US Defaulting thread...

[ThatDamnGood]

Emerging Market Mania: China Tells Bernanke to Take a Hike | zero hedge

However, when push comes to shove, it is China that holds the trump cards in the form of interest rates.



Many commentators have posited that the US Federal Reserve will not hike interest for several years. It is my contention that the Fed CANNOT raise rates EVER again. The reason for this is that some 80% of the $600 TRILLION in over the counter derivatives market is based on interest rates.



If even 4% of this is “at risk” and 10% of it goes wrong you’ve wiped out ALL The equity at the five largest banks in the US.



If you’re looking for the REAL reason Ben Bernanke is scared stiff about state of the US financial system and continues to pump money into Wall Street by the hundreds of billions despite the fact the stock market has hit new highs from the March 2009 lows (when the Fed first announced its QE program), you’ve got it.



China, on the other hand, not only WANTS to cool its monetary system, but CAN do something about it. To whit, the People’s Republic has already hiked interest rates once without warning on October 10 2010. Rumors are swirling that it’s about to do this again over the coming weekend.



Why does this matter?



Well, for one thing this move, if it happens, will cool China’s “loose money” flow even more, which will affect its economy: the economy the financial industry is banking on pulling the world back into recovery.



Secondly, if China hikes rates again, it would have an adverse effect on the world financial markets pushing stocks and commodities down: an interest rate hike indicates China is trying to cool its economy and so will have less demand for commodities. And stocks, which are now just a single asset class that moves in correlation to others thanks to the overly-computerized state of the markets, will fall too.



And then of course, there’s the $190+ trillion of interest rate-based derivatives sitting on US commercial banks’ balance sheets. If China chooses to rock the interest rate boat too heavily… KA-BOOM.



In plain terms, China holds the trump cards when it comes to monetary policy. Ben Bernanke better pray they don’t start playing them, because no matter how “certain” he is off his abilities, he’s got the weaker hand. And he’s definitely clueless about the risks of getting it wrong.

 

[ThatDamnGood]

Stimulus had no effect on employment as a whole.
Though Wall Street has record bonuses...
It also has blowback impacts on government employment.

***

Outcome of the Stimulus and the Burden of Proof | e21 - Economic Policies for the 21st Century

Outcome of the Stimulus and the Burden of Proof
e21 team | December 2, 2010

At e21, we have observed that arguments in favor of fiscal stimulus are often predicated on mechanistic assumptions regarding the role of government spending in increasing employment levels. We have called for a more empirical approach that uses real-world data to assess the impact of the 2009 ARRA fiscal stimulus legislation.

On the tax cut portion of stimulus legislation, we have highlighted research by Claudia Sahm, Matthew Shapiro, and Joel Slemrod that drew on survey data suggesting that only 13% of households reported higher spending levels due to the one-time tax cuts in the fiscal stimulus. This casts doubt on the models used by the CEA and the CBO to assess the impact of ARRA, and on various private forecasting models that relied on the same set of assumptions.

A new study by Daniel Wilson at the San Francisco Fed calls into question the idea that the stimulus legislation as a whole — including the state transfers and direct spending portion — failed to generate the promised improvements in employment.

It is difficult to properly calculate the effects of the 2009 ARRA bill, as it was a nation-wide program. Though employment and growth failed to respond to ARRA as the Administration had suggested, fiscal stimulus advocates have argued that employment levels would have been lower still without the program.

Wilson’s study makes an important contribution to this debate by focusing on state-by-state comparisons. A large portion of stimulus funding at the state level was based on criteria that were entirely independent of the economic situation that states faced. For example, the number of existing highway miles was used to calculate additional transportation spending.

The study uses this resulting variation in state-level stimulus funding to determine what impact ARRA funding had on employment — including both the direct impact of workers hired to complete planned projects, as well as any broader spillover effects resulting from greater government spending. Administration economists have repeatedly emphasized the importance of this indirect employment growth in driving economic recovery.

The results suggest that though the program did result in 2 million jobs “created or saved” by March 2010, net job creation was statistically indistinguishable from zero by August of this year. Taken at face value, this would suggest that the stimulus program (with an overall cost of $814 billion) worked only to generate temporary jobs at a cost of over $400,000 per worker. Even if the stimulus had in fact generated this level of employment as a durable outcome, it would still have been an extremely expensive way to generate employment.

Interestingly, federal assistance to state Medicaid programs appears to have decreased local and state government employment. One possibility is that requirements to maintain full Medicaid benefits in order to receive federal aid proved sufficiently expensive that state governments pushed though additional rounds of layoffs in non-health related areas. This finding may suggest a potential pitfall with the Wyden-Brown proposal to decentralize health reform efforts at the state level: if comprehensive insurance requirements are retained, the net effect of reform may only shift safety-net spending towards healthcare and away from other urgent priorities such as education or welfare assistance.

