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Friday, February 29, 2008

Oh, Things Could Certainly Be Better

Maybe the reason that the three top presidential candidates seem to be economic illiterates is that only economic illiterates would run at a time like this. It's hard to figure that we won't be electing a one-term president in November with numbers like these.

Chicago PMI came in at 44.5, well into recessionary territory. Not the beginning of a recession, but part way in. Employment is at 33.5, which also is a reading that should be associated with a later stage of recession.

From the commentary on the release:
Like a siren warning of the approach of a tornado, the 7 point drop in the February Business Barometer sent a warning of the destructive winds of a shrinking US Economy. As the Barometer dove into retreat, the Prices Paid index continued to roar its warning of destructive inflation. The specter of recflation, recession and inflation, provides consumers, business professionals, policymakers, and politicians with a host of challenges and no simple answers.
Yep. We now get to pay for all the playing with debt.

Please note the florid language in the commentary to the release. We are all stretched to describe the economic situation. Words like "ghastly" and "collapsing" are the new in thing in economics.

Real PCE for the last three months came in at 0.2, 0.0 and 0.0 (November, December, January). Personal Income and Outlays. Real personal income for the same months clocked in at -0.4, 0.1, 0.1. That's kind of the death knell. Consumers have already dropped to recessionary levels of real spending, and the business indices are falling fast.

It seems that gross private domestic investment will continue to contract in 2008. Overall, the severity of this recession is matching up a lot better with the early 90's than with 2001. My guess is that we will make it to the 80's ultimately.

Japanese production fell 2.0% in January:
Companies plan to cut production in February as well, the report showed. Manufacturers see output sliding 2.9 percent from January, worse than the 2.2 percent drop they earlier anticipated. Output will rebound 2.8 percent next month, the companies said.
Consumer spending is very soft in Europe, which does not help matters. If the predictions hold, Japanese manufacturing output will contract in the first quarter. Consumer spending in Japan is impacted by inflation and tight wages.

And the latest from the Fed seems to be "Let's INFLATE Our Way Out Of Debt! What Could Possibly Go Wrong!" as they keep cutting the interest rate. It keeps sounding more and more like running the printing presses 24/7 and throwing the Benjamins out of helicopters. In the words of James Lileks, "SPEND IT! SPEND IT NOW! ON ANYTHING! BLOWN-GLASS KNICK-KNACKS! BUCKETS OF PICKLES! ANYTHING!"

(I remember my parents laughing at my scrimping and saving in the Seventies instead of "BUY IT NOW! BEFORE THE PRICES CAN GO UP AGAIN!")

However, it WILL keep those HELOCed Flipper Condo prices good and high until the "investors" can unload them for a high "return on investment", and the fix only needs to last until November 5th.
I'm thinking about adding a "screamers" index, based on the number of times customers scream at me during the week. I figure it's a pretty good indicator of how stressed out they are. Considering how this week is going, the index is rising about as fast as gas prices ;)

(Now there's something I hadn't seen--gas prices go from 3.24 a gal to 3.49 a gal in a week. It felt like Zimbabwe for a bit.)
Headless - No, the Fed lacks the ability to inflate out of this or support prices. Seriously, it has lost control of effective rates.

The other side of that is that it can't control inflation by tightening monetary policy either. Naturally, the Fed does not want to admit this.

It can maybe moderate trends a bit, but that's all it can do.

Teri - the ScreamerDex would probably be a good addition! I too believe it would be correlated with gas prices. We are about to see a surge in inflation because it looks like some businesses are being knocked out and those which are left are raising prices regardless. If they don't, they die.
Headless - No, the Fed lacks the ability to inflate out of this or support prices. Seriously, it has lost control of effective rates.

And the big drop in the Dow this afternoon is sure to bring the Survivalist crazies out of the woodwork ("GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD!") citing the Weimar Republic.

I expect some of this to be in my spam filters when I get home tonight, followed closely by some Spammer for Jesus with chapter-and-verse proofs of how it all fulfills some End Time Prophecy ("SIX SIXTY SIX!!! DON'T TAKE THE MARK!!!").
It seems to me that the reason the economic indicators do not indicate a real recession is tha tha infaltion havs been understated. So what might be a real reduction in economic activity is shown as possitive becasue the infation rate is shown as 4.6, instead of closer to 9 percent.

Interesting note here, A Major US manufacturer of consumer items just cut its bonus in half, even though several business units within the company made lots of money in 07 (bonus is paid for last year) and halved the layoff compensation, starting April 1. Cost of living raises were eliminated, thus allowing for only merit raises to the top 20 perecent of employees. It would seem hard times are coming starting this year.
Yes it's not going to fun I spent the last 2 years getting as close to the ground as I can. Bought a little Gold just so down the road I have money for food. All my tools are in good shape and the garden area is ready for planting in the next few weeks. Wish us all luck, we'll need it.
The race to the bottom continues.
The reason that the three top presidential candidates seem to be economic illiterates is that only economic illiterates would run at a time like this.

That makes sense - either they totally don't get it, or they are the kind of optimists that think they can handle this - which is to say they totally don't get it. I've been wondering myself why each party doesn't take the dive and let the other (or possibly Ron Paul) inherit this cluster-f***.

