Sunday, January 27, 2013

notes on the debt ceiling shenanigans, January’s regional Fed surveys, & December home sales reports

as we expected, congress has put off dealing with the debt ceiling for 3 months; but they didn't do it by raising the limit to cover 3 months of spending; instead, because House republicans were unwilling to go on record as allowing a statutory increase in the amount the Treasury would be allowed to borrow, they just proposed to ignore the debt ceiling for 3 months, and to suspend the law that applies until mid-May, then, in a fait accompli on May 19, “the debt limit would automatically be increased to account for the borrowing that occurred during that period.” 012513sequest2...there are a few provisions in this house bill that keep the hooks in; for one, the Treasury cant pay for any funding for which the payment wouldnt be due before May 19th, preventing the Treasury from funding commitments past that date (the Treasury would, however, be able to repay the amounts borrowed from Federal pension funds and such since the ceiling was hit Dec 31st, which would give them leeway to replay the same extraordinary accounting tricks they've used to date); furthermore, both the House and the Senate are required by this bill to pass their own budget resolutions before April 15th or their member's pay would be suspended; there is some question whether this provision is constitutional, as the 27th amendment says congress cant change its own current payroll, but nonetheless, this House passed bill is expected to have bi-partisan support in the Senate and be signed by the White House...

so, with the debt limit drama delayed until May 19th, the next budget confrontation on the calendar would seem to be when the automatic sequestered spending cuts, which were delayed 2 months in the fiscal cliff deal, and are now scheduled to take effect on March 1st; this would be one-tenth of the ten years worth of cuts specified by the budget control act of 2011, shown in the box above...those amounts would be about 7.5% of the amount in the 2013 defense budget, and an even larger percentage cut out of discretionary programs determined by the this point, no one seems to have a good guess how negotiations on these cuts will play out, but indications are strong that if the Republicans cant include “entitlement reform” in the bargain, then they’re willing to just let the sequestered cuts happen as scheduled

 ISM PMI it's been a sparse week for economic releases, but we do have a few forward looking manufacturing surveys from the regional Fed banks, and can cover the two we missed last week while we're at it, since they've all been trending in the same downward direction...on Tuesday, the Richmond Fed reported on their survey of manufacturing activity in the central Atlantic region; their current business conditions index fell sharply, from 5 in December to -12 in January, indicating significant contraction; nearly all the other broad sub-indexes turned negative as well; the new orders index fell 27 points, from a mildly expansionary 10 in December to -17 in January; the order backlog, which was negative at -11, fell further into contraction at −19, while the shipments index fell 17 points to −11, capacity utilization fell 21 points to a negative 18, and the jobs index was down two points to −5...results from the Kansas City Fed, whose region encompasses a broad swath of the plains from the Rockies to missouri, werent much better; the Tenth District's January Survey of Manufacturers (pdf) indicated modest contraction for the 4th straight month, with the composite index at a -2, not much change from the -1 in December or the -3 in November; most of the weakness was with durables manufactures; while nondurable producers noted some slight improvement; again, most of the broad subindexes registered below zero, indicating a continuing slowdown for the month; the production index was at -3, slightly higher than December's -5 but still indicating contraction; the new orders index also inched higher in negative territory, rising from -5 to -2, as did the shipments index, rising from -4 to -3, while the order backlog index rose from -18 to -8, still contracting at a moderate pace...meanwhile the employment index fell from -1 to -8, its lowest level since mid-2009, and the new orders for export index fell from -2 to -8...many of the survey comments cited uncertainty about fiscal policy as the reason these managers or their customers were holding back on expansion…

last week, the NY Fed reported the results of the January Empire State Manufacturing Survey, which indicated contraction for the 6th consecutive month; the composite general business conditions index was nearly unchanged from last month's –7.3 at -7.8; the new orders index fell four points to -7.2, and the shipments index declined 15 points to -3.1; and both labor market indices remained below zero for the 4th month in a row, with the number of employees indicating reductions at 4.30 and the average workweek contracting at -5.3...meanwhile, the Philadelphia Fed Manufacturing Survey for January saw their broadest diffusion index of current activity decrease from a revised reading of 4.6 in December to ‐5.8 this month; the new orders index fell from 4.9 in December to ‐4.3  in January, the shipments index fell from 14.7 to 0.4, and both labor market indices fell as well; the number of employees reading declined to –5.2 from –0.2 and the average workweek reading came in at –8.3 after December’s barely positive 0.4…included here above is Bill Mcbride’s chart which shows the average of the NY and Philly Fed surveys, thought to be a leading indicator for the ISM manufacturing survey, as a dashed green line, the average of all regional Fed surveys indicated in blue, and the ISM manufacturing PMI as reported through December; the ISM will report this coming week and the regional Fed surveys suggest that it will show a resumption of contraction…