The results of this one study should not be seen as definitive. As Wilson emphasizes, the results only apply to the variation caused by additional state-level spending. It is possible that the stimulus did generate a certain level of base employment growth to all states — or that the stimulus “crowded out” private investment on a nation-wide basis.

It is also difficult to determine the counterfactual employment growth that would have resulted in the absence of the fiscal stimulus law. To address this issue, Wilson includes other variables predictive of future employment growth. However, it is possible that employment would indeed have been worse in all states without a stimulus. It is also possible that employment would have been better than projected — for instance, if the Fed or Treasury had responded to higher unemployment through their own interventions.

Still, this result should be taken seriously, as it represents one of the few actual analyses of the stimulus program that does not rely on outdated multiplier estimates that assume their result.

Importantly, the results are also consistent with another recent analysis of government spending during Great Depression by economists Price Fishback and Valentina Kachanovskaya. During a period in which unemployment was extremely high and the costs of implementing a public works program were far lower than today, one might expect that fiscal stimulus might have proven more effective. Yet Fishback and Kachanovskaya find that a similar state-by-state analysis suggests that fiscal stimulus during the Great Depression failed to yield durable employment gains.

The burden of proof is now increasingly on the side of fiscal stimulus advocates. It is easy to point out possible flaws in each of the studies mentioned here — though the biases may end up either exaggerating or diminishing the estimates of the effects of the stimulus. But where is the evidence that the 2009 ARRA fiscal stimulus enhanced employment recovery in a cost-effective and sustainable manner?

 

[JayAtl]

one thing for sure , don't you love to quote our free press!!!

China won't sell off treasuries and the threat albeit can be executed won't be. why? because your economy is dependent on exports. Ask the author of thread why he never mentions that.

Stimulus= 3 million jobs saved or added. another fact he won't print . why? because he never adds the authoritative body on these issues in the US. That's the no partisan CBO numbers.

You are but a new kid on the block. We had plenty countries before you try the same doomsday scenarios with the US. Don't bet against US and its resiliency.

California ( one state in the US) has a GDP close to 1/2 of your entire country!

 

[ThatDamnGood]

Bernake still not getting it right despite so much practice.

Treasurys in worst selloff since Sept. 2008 Bond Report - MarketWatch

Dec. 8, 2010, 4:05 p.m. EST
U.S. 10-year yields rise to highest level since June
Worst two-day selloff since just after Lehman bankruptcy

Treasury yields surge after debt auction
By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) — Treasury prices fell on Wednesday, pushing yields on 10-year notes to the highest level since June, as investors signal worry that the U.S. is not dealing with its budget deficit.


Global bond rout deepens on US fiscal worries - Telegraph

Fed chair Ben Bernanke stated on Sunday that the explicit purpose of the policy – which he calls "credit easing" – is to bring down yields.

"We're not printing money. What we're doing is lowering interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster," he said.

US data on foreign holdings of Treasuries and agency bonds are published with a delay, but monthly figures show that China sold a net $24bn in September and Russia sold $10bn. The concern is that investor flight from US debt will overpower the monthly purchases of $100bn by the Fed, making it ever harder for Washington to raise the $1.4 trillion needed next year to cover the deficit.

The rise in yields risks becoming a textbook case of a central bank losing control over long-term rates. The danger is that market fears of future bond losses – whether from inflation or higher default premiums – will neutralise the stimulus, or lead to stagflation.

 

[below_freezing]

one thing for sure , don't you love to quote our free press!!!

China won't sell off treasuries and the threat albeit can be executed won't be. why? because your economy is dependent on exports. Ask the author of thread why he never mentions that.

Stimulus= 3 million jobs saved or added. another fact he won't print . why? because he never adds the authoritative body on these issues in the US. That's the no partisan CBO numbers.

You are but a new kid on the block. We had plenty countries before you try the same doomsday scenarios with the US. Don't bet against US and its resiliency.

California ( one state in the US) has a GDP close to 1/2 of your entire country!

exports: yes (but do note, less than SK/Japan/Germany). exports to the US: not really. sure we can dump our treasuries, and sure we'll be hurt. we'll lose almost a trillion. or about 1-2 years of growth. the US will be back to the civil war era though when hyperinflation hits, complete with slavery and plantations. however, by dumping treasuries the RMB also rises in value, and while the US dollar tumbles into toilet paper status the RMB's nominal appreciation will more than make up for our nominal losses... after all we can't use that money anyways so it doesn't affect our real economy in any way.

