Econintersect: The middle class in India will grow to 570 million in the next ten years, well above the total population of the United States where the middle class is disappearing. According to the accounting firm PricewaterhouseCoopers, quoted in The Economic Times, the total population of India will be 1.32 billion by 2021 so the middle class will be about 43% of the population. This proportion is not too different from the current situation in the U.S. where nearly 50% are at or just above poverty. If the top 10% is designated upper class, that leaves about 40% in the middle class.
Econintersect: Germany has proposed that Greece should cede sovereignty to a Eurozone commissioner to assure that the Athens government executes proper budget controls and is “put under a strict steering and control system.” The quote is from the proposal, according to the Financial Times. The proposal was being circulated among European leaders Friday afternoon (January 27) only hours after a report published by Reuters from Davos said that Eurozone officials were saying that a deal was imminent to avoid a disorderly Greek default. Reuters referred to statements by finance officials who indicated “key building blocks to resolve Europe's sovereign debt crisis are gradually fitting into place.”
Econintersect: Week 3 of 2012 ending 21 January 2012 shows rail traffic is expanding over 2011 levels according to data released by the American Association of Railroads (AAR).
The Association of American Railroads (AAR) today reported an increase in weekly rail traffic for the week ending January 21, 2012, with U.S. railroads originating 287,734 carloads, up 1.6 percent compared with the same week last year. Intermodal volume for the week totaled 219,706 trailers and containers, up 3 percent compared with the same week last year.
Econintersect: We have an informative infographic that explains some of the basics about the CPI (Consumer Price Index) that is the standard measure of inflation used to make a number of inflation adjustments in the economy. This is one basic measurement in the determination of the currency exchange rate for the U.S. dollar. However, the standard may far different from what any individual experiences. And that is one bottom line message from the following infographic.
Disclosure: This article (infographic) is sponsored by UFX Markets as a public service. UFX Markets provides trading services in the EU and other parts of the world and is compliant with major religious and cultural standards. At the present time UFX Markets does not provide services to citizens of the United States.
Econintersect: The American Trucking Associations’ (ATA) trucking index increased 6.8% in December 2011 following a rise of 0.3% in November 2011. Compared with December 2010, seasonally adjusted tonnage was up a solid 10.5%.
For calendar year 2011, truck tonnage was up 5.9%.
“While I’m not surprised that tonnage increased in December, I am surprised at the magnitude of the gain,” ATA Chief Economist Bob Costello said. Costello noted that it was the largest month-to-month increase since January 2005.
Econintersect: According to a report January 25, 2012 by Bloomberg, billionaires attending the Davos World Economic Forum this week are talking about the need to address income and wealth distribution inequalities. Bloomberg says that a half-dozen of the richest participants in the annual conference say economic disparity needs to be addressed. The information was obtained from a survey taken before the conference opened. The conference is being attended by 2,500 business and political leaders with at least 70 of them billionaires. Half a dozen may not be enough to make a splash, except that they are among the very richest attendees. Click on picture for larger image of Davos ski slope.
Econintersect: The Federal Open Market Committee (FOMC) - the board of directors of the Federal Reserve - meeting concluded today with the members not seeing much change domestically in economic conditions - and continued to see significant risk to the USA economy due to the global financial crisis.
[Note: this article was appended at 1400 EST to add FOMC principles regarding its longer-run goals and monetary policy strategy. Econintersect does not see any new revelations in this press release - but is appended in whole to this post.]
[Note: This article was appended at 1430 EST to show the FOMC members economic projections - and again at 1530 to add Chairman Bernanke's press conference comments. ]
No new programs were announced - and the FOMC voted to continue doing whatever they were doing- although the FOMC extended its outlook when the next rate increase was possible to the end of 2014 (18 month extension). Most of the difference in this January meeting statement amounts to word engineering - changing words to other words having the same meaning.
Econintersect considers any interest rate policy projections beyond a few months to be speculation and the 18 month extension of current policy could have been no change or 36 months with no change in significance.
The following table compares the statement from the previous FOMC meeting to the statement for the meeting concluding today. Read more »
Econintersect: Almost nine years ago rules were implemented that required stock analysts to be separated by “firewall” from investment bankers when the two worked for the same employer. (Details later.) The reason for the firewall rules was the incredibly misleading “analysis” that occurred during the dot.com bubble. Analysts were producing incredibly (in fact unbelievable) glowing reports about the future business prospects for companies that had no income and investors were pouring money into these “incredible opportunities.” Not long after many investors learned that “credible” and “believable” (and “incredible” and “unbelievable”) are synonyms.
