Central Perk

miercuri, 3 august 2011

Behind the Scenes: Photos from the Debt Negotiations

Your Daily Snapshot for
Wednesday, August 3, 2011

Behind the Scenes: Photos from the Debt Negotiations

After a long and heated debate, President Barack Obama signed into law a compromise that will reduce the deficit and avert a default on our obligations that would have devastated our economy.

Official White House photographer Pete Souza chronicled the process over the last month, snapping photos at various stages of the negotiations. Yesterday, we released a set of 20 of his behind the scenes photos.

View the gallery and check out one of the photos below:

President Barack Obama meets with Speaker of the House John Boehner on the patio near the Oval Office, Sunday, July 3, 2011. (Official White House Photo by Pete Souza)

In Case You Missed It

Here are some of the top stories from the White House blog.

Rural Veterans and the Tyranny of Distance
For about 3.3 million Vets, or 41 percent of the total enrolled in VA’s health care system, distance is more than a challenge. Distance can mean rural Veterans don’t have access to the care and services they’ve earned.

Office Hours 8/2/11 or "The American People Won In This #Compromise": Jason Furman Answers Your Questions on Twitter
Principal Deputy Director Jason Furman answers your questions about the impact of the debt agreement, and what steps will be taken for the long term health of our economy during another session of White House Office Hours.

President Obama: FAA Shutdown a “Washington-Inflicted Wound on America”
A stalemate over the FAA budget is keeping 70,000 workers away from jobs at airports across the country and has cost $250 million in tax revenue

Today's Schedule

All times are Eastern Daylight Time (EDT).

10:35 AM: The President receives the Presidential Daily Briefing

12:00 PM: Press Briefing by Press Secretary Jay Carney

2:00 PM: The President holds a Cabinet meeting

3:15 PM: The President meets with Secretary of State Clinton

3:45 PM: The President meets with Attorney General Eric Holder

5:00 PM: The President departs the South Lawn en route Joint Base Andrews

5:15 PM: The President departs Joint Base Andrews en route Chicago, Illinois

7:00 PM: The President arrives in Chicago, Illinois

8:00 PM: The President participates in a DNC video teleconference

8:15 PM: The President delivers remarks at a DNC event

9:25 PM: The President delivers remarks at a DNC event

11:05 PM: The President departs Chicago, Illinois en route to Joint Base Andrews

Indicates events that will be live streamed on WhiteHouse.Gov/Live

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There are lots of sorts of never you can deliver to a customer. You can't deliver all of them, of course. Picking your never and sticking with it is a fabulous way to position yourself.

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Mish's Global Economic Trend Analysis

Bill Gross says "Fed Approaching Dead End Unsolvable Dilemma"; Feldstein sees 50% Chance of Recession; Three Cardinal Rules of Stimulus
Asia-Pacific Bloodbath Begins, Expect Europe to Follow Suit
Italy Calls "Financial Stability Meeting"; Spain PM Delays Vacation to "Closely Watch Economic Indicators"; EU says "No Rescue Plans for Italy, Spain"
Fitch Says Debt Deal Alone Won't Sustain AAA Rating; Tale of Two Headlines
Fitch Says Debt Deal Alone Won't Sustain AAA Rating; Tale of Two Headlines
US Consumer Spending Unexpectedly Declines, First Drop in 20 Months; Personal Savings Rate Highest Since August 2010
Freighter Rates See Significant Plunge In Normally Busiest Time of Year
Spain, Italy, Belgium Bond Spreads Hit Euro Record; Italy 10-Year Bond Yield Highest Since 1997; Self-Fulfilling Crisis
Petroleum Distillates Demand Shows "Definite Economic Downturn Starting April/May 2011"

Bill Gross says "Fed Approaching Dead End Unsolvable Dilemma"; Feldstein sees 50% Chance of Recession; Three Cardinal Rules of Stimulus

Posted: 02 Aug 2011 09:42 PM PDT

Is the US economy at a tipping point or has it already tipped over? The best one can possibly say is the economy is at a stall rate.

"Economy Balanced on Edge"

Bloomberg reports Feldstein Sees 50% Chance of U.S. Sliding Back Into a Recession

Harvard University economics professor Martin Feldstein said the U.S. recovery that began two years ago has been losing steam and there are even odds the economy will slip into a recession.

"This economy is really balanced on the edge," Feldstein said in an interview on Bloomberg Television "Surveillance Midday" with Tom Keene. "I think there's now a 50 percent chance that we could slide into a new recession."

