the Euro area. This is the reason why it requires an exceptional solution. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options (bond exchange, roll-over, and buyback) at lending conditions comparable to public support with credit enhancement.
6. All other Euro countries solemnly reaffirm their inflexible determination to honor fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The Euro area Heads of Statesor Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the Euro area as a whole.
Stabilization tools:
7. To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:
– intervene on the basis of a precautionary program, with adequate conditionality;
– finance recapitalization of financial institutions through loans to governments including in non program countries;
– intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States.
Fiscal consolidation and growth in the euro area:
8. We welcome the progress made on the implementation of the programs in Ireland and Portugal and reiterate our strong commitment to the success of these programs. The EFSF lending conditions we agreed upon for Greece will be applied also for Portugal and Ireland. In this context, we note Ireland’s willingness to participate constructively in the discussions on the Consolidated Common Tax Base draft directive (CCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ pact framework.
9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a program will be brought below 3 percent by 2013 at the latest. In this context, we welcome the budgetary package recently presented by the Italian government which will enable it to bring the deficit below 3 percent in 2012 and to achieve balance budget in 2014. We also welcome the ambitious reforms undertaken by Spain in the fiscal, financial and structural area. As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.
10. We will implement the recommendations adopted in June for reforms that will enhance our growth. We invite the Commission to enhance the synergies between loan programs and EU funds in all countries under EU/IMF assistance. We support all efforts to improve their capacity to absorb EU funds in order to stimulate growth andemployment.
In case you missed it, the PPT section was #7 above…
To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:
– intervene on the basis of a precautionary program, with adequate conditionality;
– finance recapitalization of financial institutions (read: banksters) through loans to governments including in non program countries;
– intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States.
What’s next, a European QE program? Umm, yeah I’m sure it’s on the way.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Honest Accounting
"Honest Accounting" will be the topic that we will learn more with Larry Levin this time. Take note the news for your trading!
Presenting an 8-point plan to fix the economy – LONG TERM – without the normal can-kicking exercises. Since this would be too perfect and cause too many banksters to lose their jobs, it has no chance of ever being discussed – let alone being passed.
You Want to Fix the U.S. Economy? Here’s a Start…by Charles Hugh Smith from Of Two Minds
A simple 8-point plan would restore both the banking and the real estate sectors, and end the political dominance of the parasitic “too big to fail” banks.
Craven politicos and clueless Federal Reserve economists are always bleating about how they want to fix the U.S. economy and restore “aggregate demand.” OK, here’s how to start:
1. Force all banks to mark all their assets to market at the end of each trading day, including all derivatives of all types, including over-the-counter instruments.
2. Allow citizens to discharge all mortgage and student loan debt in bankruptcy court, just like any other debt.
3. Banks must mark all their real estate to market weekly as defined by “last sales of nearby properties” adjusted for square footage and other quantifiable measures (i.e. like Zillow.com).
4. Require mortgage servicers and all owners of mortgage-backed securities to mark every asset within each pool to market weekly.
5. Any mortgage, loan or note which was fraudulently originated, packaged and sold, including the misrepresentation of risk, the manipulation of risk ratings, fraudulent documentation by any party, etc., will be discharged as uncollectable and the full value wiped off the books and title records without recourse by any of the parties.
If a bank fraudulently originated a mortgage and the buyer misrepresented material facts on the mortgage documents, then both parties lose all claim to the note and the underlying asset, the house, which reverts to the FDIC for liquidation, with the proceeds going towards creditors’ claims against the bank.
6. Any bank which misrepresents marked-to-market asset values will be fined $10 million per incident.
7. Any bank which is insolvent at the end of a trading day will be closed and taken over by the FDIC the following day, and liquidated in an orderly manner via open-market auctions of all assets, including REO (real estate owned).
8. All derivative positions held by the insolvent bank will be unwound immediately, and counterparties who fail to make good on their claims will also be closed, given to the FDIC and liquidated.
