Bloomberg has a story that suggests that fiscal austerity NOW isn’t all it’s cracked up to be. Ireland has tightened its belt, but to what end? For the moment, this isn’t an encouraging argument for going hawkish.
Monthly Archives: August 2010
THE FED MUST MANAGE EXPECTATIONS
The case for thinking that effective central banking is all about managing expectations is persuasive. There are lots of formal papers arguing for no less, and the numbers confirm that this is indeed how the world works.
SPENDING & INCOME RISE IN JULY. YES, BUT…
Disposable personal income (DPI) and personal consumption expenditures (PCE) gained 0.2% and 0.4%, respectively, vs. flat performance in June, the Bureau of Economic Analysis reported today. That’s encouraging, as these things go in the summer of 2010. But as usual, the fine print leaves room for debate.
MOMENTUM PROFILE FOR THE MAJOR ASSET CLASSES
Momentum isn’t everything, but it’s hardly chopped liver. You could spend the next several months reviewing the literature published over the past two decades that make a case for showing a little respect for price momentum, or the tendency of prices to continue moving in the same direction relative to recent history. Should you focus exclusively on momentum for managing portfolios? No, of course not. But neither should you ignore it.
READING ROUNDUP FOR SUNDAY: 8.29.2010
►After the Fall
Carmen M. Reinhart and Vincent R. Reinhart/working paper presented at Kansas City Fed conference
“Real per capita GDP growth rates are significantly lower during the decade following severe financial crises and the synchronous world-wide shocks. The median post-financial crisis GDP growth decline in advanced economies is about 1 percent.”
►Hiring, Manufacturing Probably Cooled on Signs U.S. Recovery Is Stumbling
Shobhana Chandra/Bloomberg
“Hiring and manufacturing probably cooled in August, showing companies are scaling back as the U.S. recovery shows signs of stumbling, economists said before reports this week.”
THE MORNING AFTER BERNANKE’S SPEECH
At yesterday’s central banking confab in Jackson Hole, Fed Chairman outlined what the Fed can do to further juice the economy. The initial reaction from the stock market was positive, with the S&P 500 jumping 1.7% on Friday. But in a sign of the treacherous road ahead, the bond market was unimpressed. Bonds sold off yesterday and the benchmark 10-year Treasury Note yield rose to 2.65%, the highest since August 13. Yes, folks, it’s going to get complicated from here on out.
GDP REVISED DOWN TO 1.6% FOR Q2
The U.S. economy grew at a tepid 1.6% annualized real rate in this year’s second quarter, the government reported today. That’s down from the earlier estimate of 2.4% growth. The revised 1.6% rise is slightly higher than consensus forecast among economists, but there’s no getting around this uncomfortable fact: the economy slowed dramatically in Q2, falling to a 1.6% pace from 3.7% in Q1.
THE BOTTOM LINE ON THE RISK OF A DEBT CRISIS
Arnold Kling hits the macroeconomic nail on the head with a very heavy rhetorical hammer:
…it would appear to be quite likely that the United States will
experience a debt crisis within the next two decades, unless the path for fiscal policy changes from what is projected by the Congressional Budget Office. However, international capital markets continue to treat U.S. Treasury debt as a fairly safe asset. One way to interpret this phenomenon is that investors expect the United States to take steps to get its fiscal house in order.
The assumption that the United States will have the political will to stabilize its fiscal position is based more on hope than on recent experience. If the political process continues to enlarge the government’s commitments to spend in the future, investor expectations will change at some point. That change in market perception is likely to be swift and severe.
WILL THERE BE A QE2? WILL IT MATTER?
Fed Chairman Ben Bernanke is scheduled to speak today at the Kansas City Fed’s annual Jackson Hole conference in Wyoming. Will he outline a new plan for monetary stimulus? If so, will the second wave of quantitative easing (QE2) be bold–bold enough to work? Or maybe he’ll just offer the same chit-chat that we’ve been hearing for months by telling us that the recovery is slowing and that nominal rates will stay low for an extended period.
JOBLESS CLAIMS: BETTER BUT STILL HIGH
Today’s update on new filings for unemployment benefits brings a reprieve from last week’s disturbing surge in new claims. For the moment, we can breathe a sigh of relief. But while the trend has improved, it’s still not healthy.