The Federal Reserve "has done everything it can," Feldstein said, though Congress and the administration have failed to address the central problem of weak housing.

"Housing is a major drag on the economy," he said. "The plan to deal with it has been a failure" and house prices have continued to fall.

Bill Gross Says US Economy at "Tipping Point"

"Fed Approaching Dead End Unsolvable Dilemma"

Here are a few quotes from Gross Says Compromise Debt Deal Fails to Make Significant Dent in Deficit

"In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at net present cost"

"We are at a tipping point," Gross said, adding that the firm has reduced its forecasts for economic growth in the second half of the year to a range of 1 percent to 2 percent, from 2 percent to 3 percent.

"The Fed is approaching a dead end in that all they can do have been done.

"There's the potential for QE3, but that may take the form of extended language."

"Sisyphus would be familiar with this seemingly unsolvable dilemma," Gross wrote, referring to the mythological king who was punished by being repeatedly compelled to roll a boulder up a hill, only to have it roll back down again.

No Solution?

There is a solution, just not a politically viable one. It's called debt deflation. That is the economy's way of purging the excesses of a housing bubble and debt orgy.

Instead, the Fed and the ECB protected bondholders at the expense of taxpayers even though the unemployment rate is sky high.

The Fed's action was supposed to get credit flowing again and create jobs. Instead, Fed policy created jobs in China while bailing out US bankers and wealthy bondholders, many of whom arguably belong in prison or stripped of their financial assets.

In the end, Greece defaulted anyway at huge extra cost to European taxpayers. In the US, unemployment rate is 9.2% not counting millions of people who involuntarily dropped out of the labor force.

Keynesian Clowns Argue For More Stimulus

Sadly, Keynesian clowns still argue for more stimulus. Supposedly we need to build infrastructure.

Let me ask a question: Where would the US economy be had we done that?

The answer is certainly in a better position than the alternative of dropping bombs in Iraq. For starters the US would have better bridges instead of holes in the Iraq desert and millions of destroyed lives (and millions more enemies on top of that).

However, the US economy would still be where it is now. Why? Because of the three cardinal rules of stimulus.

Three Cardinal Rules of Stimulus

First rule of stimulus: It always runs out.
Second Rule of stimulus: All it can do is create a greater pile of debt.
Third rule of stimulus: Spend enough money and interest on debt will eventually consume you.

Never, ever do the Keynesian clowns want to throw in the towel on what they suggest. One might think that 20 year history of failed infrastructure stimulus in Japan would be enough to open the myopic eyes of Keynesian clowns but one would be wrong.

US Structural Problems

Before we go throwing money around, why not fix a few internal structural problems to ensure we at least get our money's worth. How do we do that? Easy.

Scrap Davis Bacon and all prevailing wage laws.
End collective bargaining of public unions
Enact national right-to-work legislation

Give me those measures and I will gladly hike taxes a bit. Those measures would at least help ensure we got our money's worth for government work.

However, those three items, while desperately needed, do not solve the problem of why jobs are fleeing the US in the first place.

For starters we need corporate tax laws that do not reward and encourage job and capital flight. Second and more importantly, we need to address the issue of trade imbalances.

I addressed trade imbalances at length in ...

Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Michael Pettis Warns of "Virulent Political Turn Against Euro", Adds Clarification to "Gold's Honest Discipline"

Before wasting more money on stimulus measures doomed to fail, how about fixing internal and external structural problems first? If we do that, and stop the war mongering, we will not even need stimulus, the economy will heal itself.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Asia-Pacific Bloodbath Begins, Expect Europe to Follow Suit

Posted: 02 Aug 2011 07:03 PM PDT

The Asia-Pacific bloodbath, following the US bloodbath is now underway. Australia, Japan, Taiwan, South Korea, and Hong Kong (Hang Seng) are all down over 2%. South Korea is down nearly 3%.

China is down only .64%. However, China was smacked yesterday more than any of the others. Australia and China both look anemic.

click on chart for sharper image

Click link to refresh Yahoo Finance Asia Pacific Scorecard.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Italy Calls "Financial Stability Meeting"; Spain PM Delays Vacation to "Closely Watch Economic Indicators"; EU says "No Rescue Plans for Italy, Spain"

Posted: 02 Aug 2011 12:36 PM PDT

Earlier today, in Spain, Italy, Belgium Bond Spreads Hit Euro Record; Italy 10-Year Bond Yield Highest Since 1997; Self-Fulfilling Crisis I was wondering how long it would take for emergency meetings.