You know what this is, of course: a return to trustworthy, transparent accounting. And you know what the consequences would be, too: all five “too big to fail” banks would instantly be declared insolvent, and most of the other top-25 big banks would also be closed and liquidated.
At least $3 trillion in impaired residential mortgage debt would be written off, maybe more, and $1 trillion in impaired commercial real estate would also be written down. Derivative losses are unknown, but let’s estimate it’s at least $1 trillion and maybe much more.
If $5.8 trillion of fantasy “value” is wiped off the nation’s books, that’s only a 10% reduction in net household and non-profit assets, which total $58 trillion. Even an $11 trillion hit would only knock off 20%. If that’s reality, if that’s what the assets are really worth in the real world, then let’s get it over with. Once we’ve restored truthful accounting and stopped living a grand series of debilitating lies, then the path will finally be clear for renewed growth.
The net result would be the destruction of the political power of the “too big to fail” banks, the clearing of the nation’s bloated, diseased real estate market, and the restoration of trust in institutions which have been completely discredited.
Bank credit would flow again, and we could insist on a healthy competitive system of 250 small banks instead of a corrupting system of 5 insolvent parasitic monsters and 20 other bloated but equally insolvent financial parasites.
Those who lied would finally get fried. At long last, those who misprepresented income, risk, etc. would actually pay some price for their malfeasance. Criminal proceedings would be a nice icing on the cake, but simply ending the pretence of solvency would go a long way to restoring banking and real estate and ending regulatory capture by TBTF banks.
What’s the downside to such a simple action plan? Oh boo-hoo, the craven politicos would lose their key campaign contributors. On the plus side, the politicos could finally wipe that brown stuff off their noses.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Conversation
Larry Levin continues sharing with traders happenings around the market to make it easier for all in trading. The topic this time will be as a "Conversation."
I had an interesting conversation with a friend this afternoon after the close. Among other things, he wanted to know how excellent trading was today due to the indices huge gains. He was rather surprised when I told him how lame trading has really been intra-day, since the closing gains or losses had seemed so large.
It went something like this…
Wow, what a great day it was, the Dow, S&P, and Nasdaq were up huge.
Although many people would see a Dow that closes higher by 202-points as a “volatile” or “great trading” day, I’m an intra-day trader and that was miserable. For weeks now the majority of most days we’ll see a quick move higher or lower that is immediately followed buy hour after hour of absolutely no trade. Tuesday’s big up day was no exception.
Oh, that’s odd. Why do you think this is happening?
Perhaps it is just the “summer” trade, but volume is also very low. As an example, Tuesday’s huge up day should have come with about 3.5 to 4-million mini S&P contracts traded. Even with the late surge of position squaring after the NY close it only managed 2.09-million. This is pathetic.
Earnings probably helped, right?
Sure, earnings before the bell were very good for Coke and IBM so I wasn’t surprised by the good open. Sadly, that was followed by what I just mentioned: NO volatility. The ES traded in a very narrow range for four hours until the market somehow got a boost from a supposed debt ceiling deal.
Oh yeah, I saw the president on TV again. Did they all finally agree on something?
No they didn’t agree on a specific deal so I was surprised by the reaction to this. Furthermore, there isn’t a single person on this planet that doesn’t believe Congress will, without a doubt, raise the debt ceiling. The bond market sees it this way with a trading range of just 4-handles in the 30-YR for 2 and a half months. How could this be “news?” I guess the market was looking for any excuse to go higher.
Well, when they do agree I guess that will be great for the economy, right?
What? It is a scam. Congress and Presidents of both sides of the isle have claimed for DECADES that they had a “10-yr plan to reduce the deficit.” None of them worked. None of them will ever work because that’s the way Congress wants it. Congress will fix nothing because they like it that way. Congressmen would make good punters for the NFL because they keep kicking the can down the road and this is simply another can-kicking exercise.
I have NO FAITH in any of them, with the exception of Ron Paul who will actually tell you the truth, whether you like it or not.