Econintersect: Alan Krueger, Professor of Economics, Princeton University has a graphic that he has called “The Great Gatsby Curve.” That is shown below. But first, here is what Krueger is talking about. Income inequality is much in the news and refers to the fact that share of income going to the top few percent of the population is the largest it has been since the late 1920s. The other factor that Krueger discusses is social mobility. This refers to the probability that children will move out of the social class of their parents.(Wikipedia) Krueger discusses the observation that as income inequality has increased social mobility has decreased.
Econintersect: The RBI (Reserve Bank of India) made a surprise move at its quarterly meeting by reducing the cash reserve requirement (CRR) by 50 basis points to 5.5% This comes after two years of tightening monetary policy by the central bank in an attempt to fight inflation. Inflation has been easing recently with a sharp drop in December (GEI News). A number of knowledgable observers indicated that the reduced reserve requirement would help with liquidity in the banking system but was not likely to influence interest rates, at least not in the near future (The Times of India). The move was made as the latest estimates for GDP growth were reduced to 7.0% from 7.6%.
Econintersect: The International Monetary Fund (IMF) downgraded its world economic forecast saying the global recovery is stalling, and warning that downside risks are intensifying:
that Europe is in a balancing act - it must must balance reform and deleveraging with maintaining economic stimulus.
that emerging and developing economies must concentrate on internal growth in response slowing external growth.
that the United States will suffer a political paralysis, cut back spending too quickly undoing the positive effect of the stimulus.
The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated. Global output is projected to expand by 3¼ percent in 2012 — a downward revision of about ¾ percentage point relative to the September 2011 World Economic Outlook (WEO).
Econintersect: Does sentiment drive the markets or does the markets drive sentiment? Ticker Sense's 23 January blogger sentiment poll "improved" from 40.74% bullish the previous week to 46.43% this week.
The Ticker Sense Blogger Sentiment Poll is a survey of the web's most prominent investment bloggers, asking "What is your outlook on the S&P 500 for the next 30 days?"
Econintersect: Talks to avoid a Greek sovereign debt default have gone on all the past week. The write down of 22% of face value (the discussion point six months ago) and the more recent proposal for a 50% haircut have been replaced by as much as a 70% write down in the last three days. It now seems possible that the 70% haircut for bond holders may not be enough to put wings on the ‘Greece avoids default’ bird. The issue centers on reaching a deal where banks “voluntarily” write down Greek debt so that CDS (credit default swaps) written against Greek debt are not triggered. Such an event would have impact on U.S. banks which have written many of these “insurance contracts” that must be paid out if default occurs. (Photo from Athens riots in June. Click on picture for larger image.)
Econintersect: There is a great slide show at MSNBC.com (link at end of article). For what has been a winter unusually lacking snow in many parts of the U.S., winter has been exercising more normal patterns in other parts of the globe. The picture below shows a ski run at Mammoth Mountain California, which normally has several feet of natural snow on January 10, open only due to machine-made snow. (Picture is from a slide show at the Los Angeles Times, link to full show at end of article. Click on pictures for larger images.)
Econintersect: Did the raid on one company destroy the entire new industry of cloud computing? This is supposed to be the new best thing since sliced bread which would enable isolated computers to share common application programming and file storage facilities making the individual desk top machine a lean, mean processing machine. The credibility of that entire concept may have been destroyed on Friday January 20, 2012 with the coordinated raid on the biggest file sharing operation in the world, Megaupload.com. The company had 4% of the global internet traffic with 50 million visitors daily.
Econintersect: William K. Black had a leadership role in the resolution of the Savings & Loan Crisis in the late 1980s and early 1990s. He was on the team of regulators that brought thousands of banking criminals to justice, including more than 1,000 top executives. In Black’s own words:
“If you go back to the savings and loan debacle, we got more than a 1,000 felony convictions of the elite. These are not, you know, tellers or something. We today have zero convictions, zero indictments, zero arrests of any of the elite, non-prime lenders that, through their fraud, drove this crisis.”
Below is a video of 17 minutes of a lecture on the nature of the ciminology of the current crisis which is going unindicted The video is followed by breaking news on the web of fraud that is becoming further revealed as time goes on.
