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Thursday, December 13, 2012

Breaking Her Stunned And Traumatized Silence

Quick roundup - US initial claims continue to bounce around frenetically, but that is because of seasonal adjustment. Actual claims, allowing for the Thanksgiving delay in processing, are pretty steady. They are not very different from the prior year's. This is the current release, and with it I grumpily concede that claims are in the 380s rather than the 370s where I wanted them to be. While not dire, this is an unfavorable development.

All-important inventories to sales ratios - Total business remains where it has been cycling, which obscures the unhappy fact that the reason we are seeing the slow down in production-type PMIs is that it is cycling - businesses are notching down employment in order to keep it cycling. The forward impetus you get by looking at wholesalers, and there we get news of another downward notch. Again, not dire, but again, unfavorable.

Wholesalers adjust their buys so that inventory doesn't accumulate too much, which then passes through to manufacturers.

Retail sales for November were okay, but not if you were a department store or a grocery chain operator. There is an obvious slowing in YoY gains for retail sales. Table 2 gives you rolling three month comparisons YoY and for the previous 3 months. The YoY is now 4.3%, but the previous 3 months is 2%. This data is not price-adjusted, of course. There is a relatively high current error in this report for each month's data, but the three-month totals should have much less variance. Grocery store sales dropped in November in comparison to October, which is a sign that consumers aren't that flush. Food spending dropped in Q4 last year as well; consumers cut their food expenditures to pay for other spending. 

This, btw, is the biggest single indicator that we are in a recession, and it is truly an amazing one, due to the continued expansion of the SNAP (food stamp) program. It is Table 2.3.6, real-dollar food and beverages purchased for off-premises consumption, and since Q2 2011 it has not moved. But the population has increased and our subsidy for food has increased. SNAP expenditures continue to rise by month, and they are roughly equivalent to a 1.5% payroll tax cut.

In fiscal year 2012, we spent 74.6 billion on SNAP, which is 9% of the total annualized BEA reported off-premises food consumption. (Table 2.3.5). In comparison, in fiscal year 2008 we spent 34.6 billion versus 740 billion total, or 4.7%. If this doesn't scare you witless, nothing will. Your mind is gone. You have exited the reality highway. You have achieved the nirvana of total mental drift, and you are floating in a warm sea of disassociation.

There is also WIC, which at 4.8 billion in FY 2012 gets us to more like 9.5% of  basic food expenditures.

All this money, and the increasing population is buying less food per capita? This is Japanese-style deflation. The following BEA-generated chart shows CURRENT-dollar food trends:
It might be time to stop importing immigrants that need government subsidies to feed themselves. All we are doing is crushing the working-class population into the ground. 

In this context, it's easy to see why the Fed is launching a Treasury bond-buying program, which at an annual total of 540 billion, would amount to funding close to half the fiscal year 2012 federal deficit. But the reality is that any measure which does not restore the ability of the general population to buy food at at least a continuous per-capita level is doomed to fail as an economic stimulus. 

I do have one favorable thing to say of MMT versus current more mainstream economics - the MMTers generally do seem to really get that a theoretical increase in the money supply does not equate to an actual increase in the money supply. You can dump "money" into the system all day long, but without a circulating mechanism, the "money" does not exist in fact.

Another aspect of our current future expectations is that GASB is gradually tightening up the standards for government pensions. The current change in standards will fully take effect in 2014, and it will force higher contribution levels for government pensions, which will further cramp a lot of state and local governmental budgets. Of course there is a loophole which would allow and indeed force marginally funded plans to use a higher discount rate for the first-pass calculation in order to avoid the forced low-end discount rate. But some plans don't have this option, and this should be an adventure in fiscal reality.

Well, I could write more, but I think I have come to the conclusion that the best way to proceed is to focus on real money supply in the context of theory and evidence. We can discuss what I think is happening to it, what MMT thinks it is, and what the Fed thinks it is doing to it! 

Perhaps consumers are switching to lower priced bulk foods and store brands; away from expensive branded products. It's the only thing I can think of to explain stagnant food sales.
We've gone to the lowest price food goods we can go...next stop is the dumpster behind the store...lol. Probably should've started there, the trip would've been shorter.
I look forward to seeing your take on the MMT'ers and their (nominal versus real) financial prestidigitation. It's a neat trick, their use of operational identities as their proof of "theory" while unmooring the feedback between the nominal and the real economy. Global 3-card monte...

Fed: We'll push until the string moves.

MMT: The taxman now has jurisdiction over all foreign bank accounts, so it's time to paaaaartay! Another round of Government cheese, on the house!

M_O_M: ???

Neil: All your bank accounts are belong to us.
The velocity of money (or lack thereof) is definitely psychological at this point; once attitudes change (for better or worse) there will be far too much kindling for the ensuing fire.
TJ, I think you're right. Most of the people I know, myself included, are in a state of low confidence. Lots of money in CDs, MMAs, bonds, under the mattresses, and in gold/silver.

IMO, a restoration of confidence would release a torrent of investing and spending. Only one thing standing in its way - government policy. The regulations to strangle coal, tight formation fracking, and even regular oil/gas production are now ready to go.

A small businessman of my acquaintance has a big cash hoard. He's waiting for something that gives him the confidence to put it to work. Imagine that multiplied by millions of small businesses. Sure, it could cause another bubble. But that would be a nice problem to have compared to another four years of stagnation.

That would be the "for better" part.

More likely we get the "or worse" part wherein people lose faith in USD/UST and all that paper suddenly goes into high gear chasing, well, anything but paper.
Jimmy - it's not clear that the Fed alone can produce inflation, but your comments point out why some of the Fed Heads are worried about inflation. Once the fire starts, at 4 Trillion in how does the Fed get out? Trying to pull that much money out of the economy could only be done over a period of years, so likely the Fed would raise rates. It would be messy to say the least, and very resistant to attempts at calibration.

Of course, our problems are not likely to clear up so one may doubt an explosion of confidence.

Retail sales for November were okay, but not if you were a department store or a grocery chain operator.

More Retail Employment Pain

The chart shows nonstore retail sales divided by department store sales.

One word: Ouch


I'm more worried about an implosion of confidence--in the dollar, that is.

Cancel the recession: The NBER Big 4 rebounded in November.

I'm not saying there aren't real bad problems.
The biggest fallacy of MMT, I don’t even know why we are talking about this, is that all the money printing goes to bonds first to finance government spending. If money printing is so good then just print it and deposit it to the US Treasury’s bank account at the Federal Reserve Bank. That goes for all the other 12 central banks that are printing. Just think of all the world resources that go into managing all that debt (and all that trauma) that could be diverted to more productive uses.
When adjusted for inflation and pop. growth retail sales are flat for over a decade. Covered employment, those employed that are eligible to file for UE is less in number now than 11 years ago
I guess as long as the Velocity of money is not zero the more the Fed pumps in the more it should help the economy. That said I think the velocity of money may be structurally zero.

As I've commented before we've passed the tipping point with the reelection of Obama. The class warfare he preaches will do nothing but widen the gulf between the haves and have nots. Pity. As in the "Only Nixon can go to China" theme he could sort out spending and entitlements but he's too wrapped up in the hate the rich meme to see the light or seize the opportunity.
Obama doesn't realize that Fed stimulus actually widens the income gap. He can try to ram through tax increases for the top 10%, but if he doesn't get the budget balanced and federal regulation/control reduced (and he is incapable of such) then there will be no choice but more Fed money printing which essentially undoes any income gap compression the tax increases would enable.

Seems like a whole lot of effort going into standing still.
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