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Markets in Europe Plunge (Again) Over Greek Default Fears

4:45 am in Uncategorized by Bill Egnor

Stock Market Fortune Cookie

Stock Market Fortune Cookie by bransorem

It looks to be a rocky start to the new week in the world financial markets. Major stock indexes in Europe plunged between 2.42% and 4.57% in trading there. What is the big driver of this new sell off? The renewed fear of a Greek debt default and all that would mean for European banks that have large amounts of Greek bonds on their balance sheets.

The slowly dawning realization that no amount of austerity is going to allow the Greek government to cover its financial commitments and a growing reluctance by the German government to even try is putting a fairly panicked patina on the world markets.

It is not like this is really that unexpected. The problem is that as the Greek government has slashed spending and wages and hours, their economy has slowed down. The unemployment rate in Greece has is nearly 16% and that only counts those who are looking for work, not so-called discouraged workers.

With that level of unemployment any cuts in demand just wind up as more unemployed workers who can’t afford to spend very much. This means there is less tax collected, less production needed and more people are likely to be laid off.

The next logical step for Greece is to default on its debt. This could be good for Greece in the long run, but in the short run it is likely to make the Euro Zone a really unhappy place. The index that lost the most value today was the French CAC. This is because Frances three largest banks are major holders of Greek debt. All three are expected to be down graded by credit rating agencies some time this week for this very reason.

If this seems familiar it is because it is very similar to the way that our own housing bubble collapse played out. Risky debt began to become a liability and the amount of it in the hands of US and other nations banks threatened to rob them of the liquidity they needed and make it nearly impossible for them to borrow money short term.

That it is happening to the second strongest economy in the Euro Zone is making a lot of investors nervous, and with good reason. The Washington Post quoted the German Finance Minister as saying:

“To stabilize the euro, we must not take anything off the table in the short run,” Roesler told Germany’s Die Welt newspaper. “That includes as a worst-case scenario an orderly default for Greece if the necessary instruments for it are available.”

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Water Cooler – Ahahahaha! Douglas Holtz-Eakin Proves the Stimulus Worked

5:56 pm in Uncategorized by Bill Egnor

You know how Republicans and Conservatives are always saying the stimulus did not work? They have been braying that since about the day after the thing was passed. One of the guys that has been really pushing this meme is Douglas Holtz-Eakin.

Well, better put some money petard futures, because Dougie has managed to prove not only that it worked but it worked pretty damned well, even if it was too small. The Center for American Progress has the whole run down here.

Take a look at this chart. It is an extension of the one that Holtz-Eakin has been running around showing anyone that will even glance at. The one on left is his original chart. It shows were the economy was when the stimulus passed and the red line shows where it would have gone if it continued to fall at the rate it was contracting at the time.

holtz_eakin1.jpg

He used it to make the point that the stimulus was just net zero for the economy. Meaning that all the economic growth we got from the stimulus was exactly as much as we spent, no multipliers, no follow on benefits. That is what the gray area is.

However we are always getting in more data and refining what we know about the economy over time and that new data has been analyzed by the CAP economists. What they found is in the second chart.

Here is what the Center for American Progress found:

Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.

That is a darned good multiplier! And it gets better. You see this chart just looks at the first year of the Recovery act. The thing is that the Act was a two year long program and most of the effect was expected to be in that second year.

So how did it do? Again the guys from CAP:

And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.

Not only does the man who ran Bush’s OMB and was a chief financial advisor to the McCain campaign prove that the stimulus was effective, he does it with nice charts that anyone can understand.

So the next time your conservative Uncle or co-worker wants to spout some talking points about how the whole stimulus was a failure and a waste of money, just ask them if a 4 to 1 ratio of return is good enough for them, and show them this chart.

What is on your minds tonight Firedogs? The floor is yours!

The Confidence Fairy and Faith Based Economics

5:44 am in Uncategorized by Bill Egnor

Reality

Reality by nualabugeye

All through the last two and a half years there has been talk on all side about confidence. The Republicans started this meme, but it has been adopted by the Democrats as well. Over and over we have been told that Policy X was needed if we are to have a growing and stable economy.

This has been rightly mocked as appeals to the Confidence Fairy. This obsession with confidence grew as an appendix to the voo-doo of Supply Side Economics and has about as much to do with reality as its big brother originally espoused by St. Regan.

