Second episode — BONDS OF WAR — of a four-part series THE ASCENT OF MONEY. Economist and historian Niall Ferguson documents the evolution of money and banking through the ages.
The Ascent of Money: Niall Ferguson | Episode 1
First episode — FROM BULLION TO BUBBLES — of a four-part series THE ASCENT OF MONEY. Economist and historian Niall Ferguson documents the evolution of money and banking through the ages.
The Dinged-Up, Broken-Down, Fender-Bended Economic Recovery Plan – NYTimes.com
ADAM DAVIDSON highlights that consumers’ cars have aged as they postponed replacement purchases during the GFC. This has led to pent-up demand which is getting auto-makers excited:
New-car sales, which collapsed to less than 11 million in 2009, are expected to surpass 14 million this year. And forecasters believe that they will increase by around a million annually for the next couple of years. In 2015, we could eclipse 16 million vehicles sold, which is near the precrisis peak…….This optimism is also embodied in the number of new models about to hit the production line. A few years ago, the industry introduced only around 50 new models. This year, it is planning 94; next year, there will be another 101.
via The Dinged-Up, Broken-Down, Fender-Bended Economic Recovery Plan – NYTimes.com.
No End To Long-Term Unemployment – Business Insider
J BRADFORD DE LONG, professor of economics at University of California at Berkeley, argues for expansionary monetary and fiscal policy.
At its nadir in the winter of 1933, the Great Depression was a form of collective insanity. Workers were idle because firms would not hire them; firms would not hire them because they saw no market for their output; and there was no market for output because workers had no incomes to spend.
I have been arguing for four years that our business-cycle problems call for more aggressively expansionary monetary and fiscal policies, and that our biggest problems would quickly melt away were such policies to be adopted. That is still true. But, over the next two years, barring a sudden and unexpected interruption of current trends, it will become less true.
But private sector deleveraging means expansionary monetary policy is as effective as pushing on a string. And fiscal policy needs to focus on productive infrastructure investment, not just stimulus spending that runs up public liabilities without any assets to show for it on the other side of the balance sheet.
STEPHEN ROACH: America Can't Keep Relying On Spending To Drive The Economy – Business Insider
STEPHEN ROACH highlights the importance of capital investment in any US recovery:
Over the last 18 quarters, annualized growth in real consumer demand has averaged a mere 0.7%, compared to a 3.6% growth trend in the decade before the crisis erupted…… Consumption typically accounts for 70% of GDP (71% in the second quarter, to be precise). But the 70% is barely growing, and is unlikely to expand strongly at any point in the foreseeable future. That puts an enormous burden on the other 30% of the US economy to generate any sort of recovery.
Capital spending and exports, which together account for about 24% of GDP, hold the key to this shift. At just over 10% of GDP, the share of capital spending is well below the peak of nearly 13% in 2000. But capital spending must exceed that peak if US businesses are to be equipped with state-of-the-art capacity, technology, and private infrastructure that will enable them to recapture market share at home and abroad. Only then could export growth, impressive since mid-2009, sustain further increases. And only then could the US stem the rising tide of import penetration by foreign producers.
via STEPHEN ROACH: America Can't Keep Relying On Spending To Drive The Economy – Business Insider.
China: Why the Recovery Has Begun | PRAGMATIC CAPITALISM
A bullish outlook on China from Citi Research:
The key drivers of growth recovery are that de-stocking is near its end, the hard landing risk of the property sector is contained, and investment, consumption and exports had shown signs of improvement in June. In our view, given more policy supports in the near term, 3Q GDP growth will likely be flattish…….the planned Rmb360bn infrastructure investment will be fully implemented.
via China: Why the Recovery Has Begun | PRAGMATIC CAPITALISM.
Australia: Housing credit slows
From the Westpac Bulletin:
Housing credit has lost momentum under the weight of past tight monetary policy and with the sector facing a number of headwinds.
Housing credit grew by just 0.30% in the month of June. This is the weakest monthly result on record (back to 1976), with the exception of a one-off fall of -0.38% for June 1984. Annual housing credit growth has now slowed to 5.1%, moderating from 6.0% a year ago.
David Stockman
David Stockman, former Director of the Office of Management and Budget under President Ronald Reagan, gives Alex Daley a run-down of the Fed’s performance.
Duration 30:43
McDonald’s Sees Downbeat Consumers World-Wide – Real Time Economics – WSJ
“This is one the first times where we have seen it [consumer confidence issues] in a much broader-based perspective. It’s a little bit more than a European cold.” CFO Peter Bensen added, “The magnitude of the issues in Europe are having ripple effects around the world,” hurting consumer confidence and causing fewer people to eat out.
via McDonald’s Sees Downbeat Consumers World-Wide – Real Time Economics – WSJ.
Comment:~ McDonald’s are a worldwide barometer of consumer spending. When they report a broad decline in sales, we should expect an economic down-turn.
Christian Noyer: Monetizing public debt
Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS: Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation… to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation. In my view, this notion is nothing more than a financial analyst’s fantasy.
via Christian Noyer: Public and private debt – imbalances of global savings.
Comment:~ No central bank has declared an intention to monetize public debt (or deficits) — reducing public debt via inflation — but without a viable alternative how many will end up there? Gary Shilling points out that “competitive quantitative easing by central banks is now the order of the day.” The Bank of Japan last year “expanded its balance sheet by 11 percent, while the Federal Reserve’s increased 19 percent, the European Central Bank’s rose 36 percent and the Swiss National Bank’s grew 33 percent.” Japan, after 20 years of stagnation and with net public debt at 113% of GDP, illustrates the predicament facing many developed countries. If there was a plan B they would have tried it by now.