  Existing Home Salesboth of the major reports on home sales were released this week; on Tuesday, the National Association of Realtors reported on existing home sales in December, and on Friday, the Census released their estimates on December new home sales...the NAR reported that total existing-home sales declined 1.0% to a seasonally adjusted annual rate of 4.94 million in December from a revised 4.99 million in November; November's home sales were originally reported at an annual rate of 5.04 million, so the effective sales decline from the November report was 2.0%; their preliminary total for existing-home sales during 2012 was 4.65 million, which would be up 9.2% from the 4.26 million homes sold in 2011, and the highest annual sales since 2007; however, on a monthly basis, home sales have not yet reached the annual rate achieved under the first time home buyer tax breaks during 2009, as you can see on the adjacent chart from bill mcbride; note also that each month's sales is shown at an adjusted annual rate...the NAR says too few homes on the market and tough mortgage loan standards have been limiting home sales, despite demand driven by low mortgage interest rates, which remained at a record low of 3.35% for a 30 year fixed rate mortgage; 1.82 million homes were available for sale in December, down 8.5% from November, a typical seasonal decline, but still reducing the number of available homes to the lowest level since January 2001, when there were just 1.78 million homes on the a result of this contrived shortage and the low interest rates, which allow more home principal to be bought with a smaller monthly payment, the national median existing-home price stood at $180,800 in December, which was 11.5% above the median price of a year ago...also contributing to the rising median price was a change in the mix of homes sold; last December, distressed sales, which includes foreclosures and short sales, accounted for 32% of homes sold; this December, these distressed sales amounted to just 24% of the total; foreclosures were selling for 17% below market and short sales sold for 16% below market in december...the tight inventory of homes for sale also has reduced the time home spend on the market; the median time on market for all homes was 73 days in December, up from 70 days in November, but this was still below the 99 days it took to sell a year ago...short sales spent a median of 117 days on the market, while foreclosures typically sold in 45 days...investors, many buying with cash, continue to account for a big chunk of sales; they bought 21% of the homes for sale in December, the same percentage as last year; 29% of home sales transactions were all cash, compared with 30% in November and 31% a year ago, while first time buyers only accounted for 30% of home purchases in December, down from 31% a year ago, despite the low mortgage rates which would make ownership quite a bit cheaper than rent..

the report on New Residential Sales for December from the Census (pdf) covers only single family homes, so the totals are not comparable to the housing starts, permits, and completions report (pdf) that includes stats for multi-family units which we covered last week; moreover, a significant number of new home starts are owner built or contracted for and hence are not included in theses sales stats...but like that report, this report allows for a large margin of error which renders the widely watched and reported monthly data nearly useless...the census reports "Sales of new single-family houses in December 2012 were at a seasonally adjusted annual rate of 369,000...7.3 percent (±15.3%)* below the revised November rate of 398,000"; virtually all reports on this data focus on just the annualized number and the monthly change without mentioning the large margin of error...the actual census estimate for homes sold in december was a much less impressive 26,000, with 15,000 of those in the South, and 5,000 in the West...census takes that rough estimate of 26,000 and plugs it into a program which compares it to other recent Decembers and computes what annual sales would be if that december sales level were continued through the entire year; so when they say "sales were (±15.3%)* below the revised November rate of 398,000" they mean they are 90% confident that the seasonally adjusted annual rate of new home sales would fall someplace between 337,106 and 458,894, or that it's fairly likely that the monthly change in new home sales was somewhere between a gain of 8.0% and a decline of  22.6% at a seasonally adjusted annual rate...the comparison to last December's home sales is no more useful: "(December 2012's seasonally adjusted annual rate) is 8.8 percent (±24.8%)* above the December 2011 estimate of 339,000"   that's almost a range of 50%!  about the only new homes sales data from this report that we can bank on is annual estimate for all new homes sold in 2012: "An estimated 367,000 new homes were sold in 2012. This is 19.9 percent (±4.8%) above the 2011 figure of 306,000." so it's reasonable to say new home sales for this year were roughly 20% above last year, which was the worst year in the half century of census record keeping...census also report that the median sales price of new houses sold in December was $248,900 and the average sales price was $304,000, and that the seasonally adjusted estimate of new houses for sale at the end of December was 151,000, of which 25,000 had not yet been started and only 43,000 were completed...they call that a 4.9 month supply at the current sales rate...we'll include two graphs referencing this report which should help complete the picture of what this report tells us... on the left, we have Bill McBride's graph of actual monthly sales for the last 8 years; each year is color coded and sales in thousands are indicated on the left, with red indicating 2012 sales; if you click to enlarge you'll see that 12/12 sales at 26,000 was actually the highest December estimate since 2008...on the right we have the FRED graph of the inventory of new single family homes for sale over the 50 years of this report; December's inventory was 1.3% from November and 0.7% below a year ago, with a margin of error of ±1.6%; clearly, new homes for sale are near an all time low, suggesting any increase in demand will both increase prices and jumpstart new construction...

