Unfortunately, I don't think that message has hit home for many people. And I think the political will to deliver that message is non existent.
nvm
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Unfortunately, I don't think that message has hit home for many people. And I think the political will to deliver that message is non existent.
I'd have to ask you what makes us believe the economy will experience a "V" shaped recovery but maybe more like a small "w"?
I think for a "V" type of recovery we'd need to see extraordinary growth in capacity utilitization to the tune of consecutive years of 5% growth.
CAPU rate at the crude stage of production (the raw material phase) has not broken to a new low (around the 78% level). On the other hand, CAPU rate for finished goods manufacturing, has indeed broken to a new lows (65.7%). To me, these numbers underscore the dramatic excess capacity at the factory level.
It's tough to get excited about inflation when manufacturing capacity utilization rates slide to a record-low 65.7% (from 65.8% in March) as they did in April.
Tack on the consumers secular change in spending/saving, in particular the " baby boomer", shifting from what I'd call "Housewives of Orange County" to "Leave it to Beaver" (dating myself?
) spending . Robust seems improbable to me.On another note, not sure how well known this is, but a part of the law congress changed for credit cards, is a provision that would allow retailers to provide cash-paying customers with price incentives to avoid using their plastic (retailers generally pay credit-card companies 1.5-2% of the purchase price). This move could well accelerate the deflationary trend in the CPI.
What about the destruction and theft of wealth that you are advocating?
I'd have to ask you what makes us believe the economy will experience a "V" shaped recovery but maybe more like a small "w"?
I think for a "V" type of recovery we'd need to see extraordinary growth in capacity utilitization to the tune of consecutive years of 5% growth.
CAPU rate at the crude stage of production (the raw material phase) has not broken to a new low (around the 78% level). On the other hand, CAPU rate for finished goods manufacturing, has indeed broken to a new lows (65.7%). To me, these numbers underscore the dramatic excess capacity at the factory level.
It's tough to get excited about inflation when manufacturing capacity utilization rates slide to a record-low 65.7% (from 65.8% in March) as they did in April.
Tack on the consumers secular change in spending/saving, in particular the " baby boomer", shifting from what I'd call "Housewives of Orange County" to "Leave it to Beaver" (dating myself?
On another note, not sure how well known this is, but a part of the law congress changed for credit cards, is a provision that would allow retailers to provide cash-paying customers with price incentives to avoid using their plastic (retailers generally pay credit-card companies 1.5-2% of the purchase price). This move could well accelerate the deflationary trend in the CPI.
It's the political will and means to induce a V shaped recovery through pouring money into every crack in the system so wealth returns at least on nominal terms. When do you think the government and Fed are going to let up on the gas?
Rashiminos
Fool Prophet
When milk costs $5000, maybe $6000 per gallon.
I think the Fed has done about all they're going to do. The government's objective is jobs as we saw with the horrible precedent they set with Chrysler. I'm not sure where they stop...I think today Bernanke made it clear what their priorities need to be. You?
I don't think the fuel is going to stop until there is some sense from Washington that nominal levels of wealth have been restored which merely translates into "until another bubble has been set up to pop." I fundamentally question whether there has been capitulation.
Rashiminos
Fool Prophet
More seriously?
In order to resuscitate a dying consumer culture, they're going to keep upping the voltage and the zombie will move for a bit before collapsing in a nasty heap once again. Needful things like food and medicine will be affected.
This is exactly what I was thinking in that, the powers that be aren't ready to see that the standard of living measured from the height of excess is unsustainable and will work towards trying to return there without heed to the negative consequences of those actions. Things like tax credits for consumption of goods perceived as "important".
Naskra
Emperor
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I have no criticism of their changes. They can do as they please. A consistent method would not improve anything; the macroeconomists will always refine the numbers to their particular likings.
I think what Bernanke said today was a reflection of his personal exit strategy:
"Inflation! I'm shocked!, shocked! I warned those guys at Treasury!"
My thoughts exactly. His actions will speak louder than words.
Speaking of which, whats up with the bait and switch of TARP repayment? Future expectations can't be formed when decisions are seemingly made on the whims of the Treasury.
More food for thought from Europe; Latvia is faltering in issuing new debt.
http://ftalphaville.ft.com/blog/2009/06/03/56583/latvian-bond-failure-begins/
Sweden is taking it in the pants in their currency.
http://ftalphaville.ft.com/blog/2009/06/03/56583/latvian-bond-failure-begins/
Sweden is taking it in the pants in their currency.