Econintersect: In what is one of the most astounding changes of direction in history, the paragon of balanced budget fiscal policy (the International Monetary Fund) has issued a warning most unexpected. The statement was made jointly by the IMF, the World Bank, the World Trade Organization and eight other organizations. Christine Lagarde (pictured), head of the IMF, warned in the statement that the world faced 'significant and urgent challenges'. The statement warned about the economic and social risks of austerity programs. Instead this was a "call to action" designed to boost growth and fight protectionism. Policies are needed to create jobs, tackle inequality and green the global economy. The descriptive phrases are those used in an article in The Guardian.
Econintersect: According to reports circulating Friday (January 20), the two bills proposed to address copyright infringement on the internet - Stop Online Piracy Now (SOPA, HR3261) and PIPA (Protect IP Act, S 968) – have had further action by their sponsors postponed. See GEI News for more details on the two proposed acts. The Washington Post published an article with the details at 11:17 am. While many opponents are doing a victory dance, Paul McNamara has an article at Network World which warns against complacency. He quotes a statement by Sue Gardner, executive director of the Wikimedia Foundation:
"The Wikimedia Foundation welcomes these developments. This is another step towards the ultimate destruction of these two pieces of proposed legislation. But let's be clear, these bills are not dead. They will return, and when they do, they must not harm the interests of the hundreds of millions of people who contribute to the free and open Internet."
Econintersect: If your financial advisor professes to have an impressive record or breadth of experience you may want to exercise some due diligence. Scott Smith, an analyst with the Boston based investment industry research firm Cerulli Associates, has reported on the data collected in 2011 from more than 1,500 financial services personnel. He has found what he calls a pattern of misrepresentation. The Cerulli study divided financial intermediaries into four categories: investment planning, comprehensive financial planning, money management and wealth management. But what many of the persons studied did not fit their self-categorization.
Econintersect: Week 2 of 2012 ending 14 January 2012 shows rail traffic is expanding according to data released by the American Association of Railroads (AAR).
The Association of American Railroads (AAR) today reported an increase in weekly rail traffic for the week ending January 14, 2012, with U.S. railroads originating 298,560 carloads, up 5.5 percent compared with the same week last year. Intermodal volume for the week totaled 229,091 trailers and containers, up 7.4 percent compared with the same week last year.
John Carney, a senior editor at CNBC.com, has been writing a series of articles about the job guarantee (JG) aspect of what is known as Modern Monetary Theory(MMT). The JG is also known as the employer of last resort (ELR), a concept often associated in modern times with economist Hyman_Minsky.
On December 29 Carney posted an article which has raised a vigorous response from many MMT protagonists. The specific three issues Carney raised were really presented as statements of fact as follows:
In their "Advance" estimate of the fourth quarter 2011 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of economic growth had risen to 2.75%, up slightly less than one percent from their "final" estimate of 1.81% for the third quarter. However the details within the report actually contain a set of seriously mixed signals, with the entire gain concentrated in consumer goods and a huge swing in inventory levels. Those two line items represented an aggregate change of +4.30% relative to the growth rates reported for the third quarter. All of the other major line items were either static or deteriorated significantly, with the growth rates for consumer services, fixed investments and government all down sharply. Additionally, the prior two quarters of reprieve from the negative impact of foreign trade reversed -- with foreign trade now removing -0.11% from the headline number after contributing +0.43% last quarter. And the annualized growth rate of the BEA's "real final sales of domestic product" dropped by over 2% to 0.81%, hardly a ringing endorsement of economic recovery. Read more »
Can the USA economy really grab hold as long as the housing market remains weak? This past week, Fed Chairman Ben Bernanke at his press conference following the FOMC meeting acknowledged housing was the primary reason the current economic situation is muted.
My position is that:
the personal wealth for the majority of Americans runs through home ownership. If your house declines in value, you hunker down to preserve wealth. In a consumer driven economy, a hunkered down consumer is not good news.
falling home values have imprisoned many homeowners preventing moving for a better job (or a job period) or a cheaper place to live - Zillow reports over 28% of home mortgages are underwater.
there is no underlying dynamic which points to a true "recovery" of housing prices.
The University of Michigan Consumer Sentiment Index final report for January came in at 75.0, a slight rise from the 74.0 January preliminary reading. Today's number was a tad above the Briefing.com's consensus forecast of 74.2. This is the best final number since last February's 77.5.
