A series of ambivalent events

[solarbird]

Good afternoon; this is my second (and should be last) econ post of the week.

Goldman Sachs thinks Canada will emerge from recession first, which sounds awesome except they also think the UK will as well, and the UK's banking system and debt position is extremely bad, with the UK government credit outlook being lowered to negative. So I don't know how much I'd put into that comment. More interesting is the timeline GS presents - quite a bit longer than is talked about in most of the US media.

The US Leading Economic Index rose from disastrous to mostly disastrous in the latest report, but remember that stock prices are a significant portion of this, as is consumer confidence, which essentially tracks the DJIA. (eta: well, a mix of that and gasoline prices. Sorry.) So that's a double-dose of bear-market-rally boost to the LEI. Still, it's food for the bulls, even if they're not appetite for it today.

None of this helped the US dollar, which performed quite badly on credit-ratings worries and troubling T-bill sales, falling to around 80.5 on the index. The US Treasury wants to sell another $101B in debt next week, even as there are reports of European central bankers getting tired of holding so many T-bills, but no really very good data on that. Secretary Geithner made a vacuous pledge on the budget today in response, but I doubt anyone believes it. University of Texas professor James Galbraith, son of John Kenneth, by contrast, calls the massive US deficit an unalloyed good.

Oh, and the Fed bought another $7.7B in US treasuries on Wednesday, and the Treasury threw GMAC another US$7.5B.

Mish Shedlock has a large number of revealing charts on US household debt vs. income. (llachglin, this is the sort of barrier I'm talking about to goods demand.) The Federal Reserve San Francisco report these charts come from is here. This will be compounded by the generalised shortfall in pension funds across the US, as highlighted by the latest massive failure to cover, in the form of GM.

US weekly first-time unemployment insurance claims fell a little this week, but that's still another 631,000 people looking for unemployment insurance. Still, the four-week moving average has declined very, very slightly - by 3,500, or just over 0.5%. It's not becoming any easier to find a job, though - continuing claims hit another new record, just under 6.7 million, four-week-average just under 6.5 million.

California real estate prices continue to plummet on bankruptcy sales, depressing prices 36% from one year ago. Foreclosure sales were 54% of the market in April.

Japan posted another record drop in GDP in 1Q2009, down 4.0%, which isn't actually as bad as the 4.2%-4.4% range expected, largely on falls in exports. China is facing a new issue; no longer being the cheapest manufacturing centre, losing out to India and regular contender Mexico for that crown. Chinese imports, on the other hand, have at least temporarily come out of free-fall.

And that's all from me on this 'till next week, barring a major event; enjoy the long weekend, if you have it.

eta: Just a couple of pointers on Friday: Secretary Geithner is going on more about cutting the US budget in the short to intermediate term as T-bill rates continue to rise. He's blaming "prospects of economic recovery" for the jump in rates - but then talks about deficits. Hmmmm. Meanwhile, the US dollar index bipped below 80 this morning, briefly, and is hovering right at that level as I type. Karl Denninger at Market Ticker talks about the psychology of markets regarding inflation and fiat (paper) currencies here, amongst other topics.

Comments

[kallisti.livejournal.com]

I've always wondered how well Canada would do, considering they are the US #1 trading partner. We (Canadian half of myself, the other half is American) supply the US with more oil, gas and electricity than any other country. Much as we like to be the "True North strong and free", we are very much tied to the US economy. Luckily, our banks are not run the same way US banks are!

ttyl

[solarbird]

Indeed. I feel quite a bit better about our Canadian money than our US money right now, and, really, have for a while. The Canadian banking system is - as far as I can tell - in much better condition than most in the west. Of course, the Canadian dollar being undervalued has had significant advantages for Canada, and not being so will cause some issues too.

[llachglin.livejournal.com]

We're not going to deal with this problem by either trying to go back to the consumer debt-driven economy or by doing nothing and just waiting for all the debt to play out while job losses mount and our productive capacity collapses.

One of the virtues of government spending in a recession is that it can help fill the GDP gap and avoid deeper job losses, maintain or even raise incomes, and invest in technologies that increase the standard of living and produce future economic growth. And it can continue while consumers get their finances back in order with increased savings without falling prey to the paradox of thrift. It's true that we'll have to pay back that debt eventually, but the financing costs are much less than the benefits.

My problem with the Obama administration is that it errs in doing too little, and focusing what it does do too much on getting things back to the (broken) way they were. They would do better to focus on job-generating spending that would raise incomes rather than just fix the immediate problem so that people can go on creating debt. But doing nothing is worse than that, and there's enough productive investment in the stimulus bill and enough of a change in public outlook that I think the old days of putting everything on the credit card or mortgage might still be on the way out.