Archive for the ‘The Economy’ Category
Friday, November 22nd, 2013
A taperphobia epidemic has Wall Street in a panic yet again. “Taperphobia” is an irrational fear of common sense. Symptoms include a falling stock market, soaring bond yields and ongoing anxiety attacks. There is a cure, but it’s expensive – it costs at least $85 billion a month, but that’s enough to cure all of Wall Street and send the stock market soaring.
Taperphobia was discovered by Federal Reserve Chairman Ben Bernanke in May, when he invented a new definition for the word “taper,” using it to describe the gradual slowdown of quantitative easing (another phrase he invented, which translates to “buying bonds forever”).
Symptoms of taperphobia subsided through calm reassurances of ongoing bond buying to eternity, but they returned in October, because most economists had predicted with absolute certainty that tapering would begin then.
It didn’t, so taperphobia subsided again. But now, thanks to discussions by board members included in minutes of the Federal Reserve Board, many believe that tapering will begin soon.
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Tags:Bernanke, Bonds, Economy, Janet Yellen, Quantitative Easing
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Friday, November 15th, 2013
In May, when Fed Chairman Ben Bernanke said that quantitative easing could not continue forever, the stock market tanked and the word “tapering” became the most feared word on Wall Street.
This past week, during her Congressional hearing as President Obama’s nominee to become the next chair of the Federal Reserve Board, Janet Yellen said, “QE cannot continue forever.” The market moved higher.
Is it Ben morphing into Janet or Janet morphing into Ben?
Both the current Fed chair and his assumed successor assured us that the party’s not over, that there are still plenty of bonds to be bought.
But “forever” seems farther away now that it was back in May.
Ms. Yellen made it clear during her hearing that there’s still plenty of work for QE to do. Citing high unemployment, she said, “It is important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited.”
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Tags:Janet Yellen, Quantitative Easing, The Economy, The Federal Reserve Board, Unemployment
Posted in Janet Yellen, Quantitative Easing, The Economy, The Federal Reserve Board, Uncategorized, Unemployment | No Comments »
Friday, November 8th, 2013
At least it sounds like good news.
The U.S. Bureau of Economic Analysis announced that the economy grew at a rate of 2.84% during the third quarter. That’s up significantly from recent growth, which has been below 2%.
But if you find a silver lining in today’s economy, it’s sure to be surrounded by a black cloud. There are a few black clouds in this report:
- Preliminary numbers are almost always wrong. Funny how sometimes they’re overly optimistic.
- In spite of the higher growth rate, consumer spending is at its lowest level since the second quarter of 2011. In a healthy economy, consumer spending usually drives growth.
- Fixed investment, an indication of capital spending, dropped from 0.96% in the previous quarter to just 0.63%.
- Inventory doubled from 0.41% the previous quarter to 0.83% of the 2.8%. An increase in inventory is an underwhelming sign of economic growth.
Interestingly, government grew 0.04%, in spite of sequestration cuts. The numbers predate the 16-day government shutdown.
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Tags:Economic Growth, Economy, Eurozone, Federal Reserve Board, GDP, Quantitative Easing
Posted in Economic Growth, Eurozone, Gross Domestic Product, Quantitative Easing, The Economy | No Comments »
Friday, November 1st, 2013
The Federal Open Market Committee issued a statement this week and no one knows what it means.
A Forbes headline on Wednesday said, “FOMC Statement Dovish,” but on Thursday, the same reporter updated his story and the headline referred to the, “Hawkish FOMC Statement.” FXStreet called the statement, “less dovish than expected” on Thursday and in a separate story called it “slightly less dovish.” Meanwhile, Business Insider said, “It’s ‘hawkish’ on balance.”
So is it a hawk or a dove?
What a Dowk looks like.
It’s neither and both; it’s a dowk, with the head of a dove and tail of a hawk. Or maybe it’s a hove, with the head of a hawk and tail of a dove. Whatever it is, it’s not flying.
Markets have deemed that it wasn’t dovish enough or maybe it was too hawkish. Some expected a strong statement about continuing (or even increasing!) bond purchases because of the temporary government shutdown’s expected drag on economic growth … as if the economy were growing before the shutdown.
Instead, The Fed settled on more of the same. As Business Insider put it: “There were no changes in the policy rate or adjustment to $85bn asset purchases. The committee made few changes to the statement and keep the key phrase ‘decided to await more evidence that progress would be sustained before adjusting the pace of purchases.’ “
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Tags:Bernanke, Bond Buying, Economy, Federal Reserve Board, Quantitative Easing, Tapering
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Friday, October 25th, 2013
The Labor Force Participation Rate has fallen and it can’t get up.
The U.S. Bureau of Labor Statistics (BLS) reported this week that 90,609,000 Americans who are 16 or older are neither working nor looking for work. Only 63.2% of Americans are working or looking for work. Anyone who is unemployed who has looked for a job in the past four weeks is counted as participating in the labor force.
Add in unemployed Americans who are looking for work and the total exceeds 101 million. With a total population of about 313,914,040, nearly one American in three is 16 or older and is not working.
The Labor Force Participation Rate peaked at 67.3% in 2000 and it hovered around 66% in 2007 and 2008, when the financial crisis began. Now, after five years of stimulus spending and quantitative easing, it has dropped about 3%. In July, the number of nonparticipants climbed by more than half a million.
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Tags:Bureau of Labor Statistcs, Economic Data, Economy, Employment, Labor Force Participation Rate, Quantitative Easing
Posted in Bureau of Labor Statistics, Job Creation, Quantitative Easing, The Economy, Unemployment | No Comments »
Thursday, October 17th, 2013
Someone had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die.