New Home Sales, NSA..  FRED Graph


(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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…)

Wednesday, January 23, 2013

Federal Budget 101 - Where Does the Money Go?

[Courtesy of the National Priorities Project]

In fiscal year 2011, the federal government spent $3.73 trillion. These trillions of dollars make up a considerable chunk—around 24 percent—of U.S. Gross Domestic Product (GDP). That means that federal government spending makes up a sizable share of all money spent in the United States each year. So, where does all that money go?

Mandatory and Discretionary Spending

The U.S. Treasury divides all spending into three groups: mandatory spending and discretionary spending and interest on debt. Interest on debt, which is much smaller than the other two categories, is the interest the government pays on its accumulated debt, minus interest income received by the government for assets it owns. This pie chart shows all projected federal spending in 2013 broken into these three categories.

Discretionary spending refers to the portion of the budget which goes through the annual appropriations process each year. In other words, Congress directly sets the level of spending on programs which are discretionary. Congress can choose to increase or decrease spending on any of those programs in a given year.

The discretionary budget is usually around one-third of total federal spending. This pie chart shows how President Obama proposed dividing up discretionary spending in fiscal year 2013.

Mandatory spending is largely made up of earned-benefit or entitlement programs, and the spending for those programs is determined by eligibility rules rather than the appropriations process. For example, Congress decides to create a program like the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. It then sets criteria for determining who is eligible to receive benefits from the program. The amount of money spent on SNAP each year is then determined by how many people are eligible and apply for benefits.

Congress therefore cannot decide each year to increase or decrease the budget for SNAP. Instead, it can review the eligibility rules and may change them in order to exclude or include more people.

Mandatory spending makes up about two-thirds of the total federal budget. By far the largest mandatory program is Social Security, which comprises around one-third of mandatory spending and around 20 percent of the total federal budget. This chart shows where the projected $2.1 trillion in mandatory spending will go in fiscal year 2013.

Finally, putting together discretionary spending, mandatory spending, and interest on the debt, you can see how the total federal budget is divided into different categories of spending. This pie chart shows how President Obama proposed dividing up the whole federal budget in fiscal 2013. Income security programs like Social Security and unemployment insurance together comprise the largest slice, followed by Medicare & Health, and Military.

Sunday, January 20, 2013

debt ceiling capers, December retail sales, industrial production & housing starts, November LPS mortgage monitor, et al

  even before last week's letter was emailed, it turns out that the White House had already rejected using the trillion dollar coin gimmick widely discussed last week as a method of keeping the government functioning after the debt ceiling was breached…indications were that even if the coin were minted, the Fed would not accept it as a method to circumvent the debt limit and since the White House had already previously ruled out using the 14th amendment as a justification to continue paying the bill for spending already legislated, and since the White House insisted that raising the debt ceiling was not negotiable, the ball was back in congress’s court, where more than half of the republicans indicated they were ready to let the US go into default, which tim geithner suggested could happen as early as February 15th...that brought out questions of who would get paid should the government be forced to operate on revenues alone, which cover just 60% of the budget, but Brad Plumer at the WaPo pointed out how difficult that would be to sort out, since every day the Treasury gets about 2 million invoices from government agencies, which are processed automatically “dozens of times per second”….however, with the likes of paul ryan suggesting that the treasury would have to prioritize spending after the debt limit was hit and Fitch warning that the US's triple AAA rating was in jeopardy, conservative funders such as the Koch brothers and Bush economic advisor Keith Hennessey retreated from holding the debt ceiling hostage, probably realizing where the blame would lie should the US be forced into by Thursday, word came from the house republicans, meeting at a plantation resort in Virginia, that they would vote on January 23 vote for a three-month extension of the debt limit with a rider to block pay for members of Congress if a budget wasnt passed during that interval…that would make the March 1st $600 billion sequestered budget cuts imposed by lat year’s Budget Control Act the next fiscal bridge to cross, which Goldman estimates could clip another 1% off of 2013 GDP…and in case anyone has forgotten, we dont have an official budget for this fiscal year yet, either, and the continuing resolution to fund the government at last year's level that was signed in September expires on March 27th...