See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I've added a linear regression to help understand the pattern of reversion to the trend. I've also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Read more »
The advance estimate of fourth quarter 2011 Real Gross Domestic Product (GDP) is 2.8%
3Q2011 GDP was 1.8%
2011 Real GDP (the increase of 2011 over 2010) is 1.7%
The market expected 4Q2011 GDP at 3.2%.
This is the advance estimate of GDP which is based on incomplete data. (See caveats below.)
Real GDP is inflation adjusted and annualized - the economy only grew moderately per capita, and per capita GDP is roughly slightly more than half recovered from the trough of the great recession. Read more »
Based on criticisms of their "rocket ship" index, the Conference Board made sweeping changes to their Leading Economic Index. The changes are as dramatic as night-and-day.
The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in December to 94.3 (2004 = 100), following a 0.2 percent increase in November and a 0.6 percent increase in October. This month’s data inaugurates a number of major changes to the components and calculation of the LEI.
December was a nasty month for new home sales - disappointing the market and being economically negative to boot. The data is mixed whether this sector has bottomed.
Let us start with perspective - new home sales are less than 1/4 of the peak values seen in 2005 - and are running at levels last seen in the 1970's (non seasonally adjusted data). But still, the last 6 months have been stronger than 2010 sales.
US Census Headlines for December 2011:
sales down 2.2% month-over-month
year-over-year sales down 7.3%
market expected annualized sales between 315K to 321k (actual was 307K - seasonally adjusted)
Econintersect Analysis:
sales down 18.7% month-over-month
year-over-year sales down 8.7%
three month rolling average down 1.6% month-over-month, up 3.3% over 2010
The December 2011 Chicago Fed National Activity Index (CFNAI) release shows the 3 month moving average of -0.08 - almost indicating the economy was expanding at potential. The index is higher than the levels one year ago, and has broken out of its range channel it has languished in for the last 8 months.
The Chicago Fed National Activity Index (CFNAI) is Econintersect’s primary coincident indicator tool as it provides a summary quantitative value for all the economic data being released. The data is not spun or explained - it is what it is. However, this index may not be accurate in real time (see caveats below) - and it did miss the start of the 2007 recession. Read more »
Durable Goods data in December 2011 is showing an economic expansion cycle is underway. Durable Goods sector is the portion of the economy which provides products which have a utility over long periods of time before needing repurchase - like cars, refrigerators and planes.
US Census Headlines:
new orders up 3.0% month-over-month
backlog (unfilled orders) up 1.5% month-over-month
Econintersect Analysis:
new orders up 1.9% month-over-month, and up 14.4% year-over-year
inflation adjusted new orders up 1.0% month-over-month, and up 11.0% year-over-year
production (inflation adjusted using Industrial Production - durable goods) up 0.1% month-over-month, up 6.3% year-over-year
backlog (unfilled orders) up 2.9% month-over-month Read more »
The National Association of Realtors (NAR) pending home sales index fell 3.5% month-over-month (up 4.4% unadjusted year-over-year) in December 2011. Econintersect analysis indicates a forecast range of January 2012 existing home sales forecasts between sales falling 2.7% year-over-year to rising 1.5% year-over-year depending on your analytical poison.
From the NAR press release: Read more »
Before starting on the subject of debt I wanted to make a quick reference to something sent to me by Charles Horner, a senior fellow at the Hudson Institute. I am glad to say that the overinvestment thesis is much more widely acknowledged today than it was even two or three years ago, but one myth, I think, is that most of the overinvestment excesses in China are concentrated in the real estate sector. I have always argued that it is infrastructure where the most amount of investment has been wasted. Read more »
Here’s my 25 minute presentation of Lost Decades at the Rotary Club of Madison, on January 4th (as recorded by Wisconsin Eye) Powerpoint. One point I made was that the global financial crisis and ensuing recession have exacted a tremendous cost on the US economy. In the absence of more aggressive action, another 2.4 trillion Ch.2005$ loss will be incurred through 2013Q4. The blithe indifference with which opponents of extended payroll tax reductions, extended unemployment benefits, food stamp expenditures and infrastructure investment contemplate the damage continues to astound me. Read more »
How do countries get into debt? And how does this debt rise so fast? The short answer may be obvious, but this column shows that the longer answer certainly isn’t.The answer to the question “How do countries get into debt?” seems trivial. The stock of debt is equal to the sum of past budget deficits. Countries accumulate debt whenever they run a budget deficit and reduce their debt when they run a budget surplus. In fact, the standard Economics 101 textbook debt accumulation equation states that the change in the stock of debt is equal to the budget deficit (for those who like equations this can be expressed as: DEBTt – DEBTt-1 = DEFICITt ). Read more »
A recent article at Foreign Policy noted that the $10 trillion global black market is now the world’s fastest growing economy, and that in 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy.