It might be palatable if it actually worked, but every time we have been treated to the need to restore confidence it has lead to the opposite result. We have seen that the claims of the Republicans that the ACA would cause less employment because of the “uncertainty” of the new law. Instead after it was passed hiring increased.

We were told over and over again that we had to provide confidence to the markets by engaging in austerity measures in the debt ceiling/deficit reduction battle. Instead of making the world more confident about our economy we got a scolding by (say it softly but say it clearly) the seemingly politically motivated S&P downgrade of our debt.

I am really confused by this push for certitude for business. I didn’t go to business school but I have worked for enough C and D level execs to know that they teach that there is no such thing as certainty in business. In fact that is kind of the point of business in a capitalist system, being able to take a risk that you think is good, but don’t know will pan out, and then either reaping the benefits or suffering the pitfalls.

It is part a parcel of the idea of a market. Yet the self-proclaimed champions of the market are staking the future of our nation on making sure that we remove risk and provide the current masters of the universe with confidence.
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Water Cooler – Markets Down 1% In Japan and Australia. The Shape of Things to Come

5:47 pm in Uncategorized by Bill Egnor

I wish I could say that the E-trade Baby there was not going to be doing that all day tomorrow, but it does not look good.
If you need a crystal ball for what is going to happen on the world stock markets tomorrow the good news is that the Australian and Japanese markets are already open.

The bad news is that as of the time of this post both the Nekkei and All Ordinaries are down more than 1% in early trading. Given that last week the major US indexes lost five, seven and eight percent of their value, it is probably going to be a really dark day on Wall St.

Standard and Poor’s waited until well after the market closed on Friday, which is probably why the Dow was able to post a modest gain for the end of the week. Even after having two whole days to process the downgrade of U.S. Treasury debt and the report that accompanied it, there is not a lot of upside for traders to look at.

Jane and David Dayen have had this pretty well covered in terms of the possible politics. I highly encourage you to read what they have written and continue to right. But the thing that I am looking at is the affects of this downgrade rather than the politics.

If this political maneuvering by S&P actually causes a 1000 point drop in the next couple of days it will almost certainly head us back into a technical recession. I say technical because while we may have met the economist’s standard for being out of recession the practical affects in terms of wages and employment have not gone away.

Sure the economy grew, but not really so you would notice if you were not a commodities trader or a Wall St banker. What this means is that local governments from States to cities to rural townships have all cut their spending back, often in ways that drastically affect the services that they can offer.

Colorado Springs was one of the first to go truly radical with it, stopping garbage pickup in parks, turning out street lights and even ending health inspections of Day Care Centers and public pools. They did it out of ideology, since they had the option of and rejected a modest tax increase that would have covered all of that.
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Modestly Good Job Numbers, Are They Enough To Stop The Slide?

5:19 am in Uncategorized by Bill Egnor

Support Unemployed Nomads

Support Unemployed Nomads by jon|k

Hey what do you know? We actually had a modest gain in jobs this last month. The economy gained 117,000 jobs according the statistics released this morning. That is actually better than the number that analysts were predicting, which was around 85,000.

Unfortunately that is all the good news there is on this. The economy needs 150,000 new jobs a month just to keep up with the rate of population growth, so if you are a glass half empty person, we came up 33,000 jobs short of what we needed to break even.

The unemployment rate fell one tenth of a percent to 9.1% but this was almost certainly due to more people leaving the jobs market, instead of robust jobs growth. The question is, will this be enough to blunt the sell-off that we are seeing on world markets?

The answer is likely to be no. The reasons for the sell-off have more to do with the future jobs and growth outlook than they do with any single month’s report. The picture has not improved.

As long as the Euro Zone is imploding (for reasons that have a lot to do with countries not having their own currency and having Euro Zone constitutional requirements for debt limits), and the Japanese economy is still rebuilding from the tsunami and the resultant nuclear disaster of this spring, and the U.S. looking at austerity instead of jobs programs there are more than enough structural issues which can make investors nervous enough to cash in on the market highs that we enjoyed until just last month.
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Republicans: Less Like The Joker, More Like Henchmen

5:42 am in Uncategorized by Bill Egnor

the joker (based on a Dave McKean work)

the joker (based on a Dave McKean work) by Sick Sad M!kE


Sometimes it is easy to see the Republicans as bunch of super-villains, diabolically plotting every twist and turn to thwart the will of the American people with economic policy that only comforts the comfortable and afflicts the afflicted. After all they backed down the President and the Democratically controlled Senate and got most of what they wanted, even given that they upped the ransom demands in the middle of negotiations.