Click to View

   likely the most important data released this past week was the Advance Estimate of Retail Sales for December from the Census Bureau (pdf); although the january retail sales report will be the one to watch, since it will be the first one affected by the expiration of the payroll tax cut at year end, when all consumers except the wealthiest will see a 2% decrease in take-home pay...the seasonally adjusted U.S. retail and food services sales for December were estimated to be at $415.7 billion, which would be an increase of 0.5 percent (±0.5%)* from November and 4.7% (±0.7%) above the retail sales reported a year ago, which is not adjusted for 2012 sales were up 5.2 percent (±0.6%) from 2011...much of the strength was in automotive sales; actual car & parts sales of $74.942 billion were adjusted to $78,082 billion to produce a month over month gain of 1.6% for that category; and car sales alone were 1.8% above November on a seasonally adjusted basis...ex-auto, retail sales were up 0.3% for the month...other than automotive, there was strength in restaurant & bar sales, which were up 1.2% for the month. and drugstore type goods, which posted a one month sales gain of 1.4%...on the other hand, sales at gasoline stations were down 1.6% and sales at electronics & appliance stores fell 0.6% from November; (note that appliance & electronic stores were coming off strong recent months, up 2.5% in November, and up 4.5% with the iphone5 release in september, so an adjustment was to be expected) sales gains on a year over year basis were seen by non-store retailers (online & catalog), which were up 12.6% over last December, and they saw total sales for 2012 rise to $439.530 billion, 11.6% higher that 2011; general merchandise stores saw a corresponding sales decline of 2.0% from last December, while annual sales were at $632.212 billion, only 0.5% better than 2011, while the subcategory of department stores saw a 0.3% gain over November but 1.7% less in annual sales than last year...remember that retail sales are not adjusted for changing prices, and as a result most charts on retail sales show a pretty steady growth as a result...but it's also useful to look at retail sales adjusted for inflation, which doug short does in the adjacent chart; the top red graph shows the 153.3% gains in 20 years of retail sales as reported; while the lower red graph shows retail sales growth on a per capita basis; then the light blue graph line shows retail sales adjusted for price changes up just 52.1% over 20 years, and finally the dark blue graph, which adjusts retail sales for both inflation and for population growth, shows real per capital retail sales up just 23.2% over 20 years... Click to View

coincidental with the release of retail sales, although from a different agency, was the release of the Consumer Price Index for December from the BLS...the BLS reported that the seasonally adjusted change in the CPI (for all urban consumers, CPI-U) was virtually flat at 0.0% in December (works out to a -0.2% annualized rate); over the last 12 months, the all items index increased 1.7%, down from November's 1.8% 12 month reading...a drop of 2.3% in the price of gasoline dragged the energy index to a 1.2% loss, and that in turn offset increases in other indexes, notably the food index, which was 0.2% higher, and shelter, which increased addition to shelter, the indexes for transportation services increased 0.5%, and for medical care was up 0.3%, while indexes for recreation, household furnishings and operations, and used cars and trucks all declined in December...the core CPI, which is the index for all items less food and energy increased 0.1 percent in December, the same increase as in November; the one year increase in the Core-CPI has been 1.9%....gasoline was the only energy index to decline; the index for natural gas increased 1.3% and the electricity was up 0.2%...within the food category, five of the six major grocery store food groups increased, with only meat, poultry and fish holding steady. as the food at home index rose for the third consecutive month. over the entire year, the CPI has risen 1.7% after a 3.0% increase in 2011; over the past ten years the all items index has seen a 2.4 percent average annual increase...for 2012, the food price index has been up 1.8%, the energy index fell 0.5% (as energy services - electricity and piped gas - fell 1.1%); shelter rose 2.2%, new cars rose 1.6% but used cars fell 2.0%, transportation services rose 2.6%, clothing was up 1.8%, and the medical care index rose 3.2 percent as drugs rose 1.7% and services rose 3.7%...the chart we have here from doug short shows the cumulative change in each of eight major components of the CPI since 2000; the steady rise of medical care, shown by red, is obvious, as is the lack anything but seasonal changes in the clothing index, shown in orange...the widely volatile green line is the transportation index, which includes gasoline...

FRED Graph

  along with retail sales, another report used in official recession calls out this week was on Industrial Production and Capacity Utilization for December from the Fed; after a relatively sharp rise of 1.0% (revised) in November as east coast industry rebounded after Sandy, industrial production settled in at a modest 0.3% increase in December; combined with the Sandy related weak October, total production increased at an annual rate of 1.0 percent in the 4th quarter...manufacturing output increased 0.8% in December after a 1.3% rebound in November, but for the quarter, production barely at an annual rate of 0.2 percent...output of mines rose 0.6% in December, but output of utilities fell 4.8% on a seasonally adjusted basis because a warmer than normal December reduced the need for heating...among marketing groups, the output of consumer goods fell 0.1% in December and declined at an annual rate of 0.9% in the fourth quarter; the production of durable consumer goods increased 1.2%, as increases in output of automotive products and home electronics more than offset declines in the indexes for appliances, furniture, carpeting and miscellaneous durable goods...the output of nondurable consumer goods decreased 0.5%, concentrated in the production of consumer energy products, which fell 4.4%...production of business equipment increased 1.3%  in December following a increase of 2.0% in November, but it was little changed for the fourth quarter as a whole....also over the fourth quarter, the production of transit equipment increased at an annual rate of 6.5%, while indexes both for information processing equipment and for other industrial equipment decreased at an annual rate of 2.3 percent...
    capacity utilization for total industry in December just increased by 0.1%, to 78.8%; the factory operating rate rose to 77.4%, a rate 1.4 percentage points below its long-run average...the percentage of durable goods manufacturing being used in December was 77.8%, while capacity utilization for nondurable manufacturing was 78.3 percent, a rate 2.6 percentage points below its long-run average; the output of nondurables rose 0.6 percent in December, but it was down at an annual rate of 0.6 percent in the fourth quarter...capacity utilization at mines in December moved up 0.4% to 91.9 percent, a rate 4.6 percentage points above its long-term average; however, the operating rate for utilities fell 3.8 percentage points to a seasonally adjusted 71.8%, a rate 14.5 percentage points below its long-run average, as a warmer than normal december had utilities operating below capacity...the FRED generated chart that we have included here shows industrial production since 2000 over the 3 major industry groups (the Fed generates an index, now set to 2007 =100, for each category) monthly output for manufacturing is shown in blue, monthly output from electric and gas ultites is tracked by the green graph, and output from mines, including oil & gas, is shown in red.