By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers. This new economy even has a name: ‘System D’.
According to an IMF economic study, black market, also called the shadow, underground, informal, or parallel economy, "includes not only illegal activities but also unreported income from the production of legal goods and services, either from monetary or barter transactions. Hence, the shadow economy comprises all economic activities that would generally be taxable were they reported to the tax authorities." Read more »
The World Economy Stalls; Meanwhile Dubai Bounces Back: So what’s The Secret?
by Guest Author Andrew Butter
One of the few interesting things about Dubai is that it serves as a barometer for economic activity that happens largely outside of government and outside of OEDC.
I’m not talking blood diamonds or drug money, Dubai services a region that extends thousands of miles in all directions and the only thing that happens there that doesn’t happen elsewhere and is “illegal” in many of the places it services, is economic freedom. What’s interesting is that you can measure the pulse the global free-market by measuring the pulse of Dubai. Read more »
We make decisions daily in our investing life to make money knowing that there is a potential to lose money. Seldom do we anticipate the possibility of losing the entire investment, and when we do consider this possibility, generally we think of it as gambling (wagering what we can afford to lose). Read more »
The National Association of Realtors (NAR) reported December 2011 existing home data demonstrates a market in recovery. It may be true (Econintersect hopes it is true), but it depends which portion of the data you view to come to this conclusion. The data in December is mixed, but overall is positive.
NAR reported:
Existing Homes Sales Up 5.0% month-over-month, Up 3.6% year-over-year
Existing Home Prices Up 2.3% month-over-month, Down 2.5% year-over-year Read more »
The Philly Fed Business Outlook Survey headlines for January 2012 show the index improved slightly - and it remains in growth territory. New orders are less good but still in expansion territory.
Results from the Business Outlook Survey suggest that regional manufacturing activity continued to expand at a moderate pace in January. All of the broad indicators remained positive this month, and firms continued to report increases in employment. Firms polled reported higher input prices this month, with a notable share of firms reporting price increases for their own manufactured goods. The survey’s broad indicators of future activity improved again this month. Read more »
The Consumer Price Index (CPI-U) annual inflation rate fell to 3.0% in December 2011 from 3.4% in November. This was above the Econintersectexpectation of 2.5%. Core inflation (CPI less food and energy) was unchanged at 2.2% annual inflation [note that the Federal Reserve uses 2.0% core inflation as an inflation target].
There has been some hinting at the Fed that inflationary targets may be flexible at this time with so much economic slack, and the Fed statements indicate they expect inflation to recede in the coming months. Read more »
Building permits and construction completions in December 2011 show the industry rebound is continuing - and it is being fueled by apartments (structures with 5 or more units).
US Census Headlines:
building permit down 0.1% month-over-month, up 7.8% year-over-year
construction completions up 9.2% month-over-month, up 7.1% year-over-year
the market expected 650K to 673K annualized housing starts versus the 679K reported
Econintersect Analysis:
Building permits are down 18.5% month-over-month, up 8.6% year-over-year.
construction completions are up 6.5% month-over-month, up 7.3% year-over-year.
Below is a summary of the activity on Trefis during the past week that we thought you would find interesting.Trefisis a financial community structuredaround trends, forecasts and insights related to some of the most popular stocks in the US. It provides the unique feature of allowing the user to model future valuation based upon projected changes in components of each business. It also provides communication capabilities among members, including consensus of member analysis compared toTrefisstaff analysis andblogging opportunitiesfor members.
Click on graphic for larger image and go to Trefis forinteractive page.
The stock Indexes zoomed upward following the Fed Open Market Committee's announcement that "it will not raise interest rates until at least late 2014, even later than investors expected, in an effort to support a sluggish economic recovery." Inflation is expected to remain stable. One Member, an "inflation hawk," dissented from the majority's opinion. The Dow Industrials rose to 12738, which is higher than Tuesday's High but lower than Monday's High, which is the one we're watching. The other Indexes have moved in rough synchrony with the Dow. As of 2 PM, the Dow has turned Down slightly, and now stands at 12724.
