The U.S. Economy: Stand by for more worse news

You have just one small problem, it's called reality. US employment is up yet again and unemployment is down yet again.

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"The jump in employment was broad-based, including manufacturing, construction, temporary help agencies, accounting firms, restaurants and retailers. The number of industries showing job gains climbed to 64.1 in January from 62.4 a month earlier." - Bloomberg

http://www.bloomberg.com/news/2012-...-january-unemployment-rate-drops-to-8-3-.html

 

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That really is "worse news" than I thought - Every home owner must be "under water" if you are correct that "There is *nobody* that must sell." (Not even to raise funds for mother´s medical bills, etc.)

I had the silly idea that many long time owners sell their mortgage-free home to get funds for world travel, retiring in Florida, etc. In fact I have read that 75% of home owners are NOT, under water and can sell to raise cash for their various needs. But you know more than I do. :shrug:

For example in prior post you said that I was wrong to suggest that by definition there was one buyer for every seller. You falsely noted that my "one buyer" was a home owner and that my "one seller" was a guy with new cash, or at least a cleared mortgage, not a seller.

What you don´t seem to understand is that in the real world there are sales contracts, which when signed make this one buyer & one seller relationship. It typically is more than a month after the sales agreement is signed before the buyer becomes a home owner.

That is because, with very rare exceptions, there are conditions in the sales agreement that take time to resolve. For example, almost always the buyer does not need to buy / go to settlement if no bank will give him a mortgage at X % or less.

Quite commonly one of the buyer´s conditions is that the house he already owns must sell (go thru settlement) first for at least D dollars. This sets up a chain that can take some years to terminate in the buyer becoming a home owner.

My Lab Tech at APL was a licensed real estate agent. He got leads from his friend (brother?) who drove a heating oil delivery truck. – When oil heated home owner just starts to think he may sell, first thing he does is to cancel the automatic oil delivery contract. (Wants his 600 gallon oil tank near empty, not full.)

With 40 hour work week, kids, church, etc. he had no time for “cold contact” real estate, showing dozens of houses to many who just enjoy looking, etc. but did often with only an hour lost become the “listing agent” for those who had stopped the automatic oil delivery.

Reason I tell this, is one day he took me out to lunch. Finally, after several years buyer #4 in a chain became a home owner, which then made buyer #3 a home homer, which made buyer #2 become a home owner, so his listing went to settlement – I.e. buyer #1 became a home owner. He had also listed the house buyer #3 bought, so got two listing agent´s 3% (6% total) in commissions after about three years of waiting for them. He rarely sold any homes, as lacked time to do so, but that chain gave him a pay day almost half is APL salary and he wanted to celebrate.

Also we were friends and one of his few sales was to me (16 acres of wood land near just being constructed I-95. - Part I bought was "I-95 excess" with no one actively trying to sell.) Some years earlier I had asked him to keep his eye open for wooded lot with stream when he looked at new listings and read real estate legal notices. Thus, my free lunch was in some part a thank you for that rare sales communion.

Correcting two of your errors is all I have time for now so did not read much of your post.

PS my first owned "townhouse" in a group of 42 (seven buildings) had had three prior sales contracts on it, but no settlement. Most of my neighbors had wanted to buy it as it was end unit of line of buildings with woods on back and long side of unit. (But when they were buying, it was already "sold.") Some were even hostile to me as I got it later for $5000 less than they paid earlier for their unit. It was the last of 42 to sell and developer was based in Virgina, so did not keep an agent on the developement any longer for just one unit, more than 100 miles from the office.

I knew he badly wanted to sell so wrote the front page of the sales contract myself - A firm offer to buy with no conditions in it*, if my $5000 less than asked offer was accpted by 5PM on (date) about 5 days later, and offer to buy it was void after that time, but a second offer to buy another devleoper´s unit became valid. I was going to be a buyer of some Bryant Woods townhouse with a week - I just did not know which.**

Unit is in "May Wind Court" and one of the first built in Columbia MD - There were no more built by that VA developer in all of Columba as for some strange reason,

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, he turned sour on such distant projects. (I paid less than $30,000 for the best of all end units! - two side windows looking out on woods, where the main Columbia planner, Mort Hopenfield, had built his very expensive barely visible home in several acres of woods.)
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* I paid cash, but did have right to delay settlement (for up to 3 months, as I recall) to sell some stocks, etc. raising that cash. - I am very frugal, had no need of a house and its expenses so I rented for about 6 years after getting my Physics Ph.D. before buying with at least half my salary invested each month.

** I wanted to live in Columbia, less than 5 minutes drive from APL, for the good new schools*** my daughter would soon enter. I was one of the "pioneers" (first 1000 to buy) when Columbia was only the neighborhood called "Bryant Woods." None of the other neighborhoods of the village of "wild Lake" yet existed and the other six villages were not even on the drawing boards!