  there were also a few reports on housing, covered in a review fashion by Bill that garnered a lot of media attention was new housing starts for December, which were at a 4 year high...the data comes from the New Residential Construction report from the Census Bureau, and much like other reports on housing from the Census, this report has a wide margin of error, which is never reported by the reported, private housing starts in December were estimated to be at a seasonally adjusted annual rate of 954,000, which was 12.1 percent (±13.4%)* over November's level; that means the bureau is 90% confident that the number of new housing starts in December had fallen somewhere between an annual rate of 826,164 and 1,081.836; likely up from the number in November but by no means certain...the annual increase was reported to be 36.9 percent (±22.0%) above the December 2011 rate of 697,000, certainly up, but with even a greater degree of uncertain range than the monthly although we're willing to make note of this, a better marker for tracking the home building market is likely the new residential component of GDP, which will be released at the end of the month....and even then we will have to question the seasonal adjustment, since this past December has been one of the ten warmest on record, which likely allowed for more home building activity than the baseline December would have generated...this residential construction report is still useful, however, as a window into new construction authorized by building permits; for December, they were at a seasonally adjusted annual rate of 903,000. which was  0.3 percent (±1.0%)* above the revised 900,000 permits issued in November, and was 28.8 percent (±1.4%) above the estimate of 701,000 from December a year ago... CoreLogic, Negative Equity by State

there were also a few reports from housing data analytics firm CoreLogic out this week; the first was the Negative Equity Report for the 3rd quarter; their latest analysis showed approximately 100,000 more homeowners were no longer underwater, or in a situation where they owed more on their mortgage than their house was worth, at the end of the 3rd quartet than had positive equity at the end of the second quarter; that brought the year to date number of borrowers whose equity turned positive in 2012 to 1.4 million, leaving 10.7 million homeowners, or 22 percent of all residential properties with a mortgage, still  in negative equity at the end of the third quarter; in addition, CoreLogic found that an additional 2.3 million borrowers had less than 5 percent equity in their home, which they call near-negative equity, at the end of the third quarter....5 states combined accounted for 34% of the negative equity homes in the US: Nevada had the highest percentage of negative equity mortgages with 56.9%, followed by Florida, where 42.1% remained underwater, Arizona, where negative equity was at 38.6 percent), Georgia, where it was at 35.6 percent,  and Michigan, where 32% of homeowners remained underwater...the above chart from CoreLogic shows the percentage of negative equity mortgages by state in dark blue on the bars, and includes the percentage of “near negative equity” in the orange extensionsCoreLogic also released their November Home Price Index, which is a weighted average of prices for homes sold over 3 months with most recent sales counting more; the index was up 0.3% over October with this report, and home prices nationwide, including those from distressed sales, increased on a year-over-year basis by 7.4% in November, the ninth consecutive increase in home prices nationally and the greatest year over year increase in prices since May 2006….