Narz
keeping it real
Another WTH credit; 8k tax credit for first time home buyers vs. a proposed 15k tax credit for any homebuyer. This in spite of research that suggest that the lower the down payment the higher a chance of default.
Other absurdities about first time home buyers; Median Income is ~60k for first time buyer . In Seattle as an example the median home price is still 350k or roughly 5 times income. Low interest rates ARE NOT GOING TO MAKE AN UNAFFORDABLE HOUSE ANY MORE AFFORDABLE!
A house with an asking price of 350k and 5% interest on the mortgage is not more affordable than a house with an asking price of 175k and 12% interest. Supporting higher asking prices at lower interest rates keeps new participants out of the market.
Other absurdities about first time home buyers; Median Income is ~60k for first time buyer . In Seattle as an example the median home price is still 350k or roughly 5 times income. Low interest rates ARE NOT GOING TO MAKE AN UNAFFORDABLE HOUSE ANY MORE AFFORDABLE!
A house with an asking price of 350k and 5% interest on the mortgage is not more affordable than a house with an asking price of 175k and 12% interest. Supporting higher asking prices at lower interest rates keeps new participants out of the market.
Narz
keeping it real
After reading thru the thread a bit I think Whomp, you're being a bit naive if you expect a return to "normal", even pushing aside issues just as dependence on non-renewable resources, climate change, overpopulation, etc.
IIRC credit card spending has increased something like 1700% since 1990 while real incomes have increased something like 250% (sry, cannot find the article where I read this, feel free to look these stats up to correct them as I'm sure they're off somewhat), not to mention the mortgage crisis, student loans, etc. I suppose getting into debt & living beyond your means "stimulates" the economy but not in a sustainable way. It seems to be the steep mountain of "perpetual" growth is nearing it's summit. It is not a "normal" trend but an anomaly made possible by cheap energy & a fairly stable world (with the exceptions of WWI, II & various skirmishes since, none of which since WWII took place on 1st world soil AFAIK).
People have been supersizing, bigger houses, bigger cars, bigger loans, etc. Is that "normal"?
IMO, the economy needs to become resilient with or without growth (and even with contraction).
I found this essay earlier today that I think is apt to post here. It was written 17 years ago but applies well to today's situation, IMO.
http://www.pcdf.org/1992/kinsl392.htm
IIRC credit card spending has increased something like 1700% since 1990 while real incomes have increased something like 250% (sry, cannot find the article where I read this, feel free to look these stats up to correct them as I'm sure they're off somewhat), not to mention the mortgage crisis, student loans, etc. I suppose getting into debt & living beyond your means "stimulates" the economy but not in a sustainable way. It seems to be the steep mountain of "perpetual" growth is nearing it's summit. It is not a "normal" trend but an anomaly made possible by cheap energy & a fairly stable world (with the exceptions of WWI, II & various skirmishes since, none of which since WWII took place on 1st world soil AFAIK).
People have been supersizing, bigger houses, bigger cars, bigger loans, etc. Is that "normal"?
IMO, the economy needs to become resilient with or without growth (and even with contraction).
I found this essay earlier today that I think is apt to post here. It was written 17 years ago but applies well to today's situation, IMO.
http://www.pcdf.org/1992/kinsl392.htm
Another WTH moment;
http://seekingalpha.com/article/141184-today-s-yellow-shoot-the-mba-mortgage-report
Pushing on a string?
http://seekingalpha.com/article/141184-today-s-yellow-shoot-the-mba-mortgage-report
Pushing on a string?
Narz
keeping it real
Yeah, might have been 150% or something, perhaps less. Or maybe it wasn't "real earnings" but just earnings (non-inflation adjusted). The point is our spending on credit has vastly outstripped our earnigns.
I think you completely misinterpret what I'm suggesting. In fact, high growth is the opposite of what I'm suggesting (at least in the U.S.).
U.S. consumers are headed in the opposite direction of consumption and it would not surprise me, in the least, if we see post WW II record for savings rates which hit 14.5% as consumers continue to de-lever (which has a very, very long way to go).
The point on credit/debit cards is simply another deflationary trend. If consumers pay 2% less to buy a product with cash versus debit it's hardly inflationary. The reality is debit cards counted for more $$ transactions last year than credit for the first time ever and less usage on either credit or debit means less inflation not more.
Growth, in the U.S., will be a big disappointment as will those expecting high inflation.