As for the Fed pumping in liquidity, it's not really happening. See Hussman on this. The vast majority of their "injections" replace previous loans (also called "injections") that are coming due.

What they *are* doing in TAF is rolling over these loans with ever dodgier collateral, so they may not inject liquidity, but they're extracting risk - though not that much IIRC - and being sure to put it where taxpayers are bagholders.

However they can't possibly beat the FHLB in that regard.
Looking at the things that are going on (economic data, Fed actions, the collapse of muni auctions, etc. etc. etc.) I feel a bit like Wile E. Coyote at that moment just when he realizes that he left the cliff behind several steps ago.
Well, it ain't so much that they are economic illiterates or simply that there there is no real 'truth' to be had.

It is the ability to be flexible and listen to others who may have the 'truth' and mobilize the citizens to action. It is not the purpose of a leader to be an expert, but the ability to lead folks to find the 'truth', to assemble resources and encourage the citizens to action.

FDR was a great, Lincoln was a great, Teddy Roosevelt was a great, not because they were experts, but because they were leaders.
I disagree that the candidates don't have a good economic IQ. Senator Obama ,for one, has an excellent chief economic advisor from the U. of Chicago. However telling the public the truth is not often the road to election success. I recall that Carter understood the need to conserve and reduce energy dependence and asked the public for sacrifice whereas Reagan ridiculed the notion and told the public it was "morning in America". How did that election turn out.

What the candidates (and indeed the government) understand and what they will say are two different things.

Americans can't stand the truth.

Appears to be a server problem, so will comment again.

Yes, they are economic illiterates.

And, yes, would like to see Ron Paul to shake things up with maybe a Romney as vp for business sense.
That Obama guy is a farce as a candidate.

Agree with the post and with Bob's comment.

More selling off assets.
Geeze, just read foreign banks and firms are infusing those absurd Sallie Mae college loan costs with $31B. For a long time my view has been that hiring should be based on a skills (satisfactory to good to applied supra)portfolio, applied logic, self-discipline [behaviors to ability vs. wasting resources], ethics.

I was in the grocery line talking to a college kid. He was majoring in Economics. Going to be doing Economic Res. don't you know. You can guess what I told him.

More than time to get get back to basics and simplify, simplify, simplify.

smart independent
Jim, unfortunately a lot of economic advisors are economically illiterate.

How did we get here otherwise?

I agree with your point about the voters not wanting to deal with reality. But that attitude is fed by the extremely poor analysis they read in the press. Journalists appear to have an allergy to numbers.

Some proposals of Obama's have sparked a glimmer of hope. I think he's trying.
Vader - you talk about leadership. In my opinion what these candidates need is experience - a feel for it. And they don't appear to have it. None of them seems to realize that a push here rebounds in the economy there.

This is why I so wanted governors in the race. I was extremely disappointed about Vilsack's fate.

I'll try to be a bit more detailed later. I am fighting severe illness right now and can't write that much. Reading the medical plans was a severe disappointment. It's kindergarten stuff.
"This is why I so wanted governors in the race"...I would have liked governors, mayors, CEOs of substantial companies, high military commanders....people who have real experience in being the decision-maker and being accountable for the consequences of the decisions. Running a senate office staff is not serious executive experience.
I guess it would be nice to have more experience, but then there is the lesson of U.S. Grant. A great General, but a cruddy President.

FDR did not have much in the way of economic experience and in fact came into the office expecting to balance the budget. He was not a great governor of NY and that was about all the experience he had coming in.

Clinton was a 2 term governor of a backwater state.

Best example I have is a 4 term state representative and 1 term US representative who was hated by the right wing for being Anti War, no experience in economics. Abe Lincoln.

If I remember correctly Washington lost almost all his military battles before and after the start of the revolution.

Theodore Roosevelt was only a asst secretary of the navy before he became a president.

Now Nixon had the most experience before becoming President. House 2 terms and 1 term Senate-2 terms VP , military experience. We know how that came out.

Another president with lots of experience was Herbert Hoover.

As to governors, Bush was a governor as was Carter, Reagan and Clinton. No real consistency.

The common trait of good presidents is the ability to listen, make decisions on the basis of advisors and the ability to lead the people.

The common factor of bad presidents is not listening, making decision arbitrarily and gathering 'yes' folks around to confirm those decisions.

I believe that there are limited decision points coming in the future. There is no experience in the last 50 years that will prepare a new president. That the new president will either gather good advisors from all groups, listen and make decisions or do things his way just like bush.
I can't comment on the others experience, but I know a little about Teddy Roosevelt, enough to know that this is not fully accurate:

"Theodore Roosevelt was only a asst secretary of the navy before he became a president"

At various times, he was:

* a writer
* NY State Legislator
* Ranch Owner
* a frontiersman/outdoorsman
* Civil Service Commissioner
* NY City Police Commissioner
* Assistant Secretary of the Navy
* Lt. Col of the Rough Riders (which he personally organized in the face of established procedures)
* Governor of NY
* Vice Pres of US (assuming presidency after McKinley's assassination)

Teddy had a broad, deep, and rich set of occupational experiences - academic (published first book while still at Harvard), private business owner, local and state government (incl. executive), and military hero.

Certainly a richer life preparation than any of the current crop of candidate.
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