Saturday, July 30, 2011

The GDP Revisions

The most recent BEA GDP release not only was disappointing for 2Q2011 (1.3%), but the revisions were deep and way down, including an 80% downward revision for 1Q2011. Invictus at The Big Picture blog presented this Fed graph showing the shocking changes.

How can the BEA data be that far off over such a long period of time?

Saturday, July 23, 2011

CoreLogic Snapshot: One City

I compiled a few very basic statistics from the CoreLogic data of one mid-sized city with about 50,000 parcels of land. This was my first pass at the data and it can be compiled in a more fine grained way. For now, here are couple of quick charts on the assessed values and mortgages. Note this includes both residential and commercial properties which are usually segregated. I was going to include mean and median negative equity values but they aren't meaningful with commercial properties in the mix.

Percentage of parcels with no mortgage: 65%
Percentage of parcels with a mortgage: 35%

Mortgages with positive equity: 80%
Mortgages with negative equity: 20%
Percentage of all properties with negative equity: 6%

Friday, July 22, 2011

Subjective Invective v.6

The Lesser Depression
When the bubble burst, home construction plunged, and so did consumer spending as debt-burdened families cut back.
Everything might still have been O.K. if other major economic players had stepped up their spending
In particular, cash-rich corporations see no reason to invest that cash in the face of weak consumer demand.

Nor did governments do much to help.

Except for the massive coordinated monetary policies of all central banks, including about 16 trillion in programs from the Federal Reserve alone. Followed by the massive fiscal stimulus by the US and one by China. Followed by two rounds and 2 trillion more in QE by the Federal Reserve.

The disappearance of unemployment from elite policy discourse and its replacement by deficit panic has been truly remarkable. It’s not a response to public opinion. Nor is it a response to market pressure. Interest rates on U.S. debt remain near historic lows.

Take a look at the historic lows Greek debt enjoyed until, within a short span, it was game over. The problem is no one can predict when the market will turn against a debtor nation with a structural trade deficit. The US might have low rates for the next 10 years, or it might have a bond market meltdown next year.
For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed.

When banks create too much credit, to the point of debt saturation, the inevitable bust is going to be painful and no amount of trickery can fix it. The answer is not more debt, it is the elimination of debt through payment and default. If you don't allow the debt to deflate, organic growth can't return. More fiscal stimulus won't jump start the economy. Another big world war can eliminate a lot of the work force and create the missing demand you seek, but that is an ugly solution. Kill the debts, not the people.

Tuesday, July 19, 2011

Autumn of the Empire

A fantastic and sweeping essay offering several viewpoints, sourced books, and themes to explain three recurring phases of empire. An examination of past empires and the final financialized stage of the current US empire. You may or may not agree, but you won't be disappointed.

Most striking and most dramatic is the discovery that each of these long centuries has itself been divided into three phases, choreographically consistent: a merchant phase based on trade, followed by a phase of industrial expansion, and finally a period of financialization, in which economic vitality moves to the banking sector. It is a febrile vitality indeed, burning hot and fading away; the shift to finance is always, in Braudel’s lovely phrase, “a sign of autumn.” And when the finance era runs its course, so does the empire.

This spiral grows, with China possibly in the middle phase of industrialization. Will the 21st century see an ascendant China?

Thursday, July 14, 2011

How Investors Use Stories to Tame Uncertainty

In the book, The Soros Lectures: At the Central European University, Soros mentioned funding a new project called the Institute for New Economic Thinking (INET). To see if he followed through with his pledge, I searched and discovered that the Institute was indeed active and providing grants for research.

One of the grants went to David Tuckett, with a background in psychoanalysis and sociology, who conducted interviews of hedge fund managers to learn how they made investment decisions. The research focuses on the use of emotion and "stories about investments". The idea that an emotional experience is inextricably tied to each financial investment decision is fascinating, and also the idea that a rational investor would never make investments in financial assets.

Watch the brief video for an explanation.

Sunday, July 3, 2011

Fiat Money Distribution of Power and Wealth

This diagram shows the advantages of being close to the money creation power in a fiat system. The banks and government benefit the most by having the ability to create money and control interest rates. With first access to new money, those nearest to the source of creation are harmed the least by inflation, while those on the other end lose the most purchasing power.