Analysis of the global economy
Lakshman Achuthan of ECRI sticks to his forecast of a double-dip:
[gigya name=”cnbcplayer” PLUGINSPAGE=”http://www.macromedia.com/go/getflashplayer” allowfullscreen=”true” allowscriptaccess=”always” bgcolor=”#000000″ height=”380″ width=”400″ quality=”best” wmode=”transparent” scale=”noscale” salign=”lt” src=”http://plus.cnbc.com/rssvideosearch/action/player/id/3000089189/code/cnbcplayershare” type=”application/x-shockwave-flash”]
“Labor force participation for unskilled men has dropped off the table the last few decades,” [Timothy Taylor, managing editor of the Journal of Economic Perspectives] said. “Wages for that group aren’t high enough to encourage them to work. For a lot of those men, going on disability may be a better option. Working off the books may be going on. The benefits of working at $10 or $11 an hour just isn’t enticing 50-year-old men into the labor force,” he said.
Another factor in play: there were an estimated 2.3 million people in U.S. prisons at the end of 2010, the highest rate of incarceration in the world. That’s quadruple the number imprisoned in 1980. The rate of imprisonment has gone from 100 per 100,000 people in the mid-1970s to 500 per 100,000 today.
JPMorgan Chase & Co lost $2 billion on a failed hedge, an unexpected revelation that hit hard the bank that had been seen as the smartest and safest player through the credit crisis that began to erupt in 2007.
via Dimon in the Rough: JP Morgan Loses $2B on Failed Trade.
Comment: Writing good headlines is an art. Occasionally you find a gem like this. It wins my vote for headline of the week.
Paul Krugman: Germany believes that its successful adjustment was the result of its own virtue, but in reality it was successful in large part because of an inflationary boom in the rest of Europe.
And here’s the thing: the Germans are now demanding that the European periphery replicate its achievement (and actually surpass it, because the required adjustment is much bigger) without providing a comparably favorable environment — they’re demanding that Spain and others do what they never did, which is deflate their way to competitiveness.
This is a road to disaster.
Take out government-owned student loans and there has been virtually no rebound in consumer credit since the Great Recession ended. Restated, the consumer has not been borrowing since the Great Recession has ended. Rather, students took advantage of below-market rates on loans provided by the government starting in 2009…….“Most of the improvement in credit is a function of the explosion student loan debt,” said Neil Dutta, an economist at Bank of America Corp. in New York. “The reason student loan debt is exploding? Because the youth population is having difficulty finding work. Hardly a good reason for credit extension.”
via Consumer Credit – Worse Than You Think | The Big Picture.
[Fannie Mae] reported quarterly net income of $2.7 billion, up from a $6.5 billion loss in the first quarter of 2011……..Across the country, there are signs that the housing market is stabilizing. Home prices have continued to fall, but at a much slower pace. More Americans are buying houses than they were a year ago. Housing starts have climbed more than 10 percent in the last year, as home builders pick up construction of new homes and apartment buildings.
via Fannie Mae Profit Signals a Stabilizing Housing Market – NYTimes.com.
Although the return to a gold standard for our monetary system has much appeal, it is unlikely to occur. So, let’s not let the perfect be the enemy of the good. Perhaps there is second-best monetary policy approach to the gold standard that might achieve most of the desirable outcomes of a gold standard but might have a greater probability of actually being adopted……. My suggested approach is very similar to one advocated by Milton Friedman at least 60 years ago. The more things change, the more they stay the same, I guess. I am proposing that the Federal Reserve target and control growth in the sum of credit created by private monetary financial institutions (commercial banks, S&Ls and credit unions) and the credit created by the Fed itself. I believe that this approach to monetary policy would reduce the amplitude of business cycles, would prevent sustained rapid increases in the prices of goods/services and would prevent asset-price bubbles of the magnitude of the recent NASDAQ and housing experiences.
It is sobering to recognize that, more than four years after the failure of Bear Stearns began the acute phase of the financial crisis, so much remains to be done–in implementing reforms that have already been developed, in modifying or supplementing these reforms as needed, and in fashioning a reform program to address shadow banking concerns. For some time my concern has been that the momentum generated during the crisis will wane or be redirected to other issues before reforms have been completed. As you can tell from my remarks today, this remains a very real concern.
via FRB: Speech–Tarullo, Regulatory Reform since the Financial Crisis–May 2, 2012.
Bellwether transport stock Fedex continues to test support at $88, the neckline for a double top reversal. Long tails on the last two candles suggest short-term buying pressure, but bearish divergence on 13-week Twiggs Money Flow warns of long-term selling pressure. A close below $86.50 would confirm that economic activity is declining.
* Target calculation: 88 – ( 96 – 88 ) = 80
long-term
Kristian Niemietz looks at how housing costs in the UK have exploded in recent decades. Real-terms house prices in 2011 were more than two-and-a-half-times higher than in 1975, with rent levels following suit. In the USA, Germany and Switzerland, real-terms house prices are still close to their 1975 levels.
· Housing affordability measures show housing to be unaffordable in every single one of the 33 regions in the UK.
· The main difference between the UK and its north-western European neighbours is not in demographics, but in completion rates of new dwellings.
· Empirical evidence from around the world shows that planning restrictions are the key determinant of housing costs.
via Abundance of land, shortage of housing | Institute of Economic Affairs.