 

[JayAtl]

exports: yes (but do note, less than SK/Japan/Germany). exports to the US: not really. sure we can dump our treasuries, and sure we'll be hurt. we'll lose almost a trillion. or about 1-2 years of growth. the US will be back to the civil war era though when hyperinflation hits, complete with slavery and plantations. however, by dumping treasuries the RMB also rises in value, and while the US dollar tumbles into toilet paper status the RMB's nominal appreciation will more than make up for our nominal losses... after all we can't use that money anyways so it doesn't affect our real economy in any way.

To begin with, it holds more than $1 trillion in U.S. assets, mainly in U.S. Treasuries. No other country or entity in the world could absorb those assets if China wanted to sell them, and with China's currency value pegged to the dollar, any massive sale would lead to a steep decline in the Chinese currency and economy. China's holding of U.S. debt is leverage only in a theoretical world where it could dump its U.S. assets or stop buying more. What's more, even a hobbled America is the world's largest economy and the most significant market for Chinese goods. In 2009, a supposedly bad year, Chinese exports to the U.S. were approximately $300 billion, about the same as in 2007. That is a vast source of income for China — and one that no other part of the world can provide.

The U.S., meanwhile, has been a source of billions of dollars in direct investment in China, from thousands of American companies big and small. While it's true that China doesn't need any one of these companies as much as each one needs China, China needs all of them and depends on them for everything from brand-name goods to know-how and capital. Beijing can't just snap its fingers and go it alone; its domestic economy is far too entwined with that of the U.S., its companies, its capital and its consumers.

There's little question that neither China nor the U.S. wants to be dependent on the other. China's rhetoric of late is proof, and you could easily demonstrate the same attitude coming from Americans. But each country has tied its economy to the other, and buyer's remorse notwithstanding, there is no immediate exit from this relationship. It remains a source of stability and prosperity for both countries. Two decades ago, China cast its lot with the United States, and until recently, that has brought it affluence. Now that things have gotten difficult, the Chinese want out. But when the heady intoxication of these weeks wears off, they will find that they have nowhere else to go. One day, perhaps, but not today.

 

[below_freezing]

that is laughable pop-economics with no basis in reality. the peg is artificial, china can unpeg any time it wants to and has indeed unpegged since 2005. have you noticed how the RMB appreciated 25% over the past 5 years, where's the peg now? tell me where is the peg? your information is WRONG and shows a lack of understanding of finance and economics. 300 billion in exports, major income? no, sorry, EU provides more first of all, and 2nd of all, the EU pays in goods rather than in worthless paper. Second, the value of the entire dollar denominated reserve is only 2/3 of total reserves

Foreign exchange reserves of the People's Republic of China - Wikipedia, the free encyclopedia

and furthermore, even if all of it was dumped, it would set us back only by its paper value in GDP even assuming the RMB won't rise.

Not all of it even has to be actually sold. you think global credit markets work like your local supermarket? a sale of even half would induce capital flight from the USD and hyperinflation. the only thing to worry about is not economic retaliation but military ones. your last statement is just more laughable. what happens when china just doesn't buy anymore? what happens to us? we don't buy we don't buy. we can issue price directives at will to stabilize the economy even if something bad (inflation associated with capital inflows mostly) happens. we already did do that. what about the US? can it handle mass capital flight, a collapse of the USD and inflation not associated with capital inflow but associated with the currency being turned into toilet paper?

 

[JayAtl]

that is laughable pop-economics with no basis in reality. the peg is artificial, china can unpeg any time it wants to and has indeed unpegged since 2005. have you noticed how the RMB appreciated 25% over the past 5 years, where's the peg now? tell me where is the peg? your information is WRONG and shows a lack of understanding of finance and economics. 300 billion in exports, major income? no, sorry, EU provides more first of all, and 2nd of all, the EU pays in goods rather than in worthless paper. Second, the value of the entire dollar denominated reserve is only 2/3 of total reserves

Foreign exchange reserves of the People's Republic of China - Wikipedia, the free encyclopedia

and furthermore, even if all of it was dumped, it would set us back only by its paper value in GDP even assuming the RMB won't rise.

Not all of it even has to be actually sold. you think global credit markets work like your local supermarket? a sale of even half would induce capital flight from the USD and hyperinflation. the only thing to worry about is not economic retaliation but military ones.

Your quite ignorant w/ your understanding of the worlds economy and as such I leave you with this,. The EU( and NATO) is heavily intermingled with the US market and has been before you all hat no cattle Chinese grew to be an economic power. They are not going to buy your dump of the treasuries to see their exports to the US take a dive. You see the " developed' world is wary of you, even alarmed at the arrogance China has been showing, while still very favorable and close knit with the US.