Obviously, investors took this news as bullish for the stock market. I have a very different take on it. Read more »
The Fed made history today, achieving a new level of policy-making transparency.
In my early days in the business, the results of an FOMC meeting were never announced. Everyone waited until the day after the Fed meeting to see what open-market operations were conducted by the NY Fed. First you needed to know what was needed to maintain the current policy rate. Then you had to gauge whether the action was sufficient to maintain that rate. System-wide repo's were aggressive easing and matched sales were tightening, but there was still a matter of interpretation. Various Fed experts were quoted on the newswires to offer their interpretations.
In 2011, companies worldwide announced 27,668 mergers, acquisitions and divestitures, bringing the total transaction value to USD2.22 trillion. Two major up-cycles in corporate dealmaking have occurred in the 12 years. Check out this graph of quarterly deal flow.Read more »
Predicting the weekly or even daily movements of the Euro under today’s market conditions has been a confusing exercise at best, often defying the “odds” that have been heavily weighted for its demise. The relentless stability of the currency, especially versus the Dollar, has made many traders question their livelihood of late, particularly when the long-term picture, one that expects a declining relationship, seems so solid. Academic case studies arise from such scenarios, but the five-act Greek tragedy appears to be plodding along, teasing us with its various twists and turns.Read more »
I have been getting a lot of requests over the past couple of weeks for buy and sell points on various issues. The market has been rallying, on dangerously light volume, as the “dash for trash” has sprung back to life at the beginning of the year.
It is always interesting to me that as much as we write and talk about being a “contrarian investor”, not to chase market rallies, buying low and selling high, etc. – individuals still fall victim to their emotions and do just the opposite of what they should.
Take the latest mutual fund from ICI. Individual investors took money out of equity mutual funds for 8 consecutive months in 2011 as they sold into the stock market declines. This was following, of course, some of the biggest inflows into funds seen in past 3 years as the markets rallied to their peak early 2011.Read more »
By Jack Barnes, Global Macro Trends Specialist, Money Morning
It turned out to be a ruinous Friday the 13th for Europe week before last. After the market close, Standard & Poor's downgraded nine of the sovereign states in the European Union (EU). That included dropping Austria and France to AA+ status from their formerly lofty AAA rating.
While the decision was expected, and will most likely be followed by additional downgrades from the other rating agencies such as Moody's Corp. (NYSE: MCO) and Fitch Ratings Inc., it's the knock-on effects that will have larger implications for investors around the world.
The Wall Street Journalreported on January 19th that the Obama Administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the “robo-signing” scandal. The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed. Investigation reveals that it did not just happen occasionally but was an industry-wide practice, dating back to the late 1990s; and that it may have clouded the titles of millions of homes. If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail – fraud, forgery, securities violations and tax evasion.Read more »
“Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to do so whenever he may choose to say he deems it necessary for such a purpose - and you allow him to make war at pleasure.”
He meant: President George W. Bush, it was reckless for you to launch the Iraq War in 2003!Read more »
This year will mark the 100th anniversary of Milton Friedman’s birth. Friedman was one of the twentieth century’s leading economists, a Nobel Prize winner who made notable contributions to monetary policy and consumption theory. But he will be remembered primarily as the visionary who provided the intellectual firepower for free-market enthusiasts during the second half of the century, and as the éminence grise behind the dramatic shift in the economic policies that took place after 1980.Read more »
Editor's note: This is the second in a series of essays where Dr. Ehnts is discussing aspects of Karl Popper's epic “The Open Society and Its Enemies” (1945) in a series of essays. Previously we posted the Introduction followed by the first essay Sociological Laws and the ECB as a single article.
In the previous post we have followed Popper’s argument that the understanding of sociological laws can help us build institutions for the better. If the sociological laws are not understood, institutions can be damaging, if the erroneous assumptions are not corrected. I invoked the European Central Bank as an example.
As many institutions, it was well-meant, but nevertheless its design has been flawed. The subject of norms and natural laws stands at the center of debate a little later. The Ancient Greeks were confusing norms with natural laws, thus arguing that some things were ‘natural’ when in fact they were not. Popper summarizes the discussion of this section (p. 75):
The solution is simple. Instead of pouring dozens of billions more into a Euro that is doomed to disappear sooner or later and instead of letting us prescribe cuts in public spending by the undemocratic European Commission and the ECB, we can introduce state money, also called public money. (This is NOT the same thing as the money we used to have before the Euro! That would not solve our problems!)
