►Uncle Sam Wants His AAA Rating
Two major credit ratings agencies warned Thursday that the United States might tarnish its triple-A credit rating if its national debt kept growing…But many economists say the reckoning, if it comes, is still years or even decades away. The bond market shrugged at Thursday’s news. Indeed, even some experts who want to see the deficit reduced said now is not the time to cut federal spending drastically, given the weakness in the economy and high unemployment.
New York TImes, Jan 14
►New Hit to Strapped States
With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress. The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.
Wall Street Journal, Jan 14
JOBLESS CLAIMS SURGE
Ouch! Suddenly the new year looks a lot less inviting. New jobless claims surged higher last week by 36,000 to a total of 445,000 on a seasonally adjusted basis, the government reports. That’s the biggest weekly gain since last July and the jump pushes the total to its highest in 10 weeks. Quoting the immortal question of every shell-shocked solider through history: Wha’ happn’d?
THE POLITICS OF THE DEBT CEILING
A new poll says the public’s against it, but the debt ceiling’s probably going to rise anyway. So much for representing the people’s wishes.
A mere 18% of citizens support a higher limit on the nation’s debt vs. 71% opposed to the idea, according to poll released yesterday by Reuters/Ipsos. The current ceiling is the tidy sum of $14.3 trillion. That’s a chunk of change everywhere else on the planet, but it won’t suffice in Washington for much longer.
MACRO SURVEILLANCE FOR WEDNESDAY: 1.12.2011
China central bank adviser sees Q1 interest rate rise
Another Chinese interest rate increase in the first quarter is likely, a central bank adviser said on Wednesday, but a vice governor cautioned against raising rates too steeply for fear of luring in hot money.
Reuters, Jan 12
China’s exchange reserves at issue
China’s central bank said Tuesday that Beijing’s holdings of foreign cash and securities amount to $2.85 trillion – a jump of 20 percent over the year before – despite Chinese promises to try to balance its trade and investment relations with the United States and other countries…The reserves are so large and the recent run-up so rapid that it’s casting new doubts over whether Beijing is reforming the handling of its currency and curbing its heavy reliance on exports as a source of jobs and growth.
Washington Post, Jan 12
WILL AUSTERITY BITE CONSUMPTION?
This may be the age of austerity, but consumer spending has surprised the pessimists and rebounded sharply over the past year. That’s no trivial revival, considering that personal consumption expenditures (PCE) represent 70% of GDP in the U.S. For good or ill, ours is a consumer-based economy. But is the consumer still up to the job?
STRATEGIC EYE CANDY
Strategic investment perspective is essential, but it doesn’t grow on trees. If you’re looking for context beyond the usual suspects, you’ll have to dig deeper. The good news is that there are lots of opportunities for mining strategic intelligence. Too many, perhaps. One of the biggest challenges in developing intuition about portfolio design and management is deciding where to cut off the analysis and start making actual investment decisions.
VIOLENT OUTCOMES
Political assassination and the United States aren’t usually discussed in the same breath, but they are now. In the wake of the Arizona shooting rampage on Saturday at a public event that critically injured U.S. Rep. Gabrielle Giffords, killed a federal judge, and left more than a dozen others dead or wounded, morning in America today has a sad new meaning.
BOOK BITS FOR FRIDAY: 1.7.2011
● Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
By Barry Eichengreen
Summary via publisher, Oxford University Press
For more than half a century, the U.S. dollar has been not just America’s currency but the world’s. It is used globally by importers, exporters, investors, governments and central banks alike… This dependence on dollars, by banks, corporations and governments around the world, is a source of strength for the United States. It is, as a critic of U.S. policies once put it, America’s “exorbitant privilege.” However, recent events have raised concerns that this soon may be a privilege lost. Among these have been the effects of the financial crisis and the Great Recession: high unemployment, record federal deficits, and financial distress. In addition there is the rise of challengers like the euro and China’s renminbi. Some say that the dollar may soon cease to be the world’s standard currency–which would depress American living standards and weaken the country’s international influence.
In Exorbitant Privilege, one of our foremost economists, Barry Eichengreen, traces the rise of the dollar to international prominence over the course of the 20th century. He shows how the greenback dominated internationally in the second half of the century for the same reasons–and in the same way–that the United States dominated the global economy. But now, with the rise of China, India, Brazil and other emerging economies, America no longer towers over the global economy. It follows, Eichengreen argues, that the dollar will not be as dominant. But this does not mean that the coming changes will necessarily be sudden and dire–or that the dollar is doomed to lose its international status.
LABOR DEPT REPORTS MODEST JOB GROWTH FOR DECEMBER
Private-sector payrolls increased in December—the 12th consecutive monthly gain, the Labor Department reports. The trend is certainly favorable, although the details are disappointing. That’s partly because the net rise in job creation in corporate America was well below the increase implied by ADP’s estimate for December. Foiled again.
Nonfarm private payrolls increased by a net 113,000 last month. That’s up from November’s revised 79,000 gain, but the pace is still weak by historical standards and far below what economists say is required to put the economy on a sustainable growth path that delivers more than simply keeping the next recession at bay.
WHEN WILL JOB GROWTH END THE HOUSING SLUMP?
The labor market and housing are two of the biggest headwinds still hobbling the economy. Job growth, at least, seems to be picking up, as ADP’s latest estimate of payrolls suggests. The case for optimism faces a higher hurdle with housing, however, a sector where the suffering rolls on.