Delinquency Rate one infrequently covered release that we normally review is the Mortgage Monitor for November from LPS (pdf); LPS (Lender Processing Services) reports that 1,767,000 home loans were in the foreclosure process in November, which was 3.51% of all mortgages, and down from 3.61% of the total outstanding in October; foreclosures were said to be held up by the adoption of the national mortgage settlement requirements, and are expected to pick up again now that theyre in place; Florida, with 11.8% in foreclosure, remains the state with the largest foreclosure backlog...LPS also reported that 7.12% of mortgages were delinquent but not in foreclosure in November, up from 7.03% in October; of these, 1,999,000 mortgage loans were more than 30 days and less than 90 days past due, and another 1,584,000 loans were 90 or more days delinquent....although overall delinquencies increased, the longer term delinquencies decreased, while those less than 90 days past due jumped from 3,500,000 in October, which is indicative of a normal seasonal trend that occurs before the holidays as homeowners forego a housepayment or two during the shopping season, then catch up on their mortgage payments by addition, LPS also noted that there was a 15% increase in delinquencies in the zip codes impacted by Sandy in New York, New Jersey, and Connecticut (shown on page 7, pdf)...the states showing the highest percentages of non-current mortgage loans in November were Florida with 19.7%, New Jersey with 16.8%, Mississippi with 16.7, Nevada with 15.1%, and New York, where 13.8% of mortgage loans were past due; New Jersey, with a 7.1% jump, has seen the largest year over year increase in delinquent mortgages; while Arizona has the greatest mortgage cure rate, with 30.8% of those delinquent a year ago either paid up or foreclosed on...a table with percentages non-current, in foreclosure, and the YoY change in mortgage delinquencies for all 50 states and the DofC can be found on page 19 of the pdf...the chart included here (from p4 of the pdf) shows the percentage of homes in the foreclosure process monthly since january 1995 in green, with the recent downturn showing the effect of the current hiatus in foreclosure starts, while the servicers were responding to requirements of the foreclosure fraud settlement; the red line shows the additional percentage of non-current loans that are not in foreclosure; the aforementioned seasonally, werein mortgage delinquencies rise in the fall and are cured in the new year is apparent well before the housing bust, shown by small rising blue arrows... 

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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…)

Friday, January 18, 2013

Stiglitz, Greenspan, Buffett: we can always print dollars

Nobel economist Joe Stiglitz, Alan Greenspan, & Warren Buffett explain there is “zero probability of U.S. default”

Sunday, January 13, 2013

the $1T platinum coin scheme, November trade deficit and consumer credit, 2012 record temperatures

while last week was about going over the cliff, the conversation switched this week to hitting the ceiling...while the fiscal metaphors may not seem sequentially appropriate, we are, nonetheless, out of the fiscal frying pan and into the we noted last week, the fiscal cliff deal left two big elephants in the way of a return to normal government functioning; the debt ceiling, which was breached on December 31, and the sequestered spending cuts that were imposed by the Budget Control Act, which were delayed till March in the deal making of last week; while the sequester seemed to remain on the back burner this week, the Republicans appear to want big cuts in entitlement programs, including Medicare and Social Security, as a condition for raising the borrowing limit; on the other hand, Obama has drawn a line in the sand and says he wont compromise over '”whether or not Congress should pay the tab for a bill they’ve already racked up” …with gridlock apparently guaranteed, an old idea that has been banging around the blogosphere for a few years resurfaced and went viral this week, driven by early support from Paul Krugman, lead Bloomberg economics blogger Josh Barro, and Business Insider editor Joe Weisenthal; the basic concept is that the debt ceiling could be circumvented if the Treasury would mint a trillion dollar coin, deposit that coin in it's account at the Fed, and use the electronic proceeds to continue paying its bills...another variation of the same, proposed by steve randy waldman, would be to mint a million million dollar coins and use those to pay bills directly...and Joe Firestone and economists at the University of Missouri-Kansas City have been circulating a petition to mint a 60 trillion dollar coin and put the entire question of cutting spending during a recession to rest...while these are all gimmicks to be sure, they do expose the ruse perpetrated by the deficit scolds that government spending in a fiat currency is somehow limited by the amount of taxes it collects or the amount of debt outstanding…

U.S. Trade Deficit the most important economic release of the week was from the Commerce Dept, on our November Trade Deficit in Goods and Services (pdf); it was much worse than expected, as our November exports of $182.6 billion and imports of $231.3 billion resulted in a seasonally adjusted trade deficit of $48.7 billion, up 16% from the $42.1 billion trade deficit in October; the goods deficit increased $6.6 billion from October to $65.7 billion, and the services surplus was virtually unchanged from October at $17.0 billion...goods exports increased $1.6 billion to $129.3 billion while goods imports increased $8.2 billion to $195.0 billion, and services exports increased $0.1 billion to $53.2 billion while imports of services increased $0.2 billion to $36.3 billion..since exports minus imports is a major component of GDP, this led to immediate downward revisions of analysts forecasts for 4th quarter GDP; J.P.Morgan cut their estimate for 4th quarter GDP growth to an annualized 0.8% from their earlier forecast of 1.5%; Barclays analysts cut their estimate to 1.3% from 2.0%, as did Nomura, and Goldman Sachs cut theirs from 1.8% to 1.3%; while imports of petroleum products fell by $870 million as oil averaged $97.45 per barrel in November, down from the $99.75 price in October, our imports of consumer goods rose by $4.6 billion, imports of automotive products rose $1.5 billion); and imports of industrial supplies rose $1.3 billion over october...our exports saw increases in capital goods of $0.9 billion, automotive products of $0.7 billion, and industrial supplies of $0.6 billion, while exports of foods, feeds, and beverages decreased $0.4 billion on a seasonally adjusted basis; the trade balance figures with other countries and regions, however, are not seasonally adjusted; our largest November deficits were with with China $29.0 billion (down from the record $29.5 billion in October), the European Union $12.2 billion (up from $10.6 billion), OPEC $6.6 billion (down from $8.6 billion), Germany $6.2 billion (up from $5.4 billion), Japan $6.2 billion (down from $7.0 billion), Mexico $4.9 billion (up from $4.4 billion), Canada $3.0 billion (up from $1.7 billion), Ireland $2.3 billion (up from $1.8billion), Venezuela $2.0 billion (up from $1.8 billion) , and Korea $1.8 billion (up from $1.6 billion) ; small trade surpluses were recorded with Hong Kong $3.0 billion (up from $1.9  billion for October), Australia $1.8  billion (unchanged), Singapore $1.1  billion ($0.5 billion), and Egypt $0.2 (unchanged)...the calculated risk chart we have included here shows the overall trade deficit in blue (negative from the top of the chart), the petroleum deficit in black, and the trade deficit without oil in red....note that even though US oil imports have fallen to a 25 year low, it has not substantially changed our oil trade deficit because average imported oil prices have been trending higher...
FRED Graph