Then they go and do something like what Majority Leader Eric Cantor did yesterday. After managing to force a deficit reduction plan that will force some cuts in Medicare and will put Social Security and Medicaid in the sights of the Super Congress, they had pretty much rehabilitated their massive political malpractice of forcing a vote for the Ryan Budget.

Remember the Ryan Budget? You know, the one that wants to end Medicare as we know is and replace the program with as system of vouchers (but leave the name the same so they can claim they are not ending the program). Well, the oft confused Majority Leader does and he is still pushing the idea.

He sat down with the Wall Street Journal editorial board yesterday and said the following:

“What we have to be I think focused on is truth in budgeting here,” Mr. Cantor (R., Va.) told The Wall Street Journal’s Opinion Journal. He said “the better way” for Americans is to “get the fiscal house in order” and “come to grips with the fact that promises have been made that frankly are not going to be kept for many.”

There is it, the fact of the matter in one sentence. For all the talk of “preserving the programs” the reality is that the number two ranking Republican in the House is saying that they are going to break the promises that had been made.
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Debt Ceiling Fight Has Me Thinking of Gallipoli

5:59 am in banality of evil by Bill Egnor

Gallipoli 100

Gallipoli 100 by Britrob

I am a big movie fan. As part of the deal that brought cable to the town I grew up in (Ypsilanti represent!) and one of the very few perks of Dad’s time as City Attorney, we were one of the first homes in town to get cable. So I was exposed to a huge range of films as a early teen and later.

One of the ones that always got to me was a Mel Gibson flick called Gallipoli. It is the story of two Australian runners who enlist in WWI and are sent to that disastrous campaign. At the end of the movie the troops are in their trenches, and they are about to be ordered to charge a hill controlled by Ottoman machine guns.

Mel Gibson’s character is a orders runner. He has been given the order that will stop the attack that will certainly lead to the slaughter of the troops, which the other runner is part of. He fails to get there in time and the men go over the top, into the teeth of the machine gun fire.

The other runner has been saying the mantra that he recited before a race and when the whistles blow he goes over the top, and starts to run to the enemy lines, eventually dropping his gun and being shot down. It is a horrible and wonderful statement about war and futility and courage.

What the hell does all of this have to do with politics? I am so glad you asked, gentle reader! I have been feeling more and more like that runner in Gallipoli lately. Specifically in regards to the completely manufactured debt ceiling crisis and the “solutions” that are coming out of it.

There are a lot of folks to slather blame on. One of them who is not getting a lot of play is Chicago Mayor Rham Emanuel. He is the guy who made “a crisis is an opportunity that should not be wasted” a White House article of faith.

Of course that would not be too bad if it were not for the President’s willingness to use a dangerous game by the Republicans to try to achieve a so-called ‘grand bargain” on a wide range of contentious issues. The major failure on the President’s part in this was assuming, against evidence and the fact that there are 85 hard right Republican House Freshmen, that he would have rational actors to negotiate with.
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Republicans – A Party Full of Charlie Sheens

5:40 am in banality of evil by Bill Egnor

Tiger's Blood?

Tiger's Blood? by katrina.elizabeth

Has the Republican Party been infected with Charlie Sheen-ism? Stick with me a little on this.

Obviously the Republican’s aren’t doing bricks of cocaine over the weekend (at least we don’t think they are) and folks like Sen. David Vitter aside they are not engaging in wild sex parties (though, come to think of it, things might be better if they were. At a minimum they’d be more relaxed) but they are engaging in the hyperactive belief that they are “winning”.

There seems to be zero awareness of reality amongst the House Republican caucus of what is really going on here. There are 6 days, a mere 144 or so hours before we run our happy asses off the economic cliff.

Yet these gals and guys seem to think they have all the time in the world for crap that will never fly. Take “Cut, Cap and Balance” for instance. All of last week was taken up in the House by this plan that not only was never going to have a chance of passing, but would be so horrible that even the old gold standard for draconian cuts, the Ryan budget, would not fit under its rubric.