You are that poor man who just got rich, and got arrogant- what you don't know and show as a country is with great power comes great responsibility on the world stage. And world looks at you as highly irresponsible on the world stage. Have a nice day...

 

[ThatDamnGood]

US economy was once estimated to be 70% consumption.
Wealth effect cames from mortgages.
No real estate gains, ...
Someone in the EU should check on US figures and get us the real sordid details on the Debt to GDP ratio in the US. Ultimately, its their hide given the US sourced disparaging of the Euro.

Using a 'Zhongguo article', though some would say that makes it biased.

Final Remnants of the U.S. Housing Bubble

Final Remnants of the U.S. Housing Bubble
Recent data on the U.S. housing market shows that prices are once again falling – and the loss of equity is likely to be a drag on already slackened consumption


The elections and the budget deficit have dominated public debate in the United States in the last couple of months. However, the more important development for the economy is likely to be the resumption of rapid price declines in the U.S. housing market.

The collapse of the housing bubble, which began in 2007, was the original cause of the U.S. recession. At the start of 2007, prices were declining modestly. By the end of the year, they were falling at a rate of more than 1.0 percent a month. In 2008, this rate accelerated further, reaching 2.0 percent a month, even before the financial meltdown that followed the collapse of Lehman in September of that year.

The free fall continued into 2009 until a series of measures, most importantly when a first-time home-buyers tax credit of US$ 8,000 kicked in and propped up the market. By the summer of 2009, the price decline had stopped and prices rose modestly through the fall.

Prices appeared to have stabilized through the first half of 2010. The tax credit, which was originally scheduled to expire in November was extended until May and broadened to include some existing homeowners.

Analysts failed to appreciate the importance of the tax credit in sustaining the housing market. As soon as the credit expired, sales fell by more than a third. This should not have been surprising.

There are few people who buy a home as a result of an US$ 8,000 tax credit who would not otherwise be in the market. However, an US$ 8,000 credit could persuade many people who would otherwise have bought in the second half of 2010 or even 2011 to move up their purchase.

This seems to have been exactly what happened. Now that credit has ended, demand is weaker than ever. Yet, there still is the normal supply of homes on the market as a result of people needing to move for various job and family reasons. There also continues to a huge stock of homes on the market as a result of foreclosures and distress sales by people who can no longer afford their mortgage.

The weakening of the demand side of the market did not immediately send the market plummeting, but the latest data shows clear evidence that prices are now declining and likely at an accelerating pace.

The Case-Shiller 20-City Index, which is widely viewed as one of the best measures of housing prices, showed a 0.7 percent decline for September. Even more striking was the sharp decline in prices for houses in the bottom third of the market. In some cities, prices in this segment of the market fell by more than 7.0 percent in a single month.

This should not be surprising since the bottom tier of the market was the segment most affected by the credit. This is due to the fact that the credit would be a larger share of the purchase price of these homes and also most first-time buyers would likely be getting a home in the bottom third of the market.

However the price decline in the bottom tier is also likely to soon affect the price of more expensive homes as well. The sellers of bottom tier homes are buyers of homes in the middle and upper end of the market. If they get less money for the homes that they are selling, then they will be able to pay less for the ones that they are buying. Therefore it is likely that more expensive homes will also soon be seeing rapid declines in prices.

There is some evidence that this may already be happening. The Department of Commerce released data on new homes sales for October that showed the median house price fell by 13.9 percent in a single month. These data are erratic, but a price decline of this magnitude is difficult to ignore. The new home data are also useful because they are based on contracts signed. The other housing data rely on completed sales, which typically occur two months after contracts are signed.

The implication of these reports is that house prices are once again falling in the United States and quite possibly at a very rapid rate. Even the 0.7 percent monthly rate of decline shown by the Case-Shiller data would imply a loss of more than US$ 1 trillion in housing equity over the course of a year. If the rate of decline goes back to the 2.0 percent per month level then it would imply a loss of almost US$ 4 trillion in equity over the course of a year.

In either scenario, the loss of equity is likely to further weaken consumption, slowing an already anemic economy. It will also lead to more problems for the financial system since it will put more homeowners underwater in their mortgages and make the situation more hopeless for those already underwater. This means more foreclosures and more losses for banks and other investors.

This impact of this price decline may not be sufficient to throw the U.S. economy back into recession, but it certainly does not seem as though 2011 will be a good year for growth.

Dean Baker is the Co-director of the Center for Economic and Policy Research in Washington D.C.