Any bets on when the EU has another emergency meeting? I suspect two more days of this action might do it. Now answer this: what can they do that makes any sense?

Depending on your definition of "emergency meeting" the correct answer may have been less than a day.

Italy to Hold Financial Stability Meeting

Please consider Italy to hold financial stability meeting.

Finance Minister Giulio Tremonti will hold a meeting of Italy's financial stability committee on Tuesday, including representatives from the central bank and bourse regulator Consob, a source said.

The committee will discuss "the sovereign debt market situation and the implications for the banks and the economy," the source told AFP.

The meeting will take place at 1430 GMT at the finance ministry in Rome.

Italy's Financial Stability Safeguard Committee, as it is formally known, was set up in 2008 as the global economic crisis first hit and includes representatives from stock market and insurance regulators.

Prime Minister Silvio Berlusconi is set to address parliament on the financial crisis on Wednesday and meet trade union leaders on Thursday.

Zapatero Delays Vacation to "Closely Watch Economic Indicators"

The Walll Street Journal reports Spain PM Delays Vacation To Deal With Economic Woes

Spanish Prime Minister Jose Luis Rodriguez Zapatero Tuesday postponed a scheduled vacation and Finance Minister Elena Salgado was talking to several of her European counterparts as borrowing costs for Spain and Italy hit new euro-era highs.

Zapatero cancelled his vacation in order "to more closely follow" the country's "economic indicators," according to a statement from his office. A spokesman added that Zapatero was in close contact with Salgado, while the finance minister has been talking with her Italian, French and German counterparts.

The new spike in borrowing costs comes two days ahead of a Spanish bond auction Thursday, where the treasury plans to sell between EUR2.5 billion and EUR3.5 billion of three- and four-year bonds.

It also heightens concerns about the abilities of Italy and Spain, the euro zone's third- and fourth-largest economies, respectively, to finance themselves. In a recent research note, analysts at Deutsche Bank said Greece, Ireland and Portugal started to get frozen out of financial markets when their 10-year bond yields reached levels of between 6% and 7%.

Those three countries were then forced to seek bailouts from the European Union and the International Monetary Fund.

For Spain, the heightened market tensions come at an awkward time, politically, as the country gears up for an early general election on Nov. 20. Lacking a parliamentary majority and his popularity undermined by the economic crisis, Zapatero announced Friday that he was calling elections ahead of the end of his four-year term in March.

Does canceling a vacation to hold discussions with counterparts in Italy, France, and Germany constitute an "emergency meeting"? I think so, even if it is an informal one.

EU Claims "No Rescue Plans for Italy, Spain"

While pondering the definition of "emergency meeting", please consider EU not considering rescue plans for Italy, Spain.

The European Union has no plans to provide rescue loans to Italy and Spain, despite the rising borrowing costs facing these countries, a European Commission spokeswoman said Tuesday.

"We are absolutely confident that the Spanish authorities will take all steps which are necessary," Hughes said. "The question of a rescue plan is not on the table."

"The situation is very similar for Italy," she added.

Mish Translation of EU Statements

"We are scared completely s***less by these events. If we were not scared s***less, there would be no need to comment at all. Finally, if yields head North for another day we will call an emergency meeting to discuss rescue plans for Italy and Spain."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Fitch Says Debt Deal Alone Won't Sustain AAA Rating; Tale of Two Headlines

Posted: 02 Aug 2011 11:46 AM PDT

Fitch will conclude its US debt review by the end August and the Associated Press has this headline on the story: US Debt deal alone won't sustain AAA rating

On Tuesday, Fitch said the agreement was an important first step but "not the end of the process." The rating agency wants to see a credible plan to reduce the budget deficit.

David Riley, managing director at Fitch, told The Associated Press: "There's more to be done in order to keep the rating in the medium-term."

Fitch expects to conclude its review of the U.S. sovereign rating by the end of August. As the debt deal currently stands, it is possible the U.S. debt rating could be downgraded at that time, Fitch said.

It is interesting to see how news agencies parse such reports.

Reuters reports the same story headline as follows: Fitch keeps US AAA rating, review ongoing

Fitch Ratings upheld its AAA rating on the United States on Tuesday after lawmakers approved spending cuts that will help avoid a U.S. default, but warned that the world's largest economy must reduce its debt burden or face a downgrade.

Although the bill removes the threat of imminent default by raising the national debt limit enough to last until 2013, its cuts are only about half the $4 trillion in savings that ratings agencies Standard & Poor's and Moody's have said would be enough to confirm the country's triple-A rating with a stable outlook.

