Archive for September, 2013

One Man’s Ceiling Is Another Man’s Floor

Friday, September 27th, 2013

“There’s been some hard feelings here
About some words that were said …
Remember, one man’s ceiling is another man’s floor.”
                                                         Paul Simon

Here we go again. Hold on to your wallets, taxpayers. It’s time for another debt ceiling “negotiation.”

We use the term “negotiation” loosely, as it’s now extinct in Washington.

On one side, we have House Republicans waging an unwinnable battle, saying they’ll agree to suspend the debt ceiling limit for a year in exchange for a one-year delay of the individual mandate for ObamaCare, tax reform, approval of the Keystone pipeline and other concessions. While such changes would potentially provide a huge benefit to the economy, they have zero chance of passing in the Senate, which is controlled by the Democratic majority.Debt ceiling

On the other side, we have President Obama and Senate Democrats saying the Republicans are trying to shut down the federal government, because they are not willing to lift the debt ceiling without concessions from the President.

There will be no concessions by the Democrats. As President Obama put it, “I will not negotiate on anything when it comes to the full faith and credit of the United States of America.”

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The Beat Goes On

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. Yellen

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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America – The New Europe?

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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Get Back to Work

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. Gallup

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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At The Fed, Saying Trumps Doing

Tuesday, September 3rd, 2013

President Obama’s campaign slogan for last year’s election was “Forward.”  The Federal Reserve Board’s slogan in the coming months may be “forward guidance.”

According to Goldman Sachs, The Fed is expected to begin tapering its bond buying in September, but will place more of an emphasis on “forward guidance.”

So what exactly is “forward guidance?”  Here’s how The Fed defines it:Goldman 1

“Through ‘forward guidance,’ the Federal Open Market Committee provides an indication to households, businesses, and investors about the stance of monetary policy expected to prevail in the future.  By providing information about how long the Committee expects to keep the target for the federal funds rate exceptionally low, the forward guidance language can put downward pressure on longer-term interest rates and thereby lower the cost of credit for households and businesses, and also help improve broader financial conditions.”

In other words, it’s pontificating and predicting.

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