Technically this can be done rather simply. Instead of today's central bank, a new central bank will be established, that is to say, a central bank of the state. It will fall under the responsibility of the Ministry of Finance and be controlled by the Parliament. A commission of well formed people will watch over the long term interests of the money system.Read more »
Brussels wants the keys to the national treasuries of the 17 Euro-countries. Only this way can they save the Euro, they say. The ESM-treaty has already been signed. If the national parliamentarians ratify it, it will be the end of our sovereign democracies. Do we want that? Is there an alternative?
For those who know how the money system works, the logical solution to today's problems is fairly simple. A bank reform. On TV, at least in the Netherlands, the subject is still taboo [1], but if you want to know how it works, you can find an explanation here. (And if you already know all this, you can read the companion article to be published tomorrow on bank reform.)
Obama’s Department of Justice isn’t prosecuting any big fish. Indeed, the Obama administration is prosecuting fewer financial crimes than Ronald Reagan, George W. Bush, George H.W. Bush or Bill Clinton.
This is true even though the big banks – such as Bank of America, Citigroup, JP Morgan and Wells Fargo – committed some fraud, but their entire business model is fraudulent. See this, this, this, this and this.
The same is true of Fannie, Freddie. And even more so with Mers, where its entire purpose – from day one – was fraudulent. Here, here, here, here and here.
So why haven’t the fraudsters running these chop shops been prosecuted by Attorney General Eric Holder, and the head of the DOJ’s criminal division Lanny Breuer?Read more »
Econintersect
about the CPI (Consumer Price Index) that is the standard measure of inflation used to make a number of inflation adjustments in the economy. This is one basic measurement in the determination of the currency exchange rate for the U.S. dollar. However, the standard may far different from what any individual experiences. And that is one bottom line message from the following infographic.
has a graphic that he has called “The Great Gatsby Curve.” That is shown below. But first, here is what Krueger is talking about. Income inequality is much in the news and refers to the fact that share of income going to the top few percent of the population is the largest it has been since the late 1920s. The other factor that Krueger discusses is social mobility. This refers to the probability that children will move out of the social class of their parents.(Wikipedia) Krueger discusses the observation that as income inequality has increased social mobility has decreased
two years of tightening monetary policy by the central bank in an attempt to fight inflation. Inflation has been easing recently with a sharp drop in December (GEI News). A number of knowledgable observers indicated that the reduced reserve requirement would help with liquidity in the banking system but was not likely to influence interest rates, at least not in the near future (The Times of India). The move was made as the latest estimates for GDP growth were reduced to 7.0% from 7.6%.
Econintersect: The International Monetary Fund (IMF) downgraded its world economic forecast saying the global recovery is stalling, and warning that downside risks are intensifying:
Econintersect: Does sentiment drive the markets or does the markets drive sentiment? Ticker Sense's 23 January blogger sentiment poll "improved" from 40.74% bullish the previous week to 46.43% this week. 
bread which would enable isolated computers to share common application programming and file storage facilities making the individual desk top machine a lean, mean processing machine. The credibility of that entire concept may have been destroyed on Friday January 20, 2012 with the coordinated raid on the biggest file sharing operation in the world, Megaupload.com. The company had 4% of the global internet traffic with 50 million visitors daily
Monetary Fund) has issued a warning most unexpected. The statement was made jointly by the IMF, the World Bank, the World Trade Organization and eight other organizations. Christine Lagarde (pictured), head of the IMF, warned in the statement that the world faced 'significant and urgent challenges'. The statement warned about the economic and social risks of austerity programs. Instead this was a "call to action" designed to boost growth and fight protectionism. Policies are needed to create jobs, tackle inequality and green the global economy. The descriptive phrases are those used in an article in The Guardian
Online Piracy Now (SOPA, HR3261) and PIPA (Protect IP Act, S 968) – have had further action by their sponsors postponed. See GEI News for more details on the two proposed acts. The Washington Post published an article with the details at 11:17 am. While many opponents are doing a victory dance, Paul McNamara has an article at Network World which warns against complacency. He quotes a statement by Sue Gardner, executive director of the Wikimedia Foundation:
Can the USA economy really grab hold as long as the housing market remains weak? This past week, Fed Chairman Ben Bernanke at his press conference following the FOMC meeting acknowledged housing was the primary reason the current economic situation is muted.
