Author: ColinTwiggs

Posted on

Income Excluding Government Transfers Drops Again – Real Time Economics – WSJ

Friday’s Commerce Department report shows that personal income indicator has declined for three consecutive months — at a 2% annual rate. In the past, such steep drops in that category have been followed, three-quarters of the time, by a recession, according to Mr. Rosenberg’s [David Rosenberg of Gluskin Sheff & Associates Inc.] research. So while consumers boosted spending in the third quarter, they pulled it off by dipping into their savings and spending government dollars, not by earning more money at work. Mr. Rosenberg says stagnant wages, plunging consumer confidence, and low expectations for wage growth are a recipe for a dramatic drop in consumer spending in coming months.

via Income Excluding Government Transfers Drops Again – Real Time Economics – WSJ.

Posted on

Basic definitions

I use basic economic terms quite frequently and it may be useful to set out their definitions:

  • Consumption ~ is any purchase/sale that is not between entrepreneurs. That is, purchases from entrepreneurs by consumers.
  • Savings ~ the excess of income over expenditure on consumption. Savings can include debt repayment and money lost or hidden in your mattress — they do not have to be deposited with a bank.
  • Investment ~ an addition to the real capital stock of the economy. Alternatively, any purchase between entrepreneurs that is not part of user cost.
  • Income ~ the value in excess of user cost which the producer obtains for the output he has sold.
  • User cost ~ the measure of what has been sacrificed to produce finished output.

Keynes:

“Income is created by the value in excess of user cost which the producer obtains for the output he has sold; but the whole of this output must obviously have been sold either to a consumer or to another entrepreneur; and each entrepreneur’s current investment is equal to the excess of the equipment which he has purchased from other entrepreneurs over his own user cost. Hence, in the aggregate the excess of income over consumption, which we call saving, cannot differ from the addition to capital equipment which we call investment. Saving, in fact, is a mere residual.”

Richard Koo (The Holy Grail of Macro Economics) points out the flaw in this argument: when savers are forced to repay debt, savings no longer equal investment.

Steve Keen also highlights this:

“However when one thinks in truly dynamic terms, income is not all there is to aggregate demand. In a dynamic setting, aggregate demand is not merely equal to income, but to income plus the change in debt.”

Posted on

SocGen: ECB will have to act – Ambrose Evans-Pritchard

Albert Edwards from Société Générale said the ECB will have to act, over a German veto if necessary. “The increasingly frenzied attempts of eurozone governments to persuade financial markets that they can draw a line under this crisis will ultimately fail.”

“The impending threat of a euro break-up will force the ECB to begin printing money, very reluctantly joining the global QE party. The question is whether Germany will leave the eurozone in the face of such monetary debauchery,” he said.

via Europe’s rescue euphoria threatened as Portugal enters ‘Grecian vortex’ – Telegraph.

Posted on

China spoils the party – macrobusiness.com.au

From the FT:

Chinese metals companies, lynchpins in the global economy, are warning that Beijing’s monetary tightening has gone too far, causing domestic customers to delay orders and raising the risk of payment default.

In one of the clearest signs yet of deteriorating sentiment, Baosteel, China’s second-largest steel producer, has told the Financial Times that its customers were pushing back scheduled deliveries “due to declining economic growth and tightening credit”.

via China spoils the party – macrobusiness.com.au | macrobusiness.com.au.

Posted on

BOE’s Monetary Gamble Nears Its Endgame – WSJ.com

So where once investors worried that it [the Bank of England] had got policy plain wrong, there’s now a chance they’ll start to fear that the bank has got things all too right, after all, and that the U.K. really does need policy settings appropriate for an economic ice age……

And a government focused on austerity measures is in no position to offer fiscal support even if it wanted to, and, according to the treasury’s pronouncements, it doesn’t. It’s sticking with the deficit-cutting plan A, come what may.

So this is clearly an economy with huge problems anywhere you might care to look. Its remaining cardinal virtue, perhaps, is that it isn’t in the euro zone, so the bloc’s more pressing concerns have shielded it from harsher scrutiny. It can’t rely on that shield for all time.

via BOE’s Monetary Gamble Nears Its Endgame – WSJ.com.

Posted on

Dollar tanks

The Dollar Index failed to confirm the primary up-trend, breaking support at 76 with a sharp fall in response to news of a resolution to the euro-zone debt crisis. Expect a test of primary support at 73. Breach of the rising trendline on 63-day Twiggs Momentum would confirm.

US Dollar Index

Expect gold and commodities to rally as a result of the weakening dollar.

Posted on

Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post

Eurozone leaders are as far as ever from finding a lasting solution to the bloc’s underlying problem of economic divergence, despite their latest progress in managing the symptoms of its debt crisis……

“This is another step in the right direction, but it is not enough to get us to the end game,” said Stephane Deo, chief European economist at UBS. “It buys time but it does not address the fundamental problem of the sovereign debt crisis.”

via Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post.

Posted on

With focus on Europe, lack of U.S. debt progress slips under radar | Economy | News | Financial Post

Following a month where markets have locked on to developments in Europe, the lack of progress from the so-called U.S. Super Committee on debt has flown under the radar, an analyst warned Thursday.

Douglas Borthwick, managing director at Faros Trading, LLC, said in his latest report that U.S. debt troubles will likely take centre stage once again in the coming months.

“We argue that while Europe is dealing with their fiscal issues, we have yet to hear from the ‘Super Committee’ set up by the U.S. congress to find ways to decrease spending in the longer term,” he said.

via With focus on Europe, lack of U.S. debt progress slips under radar | Economy | News | Financial Post.

Powered by WordPress / WordPress Maintenance Service By Website Helper