another monthly report that we've been following that was released this week was the Fed's G-19 on consumer credit for November; overall, consumer credit rose by a seasonally adjusted $16.1 billion from October to November, or at an annual rate of 7.0%; revolving credit, or borrowing in the manner of credit cards, increased by $800 million, a 1.1% annual rate, while non-revolving credit, or borrowing for such as cars, yachts and college education but not loans for real estate, increased $15.2 billion from October, rising at an annual rate of determine the breakdown on the increase in government student loans, we check the 3rd table in the G-19, with the heading "Consumer Credit Outstanding, and the subheading "Major types of credit, by holder"; there we see loans outstanding issued by the federal government increased from $516.4 billion in October to $521.3 billion in November, an increase of $4.9 billion, which is not seasonally adjusted; since the total unadjusted non-revolving credit increased from $1909.6 billion to $1917.5 billion, or $7.9 billion, it's apparent that $3.0 billion of the November increase in non-revolving credit was for auto loans and such, which is more than we've been seeing recent months, so it may be Sandy related...the chart we have created here using FRED includes each of the major components of the G-19, plus the student loans owned by the Federal government; the blue line tracks total consumer credit outstanding since 1980; the red line tracks total non-revolving credit outstanding, while the orange line tracks revolving, or credit card debt outstanding, which you can see has been declining since the recession (grey bar); lastly, the green line tracks the student loans owed to the Federal government, which have quintupled since the beginning of 2009...since we know from the Fed's quarterly report on Household Debt that outstanding student loans have exceeded credit card debt, it's evident that the totals in this report for non revolving credit from financial companies and depository institutions (the red line) would also include a large portion of student loans...

finally, we would be remiss if we didnt at least mention that the official totals on 2012's weather have been released by NOAA; for most of you, it probably goes without saying that 2012 was the warmest year on record in the lower 48 states; no less than 19 states experienced their warmest year ever, and all but Washington saw one of the twelve warmest in the 118 years of record started with the fourth warmest winter (December 2011-February 2012), which was followed by the warmest spring on record, which surpassed the previous record by an unheard of 2.0°F, and was untempered by the 2nd hottest summer on record, highlighted by a july that recorded an average temperature of 76.9°F, 3.6°F above average, making it the hottest month ever observed for the contiguous United States...and although the last four months of the year were not record setting, they were above normal enough for 2012 to go into the record books 1.0°F above the previous record year 1998 and 3.2°F above the 20th century average...34,008 daily high records were set at weather stations across the country, compared with only 6,664 record lows; 362 all time record high temperatures were also, but there were no all time record lows...the nationally average for rainfall was also subnormal at 26.57 inches, 2.57 inches below average, making it the 15th driest year on record for the nation as a whole; Wyoming and Nebraska had their driest year on record, and eight other states, most in the grain belt, had one of their top-ten driest years; 61.8% of the area of the contiguous U.S. experienced moderate-to-exceptional drought during July, which was the largest drought footprint since the Dust Bowl year of 1939...and that great plains drought persists today; on Wednesday, the USDA declared much of the central and southern Wheat Belt a natural disaster area due to the continuing drought that put this year's winter wheat in jeopardy...and the worst drought since the 1930s may yet close a 200-mile stretch of the Mississippi River between St. Louis and Cairo, affecting billions of dollars' worth of cargo, including grain, coal and crude oil, and thousands of related jobs...we'll include two illustrative graphics below from NOAA's extensive collection; on the left, we have a graphic of the temperature ranking for each of the contiguous 48 states; the 19 in red saw their hottest year in the 118 year record; an additional 9 states, marked as "117", saw their second highest temperature readings on record; in fact, only 3 states, Georgia, which saw its 11th warmest year, Oregon, whiich recorded its 12th warmest, and Washington, which saw its 30th warmest, did not have annual temperatures among the ten warmest in their recorded the graph on the right, we have each of the 118 years in NOAA's database charted as a horizontal line, with the departure from the 20th century average graphed monthly for each year (click to enlarge and see the numeric values); the five previous record high years 1998, 2006, 1934, 1999, and 1921) charted in orange, and the five coldest years (1917, 1912, 1895, 1924, and 1903) charted in blue...2012 is the dark brown upper line that, after February, never again approached the norm all year...