For example, we are supposed to believe that “too big to fail” banks miraculously turned the corner, but we are never told how that happened, which was the repeal of FASB 157. Congress just changed the rules and voila – all better.
Similarly, Congressmen will soon be on television telling us all how they agreed to a crummy $150 or $200-billion per year cut (for 10-yrs, big deal) in a $1.5 TRILLION annual deficit. But they will NOT tell you how the majority of that is getting done, which is yet another change to the CPI. With this change in the CPI, granny won’t be getting her COLA increases and that will cause more spending in the future. You can bet that once the AARP threatens to cut off campaign contributions if there are no “put backs” with new legislation and it’s off the headline news, it will be put back. Thus, no actual cut in the deficit.
Moreover, our cost of living will also go up with granny’s, while the Fed & BLS tell us there is no inflation because with the stroke of a pen – Congress decreed it to vanish.
So you don’t believe in the potential agreement then.
No Jim, it’s a scam.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Stressed
At one point on Monday the US indices were down quite a bit from Friday’s close. That close, however, was artificially high due to a late short-covering spike. Nevertheless, the markets were slammed with more bad news out of Europe: the banking “stress tests” were a scam.
Please consider the Wall Street Journal report It Isn’t Just Sovereigns Stressing Europe’s Banks
During Europe’s 15-month financial crisis, investor and analyst fears have centered largely on banks’ holdings of sovereign debt issued by governments in financially shaky countries such as Greece, Ireland and Portugal. If those countries were to default, it could saddle banks and other holders of their bonds with big losses.
But Friday’s test results shed light on another potential problem for Europe’s banks: huge piles of residential mortgages, small-business loans, corporate debt, and commercial real-estate loans to institutions and individuals from ailing countries. As those economies struggle, the odds of rising defaults grow.
As of Dec. 31, its four largest banks—BNP Paribas SA, Crédit Agricole SA, BPCE Group and Société Générale SA—were holding a total of nearly €300 billion ($425 billion) in loans and other debt issued to institutions and individuals in Portugal, Ireland, Italy, Greece and Spain, the countries that are among Europe’s most troubled. That’s largely a result of some of the French banks having big retail- and commercial-banking operations in Greece, Italy and Spain.
The French banks’ portfolios of commercial and retail loans in those countries dwarf their holdings of sovereign debt. For example, the four banks have a total of about €51 billion of loans to Spanish customers, according to the Journal’s analysis. That compares with about €15 billion of Spanish sovereign debt, according to a separate analysis of stress-test data for the Journal by research firm SNL Financial. In Greece, whose economy is in a tailspin, the French banks have €33 billion of various types of loans, more than three times their sovereign-debt holdings.
It’s a similar story in Germany. The dozen German banks that disclosed their stress-test results were exposed to €174 billion of commercial and retail loans to Greek, Irish, Italian and Spanish borrowers as of Dec. 31. They are holding an additional €70 billion of sovereign debt issued by those countries, according to SNL.
Some banks opted not to disclose details of their loan portfolios. For example, Lloyds Banking Group PLC is in the process of shutting down its Irish banking business, which has cost the big British bank billions of pounds in loan losses. But in its stress-test materials on Friday, Lloyds didn’t provide a breakdown of loans to countries other than the U.K. and the U.S.
A Lloyds spokeswoman said the bank’s Irish loans are included in a catch-all category marked “other.”
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
Larry Levin's Day Trading Blog: Back to the Basics
This will be a nice post for any of you who wants to learn more about the markets and day trading techniques. Let's see what is going to be shared!
Considering that the debt ceiling tug-of-war is based on what government expenses should be cut, which taxes should be raised, and how that affects the economy I thought a primer was in order. John Mauldin’s “Back to the Basics” is a good place to start in view of this tug-of-war.
In the US, the real question we must ask ourselves as a nation is, “How much health care do we want and how do we want to pay for it?” Everything else can be dealt with if we get that basic question answered. We can radically cut health care along with other discretionary budget items, or we can raise taxes, or some combination. Both have consequences. The polls say a large, bipartisan majority of people want to maintain Medicare and other health programs (perhaps reformed), and yet a large bipartisan majority does not want a tax increase. We can’t have it both ways, which means there is a major job of education to be done.