Other ratings agencies have also warned of a potential downgrade of U.S. credit depending on the scope and size of the deficit cutting agreement.

"The more important question here is whether the bill will be enough to appease S&P, which wanted $4 trillion in cuts, with many in the market believing that there is a realistic chance of a downgrade from S&P," said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York

Fitch noted that without significant changes in fiscal policy, debt as a percentage of gross domestic product "will reach 100 percent by the end of 2012, and will continue to rise over the medium term - a profile that is not consistent with the United States retaining its AAA sovereign rating."

While both headlines are true, the first more accurately conveys the mood of the moment.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Fitch Says Debt Deal Alone Won't Sustain AAA Rating; Tale of Two Headlines

Posted: 02 Aug 2011 11:29 AM PDT

Fitch will conclude its US debt review by the end August and the Associated Press has this headline on the story: US Debt deal alone won't sustain AAA rating

On Tuesday, Fitch said the agreement was an important first step but "not the end of the process." The rating agency wants to see a credible plan to reduce the budget deficit.

David Riley, managing director at Fitch, told The Associated Press: "There's more to be done in order to keep the rating in the medium-term."

Fitch expects to conclude its review of the U.S. sovereign rating by the end of August. As the debt deal currently stands, it is possible the U.S. debt rating could be downgraded at that time, Fitch said.

It is interesting to see how news agencies parse such reports.

Reuters reports the same story headline as follows: Fitch keeps US AAA rating, review ongoing

Fitch Ratings upheld its AAA rating on the United States on Tuesday after lawmakers approved spending cuts that will help avoid a U.S. default, but warned that the world's largest economy must reduce its debt burden or face a downgrade.

Although the bill removes the threat of imminent default by raising the national debt limit enough to last until 2013, its cuts are only about half the $4 trillion in savings that ratings agencies Standard & Poor's and Moody's have said would be enough to confirm the country's triple-A rating with a stable outlook.

Other ratings agencies have also warned of a potential downgrade of U.S. credit depending on the scope and size of the deficit cutting agreement.

"The more important question here is whether the bill will be enough to appease S&P, which wanted $4 trillion in cuts, with many in the market believing that there is a realistic chance of a downgrade from S&P," said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York

Fitch noted that without significant changes in fiscal policy, debt as a percentage of gross domestic product "will reach 100 percent by the end of 2012, and will continue to rise over the medium term - a profile that is not consistent with the United States retaining its AAA sovereign rating."

While both headlines are true, the first more accurately conveys the mood of the moment. By the way, although a debt downgrade is well deserved, I doubt it will matter much.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

US Consumer Spending Unexpectedly Declines, First Drop in 20 Months; Personal Savings Rate Highest Since August 2010

Posted: 02 Aug 2011 09:20 AM PDT

US Consumers threw in the towel in June with Americans cut spending for first time in 20 months.

Americans cut their spending in June for the first time in nearly two years after seeing their incomes grow by the smallest amount in nine months. The latest data offered a troubling sign for an economy that is adding few jobs and barely growing.

Consumer spending dropped 0.2 percent in June, the Commerce Department said Tuesday. It was the first decline since September 2009.

Some of the decline was the result of food and energy prices moderating after sharp increases earlier this year. When excluding spending on those items, consumer spending was flat.

Still, consumers also cut back on big-ticket items, such as cars and appliances, which help drive growth.

Incomes rose 0.1 percent, the smallest gain since September. Many people are also pocketing more of their paychecks. The personal savings rate rose to 5.4 percent of after-tax incomes, the highest level since August 2010.

The biggest drop in spending occurred in such items as food and gasoline. Spending on such non-durable goods fell 5.5 percent, reflecting price declines after spikes early this year. An inflation gauge tied to consumer spending dropped 0.2 percent in June, the biggest one-month decline since September 2009. Outside of food and energy, prices were up 0.1 percent.

Savings Rate Increases as Spending Declines

Consumers spent less on food and gas because of declining prices but did not spend more elsewhere to make up for it. Since wages rose (barely), the savings rate went up.

Did economists expect this?

Bloomberg has the answer in Consumer Spending in U.S. Fell in June

U.S. consumer spending unexpectedly dropped in June for the first time in almost two years and savings climbed, adding to evidence that the slump in hiring is hurting household confidence.