My position is that:
The advance estimate of fourth quarter 2011 Real Gross Domestic Product (GDP) is 2.8%
Based on criticisms of their "rocket ship" index, the Conference Board made sweeping changes to their Leading Economic Index. The changes are as dramatic as night-and-day.
December was a nasty month for new home sales - disappointing the market and being economically negative to boot. The data is mixed whether this sector has bottomed.
Let us start with perspective - new home sales are less than 1/4 of the peak values seen in 2005 - and are running at levels last seen in the 1970's (non seasonally adjusted data). But still, the last 6 months have been stronger than 2010 sales.
The 
Durable Goods data in December 2011 is showing an economic expansion cycle is underway. Durable Goods sector is the portion of the economy which provides products which have a utility over long periods of time before needing repurchase - like cars, refrigerators and planes.
The National Association of Realtors (NAR) pending home sales index fell 3.5% month-over-month (up 4.4% unadjusted year-over-year) in 
We make decisions daily in our investing life to make money knowing that there is a potential to lose money. Seldom do we anticipate the possibility of losing the entire investment, and when we do consider this possibility, generally we think of it as gambling (wagering what we can afford to lose). 
This table accompanies the weekly review article at Global Economic Intersection. This week the article is "
The National Association of Realtors (NAR) reported December 2011 existing home data demonstrates a market in recovery. It may be true (Econintersect hopes it is true), but it depends which portion of the data you view to come to this conclusion. The data in December is mixed, but overall is positive.
The Philly Fed Business Outlook Survey headlines for January 2012 show the index improved slightly - and it remains in growth territory. New orders are less good but still in expansion territory.
Building permits and construction completions in December 2011 show the industry rebound is continuing - and it is being fueled by apartments (structures with 5 or more units).
The stock Indexes zoomed upward following the Fed Open Market Committee's announcement that "it will not raise interest rates until at least late 2014, even later than investors expected, in an effort to support a sluggish economic recovery." Inflation is expected to remain stable. One Member, an "inflation hawk," dissented from the majority's opinion. The Dow Industrials rose to 12738, which is higher than Tuesday's High but lower than Monday's High, which is the one we're watching. The other Indexes have moved in rough synchrony with the Dow. As of 2 PM, the Dow has turned Down slightly, and now stands at 12724.
In my early days in the business, the results of an FOMC meeting were never announced. Everyone waited until the day after the Fed meeting to see what open-market operations were conducted by the NY Fed. First you needed to know what was needed to maintain the current policy rate. Then you had to gauge whether the action was sufficient to maintain that rate. System-wide repo's were aggressive easing and matched sales were tightening, but there was still a matter of interpretation. Various Fed experts were quoted on the newswires to offer their interpretations.
In 2011, companies worldwide announced 27,668 mergers, acquisitions and divestitures, bringing the total transaction value to USD2.22 trillion. Two major up-cycles in corporate dealmaking have occurred in the 12 years. Check out this graph of quarterly deal flow.
Predicting the weekly or even daily movements of the Euro under today’s market conditions has been a confusing exercise at best, often defying the “odds” that have been heavily weighted for its demise. The relentless stability of the currency, especially versus the Dollar, has made many traders question their livelihood of late, particularly when the long-term picture, one that expects a declining relationship, seems so solid. Academic case studies arise from such scenarios, but the five-act Greek tragedy appears to be plodding along, teasing us with its various twists and turns.
I have been getting a lot of requests over the past couple of weeks for buy and sell points on various issues. The market has been rallying, on dangerously light volume, as the “dash for trash” has sprung back to life at the beginning of the year. 
“Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to do so whenever he may choose to say he deems it necessary for such a purpose - and you allow him to make war at pleasure.”
twentieth century’s leading economists, a Nobel Prize winner who made notable contributions to monetary policy and consumption theory. But he will be remembered primarily as the visionary who provided the intellectual firepower for free-market enthusiasts during the second half of the century, and as the éminence grise behind the dramatic shift in the economic policies that took place after 1980.
Editor's note: This is the second in a series of essays where Dr. Ehnts is discussing aspects of Karl Popper's epic “The Open Society and Its Enemies” (1945) in a series of essays. Previously we posted the Introduction followed by the first essay Sociological Laws and the ECB as a single article. 
Brussels wants the keys to the national treasuries of the 17 Euro-countries. Only this way can they save the Euro, they say. The ESM-treaty has already been signed. If the national parliamentarians ratify it, it will be the end of our sovereign democracies. Do we want that? Is there an alternative?