  • 2012 Statewide Temperature Ranks Map
    …..Warmest year-to-date

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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…)

Friday, January 11, 2013

Euros discarded as impoverished Greeks resort to bartering

Euros discarded as impoverished Greeks resort to bartering

Communities set up local currencies and exchange networks in attempt to beat the economic crisis

in Volos,
Stall-holders at a bartering market in the central Greek city of Volos, where shoppers use Tem coupons to exchange services or products. Photograph: Despoina Vafeidou /AFP/Getty Images

It's been a busy day at the market in downtown Volos. Angeliki Ioanitou has sold a decent quantity of olive oil and soap, while her friend Maria has done good business with her fresh pies.

But not a single euro has changed hands – none of the customers on this drizzly Saturday morning has bothered carrying money at all. For many, browsing through the racks of second-hand clothes, electrical appliances and homemade jams, the need to survive means money has been usurped.

"It's all about exchange and solidarity, helping one another out in these very hard times," enthused Ioanitou, her hair tucked under a floppy felt cap. "You could say a lot of us have dreams of a utopia without the euro."

In this bustling port city at the foot of Mount Pelion, in the heart of Greece's most fertile plain, locals have come up with a novel way of dealing with austerity – adopting their own alternative currency, known as the Tem. As the country struggles with its worst crisis in modern times, with Greeks losing up to 40% of their disposable income as a result of policies imposed in exchange for international aid, the system has been a huge success. Organisers say some 1,300 people have signed up to the informal bartering network.

For users such as Ioanitou, the currency – a form of community banking monitored exclusively online – is not only an effective antidote to wage cuts and soaring taxes but the "best kind of shopping therapy". "One Tem is the equivalent of one euro. My oil and soap came to 70 Tem and with that I bought oranges, pies, napkins, cleaning products and Christmas decorations," said the mother-of-five. "I've got 30 Tem left over. For women, who are worst affected by unemployment, and don't have kafeneia [coffeehouses] to go to like men, it's like belonging to a hugely supportive association."

Greece's deepening economic crisis has brought new users. With ever more families plunging into poverty and despair, shops, cafes, factories and businesses have also resorted to the system under which goods and services – everything from yoga sessions to healthcare, babysitting to computer support – are traded in lieu of credits.

"For many it plays a double role of supplementing lost income and creating a protective web at this particularly difficult moment in their lives," says Yiannis Grigoriou, a UK-educated sociologist among the network's founders. "The older generation in this country can still remember when bartering was commonplace. In villages you'd exchange milk and goat's cheese for meat and flour."

Other grassroots initiatives have appeared across Greece. Increasingly bereft of social support, or a welfare state able to meet the needs of a growing number of destitute and hungry, locals have set up similar trading networks in the suburbs of Athens, the island of Corfu, the town of Patras and northern Katerini.

But Volos, the first to be established, is by far the biggest. Until recently the city, 200 miles north of Athens, was a thriving industrial hub with a port whose ferries not only connected the mainland to nearby islands but before Syria's descent into civil war was a trading route between Greece and the Middle East. Once famous for its tobacco, Volos was home to flour mills and cement factories, steel and metal works.

But, today, it is joblessness that it has come to be known for in a country whose unemployment rate recently hit a European record of 26%, surpassing even that of Spain.

"Frankly the Tem has been a life-saver," said Christina Koutsieri, clutching DVDs and a bag of food as she emerged from the marketplace. "In March I had to close the grocery store I had kept going for 27 years because I just couldn't afford all the new taxes and bills. Everyone I know has lost their jobs. It's tragic."

Last year, the Greek government stepped in with a law that supported finding creative ways to cope with the crisis. For the first time, alternative forms of entrepreneurship and local development were actively encouraged.

Although locals insist the Tem, which is also available in voucher form, will never replace banknotes – and has not been dreamed up to dodge taxes – they say it is a viable alternative.

For local officials such as Panos Skotiniotis, the mayor of Volos, the alternative currency has proved to be an excellent way of supplementing the euro. "We are all for supporting alternatives that help alleviate the crisis's economic and social consequences," he said. "It won't ever replace the euro but it is really helping weaker members of our society. In all the social and cultural activities of the municipality, we are encouraging the Tem to be used."