Sunday, July 24, 2011

notes on the week ended July 23rd

last week, we left the debate on raising the debt ceiling with negotiations breaking up in anger and the congresscritters in the House planning to go off on their own & pass a "cut, cap, & balance act", which rather than addressing the debt ceiling directly, attempted to go around it by stopping government spending in the 3 ways described in the title of the act…as it was passed, it didnt target specific programs, it just specified a cut for the coming fiscal year, then a 20% of GDP spending cap going forward, with a balanced budget amendment which would have insanely caused fiscal policy to be as cyclical as the general economy...the house was as far as it got, as the senate voted it down, advancing instead a bi-partisan proposal hatched by six senators, aka "the gang of six", which built a 3.7 trillion dollar deficit cutting package around the framework of obama's deficit commission, better known as the simpson-bowles "catfood commission" which i discussed & dismissed out of hand when it was first released last november, only to be surprised to see elements of it included in the year end continuing resolution in december...that's the kind of year its been; recommendations for legislation which i first perceive as too atrocious to go anywhere end up in the budget the next month....

at any rate, it was the "gang of six" budget plan, which was immediately embraced by obama, which garnered the most attention this past week; what it would do is immediately reduce the future cost of living adjustments to social security recipients by switching to the "chained-CPI" method i explained two weeks ago; it also reduces the top marginal income tax rate for the rich and for corporations from 35 percent to as low as 23 percent and they say it makes up the lost revenue by closing loopholes & reducing tax deductions, including such tax expenditures as the home mortgage interest deduction; it also cuts medicare by around $500 billion over the ten year plan, $300B of which would come out of pay for doctors....most of the rest appears to come from other discretionary programs, as it doesnt mention any cuts to the defense budget, the big red piece of the pie in the above graph... so it almost appeared for a few days that this big package was a done deal, until boehner came out of a house conference with reservations; apparently it didnt go far enough for the tea party; so obama went back into negotiations with boehner, now not only willing to dismantle parts of the safety net, but apparently also offering to throw one or both of his signature accomplishments under the bus to get a deal: some administration watchers believe he's going to sacrifice parts of the Dodd-Frank financial reform law because tim geithner's op-ed in the WSJ defending Dodd-Frank on wednesday was penned because he was losing the internal administration debate to bankster friendly comptroller of the currency John Walsh, who's been a vocal critic of financial regulation...obviously, such regulation adds nothing to the deficits, but allowing it to be part of the negotiations is indicative of how easily obama is willing to surrender anything to tea-party demands; as it turned out, the talks broke up friday anyway, because after obama gave boehner everything he wanted, boehner then also insisted the individual mandate portion of the healthcare reform act be repealed too...so the week ended with both obama & boehner blaming each other for the collapse of talks, & Reid cancelling further weekend senate meetings...

by way of quickly summarizing some of the economic news this week: housing starts in june surprised to the upside, at 629,000 units, 14.6% above the seasonably adjusted may level of starts; even so, the US is on track for a record low number of completed units this year, probably not a bad thing with bloated home inventories; sales of existing homes, however, were weaker than expected, down .8%, largely due to a record number of contract cancellations...investigations by both reuters and AP revealed that even after banks swore off fraudulent foreclosures and robosigned paperwork, the practice continues & is widespread; they're still using the imaginary "linda green, vice president" signature on affidavits in at least three states even after the practice was exposed on CBS 60 minutes...meanwhile, the 50 states attorney generals are moving to give the banksters immunity from prosecution if they promise not to do it again, pay a small fine, & contribute to their next campaigns...meanwhile, minnesota enters its third week of shutdown, with parks, museums & public restrooms closed, highways going unrepaired, various licences unavailable, and sales of alcoholic beverages on hold...i should also mention that weekly new claims for unemployment came in at 418,000, up 10K from last week, notable because it's the 15th consecutive week that new job losses have been over 400,000, a threshold widely seen as indicative of a weakening job market and portending higher unemployment numbers in the later monthly reports...

july 23 records

i dont have to tell if you're anywhere east of the rockies that we've had a hellova heatwave this past week, and since i've watched it since it began last sunday i thought i'd put it in perspective; as far as heat goes, most of the northern cities that have experienced three digit temperatures can expect such temperatures once in 7 years, so it's not that unusual in that respect; what has made this heat unique was the humidity, which resulted from the ample moisture available from earlier flooding & saturated ground; thus the "heat index" topped 120F in several north central states, and even hit 131F in one location in iowa, a dangerous level typical only of the dead sea in the mideast & not usually seen in the US...saturday i did a screen capture of the records for the preceding 7 days; the small adjacent map should enlarge to full size if you click on it, but what you’ll have to take my word for is that of the 2701 records, 2018 were set overnight as high minimums (the yellow dots)…i dont have time to capture, crop, & reload the latest picture, but the link for the interactive 24/7 is here, and you’ll see that including yesterday’s records, 3188 new US high temperatures have been set in the past week...

intransigence from germany & the ECB in europe ealy in the week, which had driven yields on greek debt to near 40% and that of both ireland & portugal over 20%, gave way to an agreement on thursday which seemed to relieve the markets, but it didnt impress most analysts who've followed the developments in europe closely; if you want a play-by-play of the rest of the week in europe, its all documented on my blog...what im going to include here is a chart of ten year bond spreads for the primary european countries for the past year & a half, sourced from bloomberg by bill @ calculated risk, wherein he adds arrows at the point each major bailout had been agreed to…the point that's useful to note is that each agreement results in a period of calm before the bond market panic resumes and takes european borrowing costs to ever higher levels…(the chart should open in a new window if you click it)


the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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