From “The Charge of the Light Brigade”
Take pity on the can. It’s been kicked so far down the road, it could circle the globe a dozen times. It’s been battered more than the New England Patriots’ starting lineup. It’s been kicked harder than an Adam Vinatieri football.
And still it persists.
This week, Congress and President Obama reached a deal that reopens the government through January 15 and suspends the debt ceiling through February 7. Calling it a deal, though, is an exaggeration. One side, the Democrats, refused to negotiate. The other side, the Republicans, asked for something it had no hope of getting. So everyone agreed to kick the can three months down the road.
Beyond that, according to The Wall Street Journal, “The bill includes one minor change to the health law sought by Republicans, setting new procedures to verify the incomes of some people receiving government subsidies for health-insurance costs. It also provides back pay for all federal workers who were furloughed during the government shutdown.”
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Tags:Budget Deficit, Economy, Federal Debt, President Obama, U.S. Congress
Posted in Debt Ceiling, Deficit, Federal Budget, President Obama, The Economy, U.S. Congress | No Comments »
Sunday, October 6th, 2013
Focusing on the government shutdown is like rearranging the deck chairs on the Titanic while drawing closer to the iceberg.
The iceberg in this case is the massive government debt that will be made worse by the implementation of the Affordable Care Act.
Later this month, Congress will need to lift the debt ceiling from its current $16.7 trillion to keep the government solvent and enable the U.S. to continue paying its massive bills. In the meantime, as a result of the negotiations that led to sequestration, Congress had until the end of September (the end of the fiscal year) to reach a spending agreement.
It didn’t, of course, and now the government has shut down. But what does the shutdown really mean?
The shutdown affects only “nonessential” services. That means 85% of government services are still being funded and 63% of federal employees are still working. Mail is being delivered, military personnel are still keeping us safe, and payments are still being made for Medicare, Medicaid, Social Security, the Supplemental Nutrition Assistance Program (SNAP) and the countless other programs that we can’t afford. Amtrak trains will continue running, so if your train is late, don’t blame it on the shutdown.
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Tags:Budget Deficit, Economy, Federal Debt, Government Shutdown
Posted in Debt Ceiling, Deficit, Federal Reserve Board, Government Shutdown, President Obama, The Economy, U.S. Debt | No Comments »
Friday, September 20th, 2013
From a future article in The New York Times:
Janet Yellen, retiring chair of the Federal Reserve Board, announced that The Fed’s quantitative easing program, aka QE12, is close to meeting its goal of achieving a 6.5% unemployment rate. 
With The Fed’s bond portfolio exceeding $10 trillion, The Fed is running out of government bonds to buy, but Chairwoman Yellen said she’s confident the U.S. Treasury will pick up the pace at which it issues new bonds.
Chairwoman Yellen praised the quantitative easing program, which she said has managed to bring the unemployment rate down to 6.8% from a peak of nearly 10% in just 12 years. QE has also helped the economy grow at a rate of nearly 2% a year.
During a brief press conference, for the first time since the quantitative easing program began, she was asked, “How does buying bonds create jobs?”
She explained that QE obviously decreased unemployment, since the unemployment rate exceeded 9% when QE began and is now approaching 6.5%.
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Tags:Economy, Employment, Federal Reserve Board, Inflation, Quantitative Easing
Posted in Federal Reserve Board, Inflation, Interest Rates, Quantitative Easing, The Economy, Unemployment | No Comments »
Friday, September 13th, 2013
Defaulting on bond payments isn’t just for Europe anymore. Detroit and several cities in California have defaulted on bond payments. Now Puerto Rico may be in trouble, as its bonds are trading as if they are going to default.
This week, the yield on Puerto Rico’s general obligation bonds (PR G.O.) pushed up over 10%. That led the Government Development Bank on Tuesday to announce that it would scale back bond sales for the rest of 2013.
Puerto Rico’s bonds offer a double tax advantage, which should help hold their yield down. Yet when considered on a tax-equivalent basis, PR G.O. yields this week exceeded CCC corporate yields, based on the Merrill CCC Index YTW.
Puerto Rico’s junk bond status reflects a weak economy, but it also signals that the island is in deep financial trouble. And the problems extend beyond Puerto Rico, given that it is part of a growing list of state and local governments with financial troubles.
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Tags:Bonds, Economy, Interest Rates, Municipal Bonds, Quantitative Easing
Posted in Bonds, Interest Rates, Municipals Bonds, Quantitative Easing, The Economy | No Comments »
Friday, September 6th, 2013
Labor Day has passed. It’s time to get back to work … or at least think about work. Work, or the lack of it, is what the economy is all about. When Americans are working, they spend money. When they spend money, the economy grows.
So if the economy is truly recovering, as many pundits suggest, then the unemployment rate should be dropping. So is it? Maybe. 
On the One Hand
In today’s report, the U.S. Bureau of Labor Statistics reported that during the month of August, nonfarm payroll employment increased by 169,000, bringing the unemployment rate down from 7.4% to 7.3%. That’s not a significant change, but it beats the 8.1% rate of a year ago.
In addition, the Institute of Supply Management reported this week that its manufacturing index edged up to 55.7 from 55.4 in July. That’s also not a significant change, but economists had been forecasting a modest decline. Instead, it was the third straight month of growth, as any reading above 50 indicates growth. In addition, the new orders index jumped nearly 5% to 63.2.
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Tags:Bureau of Labor Statistcs, Economy, Employment, Gallup
Posted in Bureau of Labor Statistics, ISM Index, The Economy, U.S. Debt, Unemployment | No Comments »