The centerpiece of this craptastic piece of legislation is the Balanced Budget Amendment. Even though it requires 2/3 of both Houses of Congress to pass, there are Republicans out there saying they 100% sure that it would get the votes needed in both Houses. This, of course, ignores the fact that this Republican plan could not even command 2/3 of the House where it passed.

They ran around toting the “bi-partisan” passing of this bit of legislative malpractice because they managed to peel of exactly five Blue Dog (morons) Democrats to vote for it. A little under 2.5% of the Democratic caucus supported this thing. It is not what I would call bipartisan, since the Blue Dogs can be counted on to vote for dumb laws if it cuts taxes or spending.

It seems that the Republicans need a lot of votes to make themselves feel good about things. After all CCB was the second vote they took on a plan that would not pass the Senate and would not be signed by the President. We were told both times that once they got it out of their systems they would be able to be more reasonable, since they were on record for the maximalist position but would hold their noses for something less. Read the rest of this entry →

Mirror Image Speeches, Both Bad

5:49 am in Uncategorized by Bill Egnor

Mirror Image

Mirror Image by cosygreeneyes

I watched both speeches last night on the debt ceiling. I have to say that this whole thing makes me crazed. It is a dumb time to talk about pulling trillions out of the economy, especially when we are talking about a policy that is supposed to be a decade long. All I see from the debt reduction right now is a slow growth of jobs because we never addressed the underlying problem of demand.

Be that as it may, there was plenty to be unhappy about from both the President and Speaker Boehner. President Obama is pitching us on the idea that cutting spending, and cutting it on social safety net programs is somehow going to bring the confidence and jobs fairies out of their coma and everything will be Moring in America again (I am not keen in any fashion on how much this President, this Democratic President grooves on Ronald Regan).

I understand that he is standing on the bridge of the Titanic and watching the Republicans push and iceberg into the path of the national and planetary economy. At this point I am not at all sure that there is much different he could have done, but that does not let him off the hook for granting the legitimacy of the deficit reduction by hostage taking (call it Disaster Legislating) in the first place.

He had the bully pulpit and could have been hammering it for months if he chose to do so. It is entirely possible that things would have been different, but it is water under the bridge now.

Last nights speech was kind of a primer for those (unlike you and me) who have not been paying attention and don’t have a the history of debt ceiling fights on the tip of our tongues. Still he was far too easy on the Republicans in terms of who is at fault for our massive debt. Five trillion (that is 5 million, million for those how don’t do big numbers well) was added to our debt in the 8 years of the Bush administration. That is more than 1/3 of the total.
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Conrad, Coburn and Cat Food II, Oh My!

5:49 am in Uncategorized by Bill Egnor

(image: twolf1)


Poor Kent Conrad, he thought that announcing that he was retiring next year would make him seem like a fair broker for massively unpopular budget reduction plans. He pushed the president really hard over creating the Cat Food Commission (threatening to hold up the last debt ceiling raise if it was not created).

That went pretty spectacularly sideways, ending with no Commission report, but instead a report from the two chairs that the not enough of the rest of the Commission would sign on for. It still gets talked about like Simpson-Bowels is the actual report instead of something cooked up by a couple of old coots that it is.

Then Sen. Conrad decided that he could do better and formed the so-called “Gang of Six”. It should have been called “The Gang That Couldn’t Shoot Straight” for all the success it had. They are supposed to unveil their plan for trying to implement the “old coots” plan which will invariably be misreported as the Simpson-Bowels commission recommendations. That is probably not going to go very well, which is why it is going to be presented to 60 or so Senators in private today.

Meanwhile Sen. Coburn (Douche-OK) the rogue member of the Gang, is also pushing a plan that has something for everyone to hate his own 9 trillion dollar deficit reduction plan. This plan would increase taxes by closing loopholes and would significantly change Medicare and Medicaid.

It would also hit Social Security. If you are inclined to want to change Social Security this plan might attract you. It would not use any of the savings in to reduce the deficit but rather extend the solvency horizon for it. It would increase the eligibility age by 1 month for every two years, starting in 2022. This is just a camels nose under the tent to change the program, at least to my eyes.

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