Purchases declined 0.2 percent after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase

In spite of two horrendous jobs reports and multiple other data points including shipping data released a few days ago and a pathetic ISM report that shows manufacturing is on the verge of contraction, I am pleased to report that optimism still reigns supreme in economists, on average. Most are still looking for a second-half recovery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Freighter Rates See Significant Plunge In Normally Busiest Time of Year

Posted: 02 Aug 2011 08:53 AM PDT

This is normally the busiest time of year for shipping. Businesses are typically stocking up for back-to-school and holiday sales. Instead Container-Ship Plunge Signals U.S. Slowdown

Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.

Fees for hiring vessels have fallen 9.3 percent since the end of April, according to the Howe Robinson Container Index, which tracks charter rates for a range of vessels. Last year, the index surged 56 percent in the period, as lines added ships on demand from U.S. and European retailers restocking for the back-to-school and holiday shopping periods.

"The troubling part is that charter rates are falling in the peak season," said Johnson Leung, head of regional transport at Jefferies Group Inc. in Hong Kong. "Sentiment among consumers and retailers isn't very strong."

Concerns about the sustainability of economic growth are also contributing to container lines renting ships for shorter periods. Average charter lengths have declined to seven months from 10 months at the beginning of the year, according to Alphaliner.

Shipping lines are also contending with fuel costs that have jumped 53 percent in a year in Singapore trading, alongside a rise in oil prices, and an expanding global fleet.

Harper Petersen Index

Here is a chart of the Harper Petersen Ship Broker Index

This is yet another indication of the global economic slowdown.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Spain, Italy, Belgium Bond Spreads Hit Euro Record; Italy 10-Year Bond Yield Highest Since 1997; Self-Fulfilling Crisis

Posted: 02 Aug 2011 02:39 AM PDT

The idea that the latest Greek bailout plan would solve anything is officially dead. Government bond spreads of Spain, Italy, and Belgium are at all-time highs. The yield on 10-year bonds of Spain and Italy are now both well North of 6%. Here are a few charts to consider.

Belgium 10-Year Government Bonds

Spain 10-Year Government Bonds

Italy 10-Year Government Bonds

Germany 10-Year Government Bonds

Portugal, Greece, and Ireland are now a sideshow. However, as a point of interest, 2-Year Greek bonds are 32.35% down from a record high of over 40% but well above the lows in the high 20's following the Greek bailout agreement.

Self-Fulfilling Crisis

Bloomberg reports Italy, Spain 10-Year Bond Spreads Are at Euro-Era Record on Growth Concern

Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations' debt loads.

"This has all the features of a self-fulfilling crisis," said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. "The rise in yields looks pretty relentless, and it doesn't look as if the politicians are anywhere near to getting ahead of the curve."

The yield on 10-year Italian bonds jumped 18 basis points to 6.18 percent as of 8:48 a.m. in London, the most since November 1997.

Spanish 10-year yields surged 16 basis points to 6.36 percent, pushing the spread over similar-maturity German debt up 19 basis points to 393 basis points. A 6.5 percent yield will be a key level for Spain, RBS's Sian said.

The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 202 basis points before an auction of as much as 2.8 billion euros of 105-and 168 day bills.

Expect a "stern warning" from ECB president Jean-Claude Trichet soon. Also expect the market to laugh in his face.

Any bets on when the EU has another emergency meeting? I suspect two more days of this action might do it. Now answer this: what can they do that makes any sense?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Petroleum Distillates Demand Shows "Definite Economic Downturn Starting April/May 2011"

Posted: 02 Aug 2011 12:50 AM PDT

Charts of petroleum usage show signs of an economic downturn starting in April or May of 2011 says my friend Tim Wallace who writes ...

Hello Mish

Attached are two charts from my Petroleum Distillates Distribution Demand file. The first chart shows year-over-year demand from peak levels. As we have discussed before, the peak for USA usage was 2007, so everything looks back to that year to see how we are "recovering".

As can be easily seen on the chart "Historic Growth Levels Off Peak Data" distillates usage plunged in 2008 then went into the abyss in 2009. There was moderate growth in both 2010 and 2011.

"Shovel ready" stimulus, accounts for some of that growth and it is fading. There is no long term growth effect, just unsustainable spending.

The second "month-by-month" chart shows a definite economic downturn starting full bore in the April/May time period. Usage is now falling and is well below 2010 levels and approaching 2009. I attribute a significant amount of the initial strength in 2011 to cold weather.

It will be very interesting to see what August and September bring. Historic data for these months suggests a surge as people get in the end of summer vacations and go back-to-school.

Historic Growth Levels Off Peak Data

click on chart for sharper image

Petroleum Month-by-Month Since 2008

click on chart for sharper image

Thanks again to Tim Wallace for these updates.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

miercuri, 3 august 2011