The point of the exercise is to reduce the deficit over 5-6 years to below the growth rate of nominal GDP (which includes inflation). A country can run a deficit below that rate forever, without endangering its economic survival. While it may be wiser to run some surpluses and pay down debt, if you keep your fiscal deficits lower than income growth, over time the debt becomes less of an issue.
GDP = C + I + G + Net Exports
But either raising taxes or cutting spending has side effects that cannot be ignored. Either one or both will make it more difficult for the economy to grow. Let’s quickly look at a few basic economic equations. The first is GDP = C + I + G + net exports, or GDP is equal to Consumption (Consumer and Business) + Investment + Government Spending + Net Exports (Exports – Imports). This is true for all times and countries.
Now, what typically happens in a business-cycle recession is that, as businesses produce too many goods and start to cut back, consumption falls; and the Keynesian response is to increase government spending in order to assist the economy to start buying and spending; and the theory is that when the economy recovers you can reduce government spending as a percentage of the economy – except that has not happened for a long time. Government spending just kept going up. In response to the Great Recession, government (both parties) increased spending massively. And it did have an effect. But it wasn’t just the cost of the stimulus, it was the absolute size of government that increased as well.
And now massive deficits are projected for a very long time, unless we make changes. The problem is that taking away that deficit spending is going to be the reverse of the stimulus – a negative stimulus if you will. Why? Because the economy is not growing fast enough to overcome the loss of that stimulus. We will notice it. This is a short-term effect, which most economists agree will last 4-5 quarters; and then the economy may be better, with lower deficits and smaller government.
However, in order to get the deficit under control, we are talking on the order of reducing the deficit by 1% of GDP every year for 5-6 years. That is a very large headwind on growth, if you reduce potential nominal GDP by 1% a year in a world of a 2% Muddle Through economy. (And GDP for the US came in at an anemic 1.75% yesterday, with very weak final demand.)
Further, tax increases reduce GDP by anywhere from 1 to 3 times the size of the increase, depending on which academic study you choose. Large tax increases will reduce GDP and potential GDP. That may be the price we want to pay as a country, but we need to recognize that there is a hit to growth and employment. Those who argue that taking away the Bush tax cuts will have no effect on the economy are simply not dealing with either the facts or the well-established research. (Now, that is different from the argument that says we should allow them to expire anyway.)
Increasing Productivity
There are only two ways to grow an economy. Just two. You can increase the working-age population or you can increase productivity. That’s it. No secret sauce. The key is for us to figure out how to increase productivity. Let’s refer again to our equation:
GDP = C + I + G + net exports
The I in the equation is investments. That is what produces the tools and businesses that make “stuff” and buy and sell services. Increasing government spending, G, does not increase productivity. It transfers taxes taken from one sector of the economy and to another, with a cost of transfer, of course. While the people who get the transfer payments and services certainly feel better off, those who pay taxes are left with less to invest in private businesses that actually increase productivity. As I have shown elsewhere, over the last two decades, the net new jobs in the US have come from business start-ups. Not large businesses (they are a net drag) and not even small businesses. Understand, some of those start-ups became Google and Apple, etc.; but many just become good small businesses, hiring 5-10-50-100 people. But the cumulative effect is growth in productivity and the economy.
Now, if you mess with our equation, what you find is that Investments = Savings.
If the government “dis-saves” or runs deficits, it takes away potential savings from private investments. That money has to come from somewhere. Of late, it has come from QE2, but that is going away soon. And again, let’s be very clear. It is private investment that increases productivity, which allows for growth, which produces jobs. Yes, if the government takes money from one group and employs another, those are real jobs; but that is money that could have been put to use in private business investment. It is the government saying we know how to create jobs better than the taxpayers and businesses we take the taxes from.
The balance of the article and charts can be found here, http://www.frontlinethoughts.com/
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.
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