*** Rouse, developer of Columbia built them, very modern, as center of each neighbohood an gave them to Howard County. Half of elementary kids don´t need to cross any street, which is a large loop around the elementary school. Half cross only that strictly residential road. For these gifts and other consdierations, including free "turn key equipted fire stations," water towers, etc. he got a very free hand with the zoning - Columbia is a special "new town zone" Rouse wrote.

 

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You have an even bigger problem, your research. Your sources are manipulated and tainted. Your view of reality is an artificial construct. You are essentially telling me, based on government statistics, there will be no need for the government to further manipulate the economy. This is called circular logic, or circular reasoning, it is a fallacy. Religious fundamentalists arguing from the bible use it all the time. You can't use government statistics to argue your point for the effectiveness of government policies. . . sorry. If you don't understand why, you don't understand the fundamentals of political science and realpolitick. Read some Machiavelli. Why do you think King James re-wrote the Bible? Why do you think the Romans wrote the first draft of the Bible, it was good for controlling people. The government is the one that publishes that statistics for a reason.

As the old saying goes, there are three kinds of lies when it comes to the government; Lies, Damned Lies and Statistics.

This sort of naivete' worked on the really ignorant masses in totalitarian Soviet regimes, but eventually, they got sick of it. I recommend you read the following article. But I understand your ego is so bound up in liberal thinking, and supporting the establishment politicians, that you just can't or won't understand elite ownership of the press. When you decide to use a source that isn't owned, I will take you seriously.

Elites Push Government-funded "Public" Media

http://thenewamerican.com/usnews/politics/4440-elites-push-government-funded-qpublicq-media

The above red-bold author and titled article led me here. . . TERRIFIC PIECE from the Washington post! http://www.pennsylvaniacrier.com/filemgmt_data/files/Ruling%20Class%20Journalists.pdf

The only thing your post proves is that it is a mouthpiece for what Washington wishes you to believe, not that it is actually in fact the truth.

 

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LOL, Yeah, I use credible sources versus right wing whacko sources. Like I said before and for which you ignored, if you can prove there is something wrong with my sources now is the time to do it.

I never said nor implied same. That is you making stuff up again.

A load of inane crap, none of this is relevant to the issue at hand much less true. If you don't like government statistics, then prove that they are wrong. You have not been able to make a case against government statistics. Your argument against government statistics boils down to this, "you can't believe government statistics because you don't like them". That is not a rational argument my friend. You have numerous errors in your logic, but this is a classic argumentum verbosium or as I call it crap and run.

OK, so where is your proof? And how is it that government lies more than any other organization or yourself for that matter?

Just who is naive here? You are the guy who holds his hands over his eyes and ears in a vain effort not to see or hear. If the "statistics" produced by government and used by professional investors and business men and women to invest are wrong, then where is your proof?

As previously pointed out to you, the business community relies on these government statistics that you don't like. They, including myself, make a lot of money using these "statistics". Arrogance is your name my friend, the pros know these numbers. They use these numbers.

I find it so very funny that you are calling the entire business community naive because they rely on and productively use these government statistics that you don't like. Have you looked into the mirror recently?

Instead of relying on right wing whacko web sites where fiction magically becomes reality just because someone said so, you might try to walk in the real world one day. But be prepared for what you might find.

 

What exactly makes your sources credible, and the multiple sources I have cited so "wacko?"

 

My source in this case, is The United States government; citing a metric that is reported and complied in a very open and well documented process that is repeated and published every month. Additionally, the metric is scrutinized openly by scholars and private industry alike at each and every publication of the metric.

Your sources are not credible because they cannot backup their claims with anything even faintly resembling evidence or reason. They, like you, make bizarre claims that you nor they can support with evidence and reason. Your arguments always begin and end with an implicit "because I say so or because "x" says so". Your say so, or the say so of those like you is not evidence or reason. Your failure to do your homework and research is not an excuse either. Before you go off at the fingers, it is good to know something of which you write.

You still have not addressed all the issues I raised with your previous post.

 

"... Dim sum bonds are commercial and government bonds issued in Hong Kong but denominated in Chinese renminbi rather than the local currency, the Hong Kong dollar. … deregulation in July 2010 led to the development of an offshore market in renminbi and the internationalization of dim sum bonds. … McDonald's raised 200 million yuan in three-year bonds just one month later. … Dim sum bonds offered cheap financing compared to the interest rates charged by Chinese banks at the time.

Companies like Volkswagen AG and Caterpillar , for example, floated bond issues soon thereafter to finance their burgeoning operations on the mainland. And at the end of last year, it was even announced that Agincourt Capital plans to raise the equivalent of $500 million in yuan to finance the purchase of property in Australia. If consummated, this would be the first secured convertible renminbi bond where funds will be invested outside of China.

Guggenheim Yuan Bond ETF, Invesco's PowerShares Chinese Dim Sum Bond Portfolio, and Van Eck Global's Market Vectors Renminbi Bond ETF are traded in the U.S. and have $5 million to $6 million in assets.

{Billy T insert: The Dim Sum bond market is very tiny compared to US bond market – just starting up but potentially can become bigger, as China is where the “non-borrowed” money is. And it is rapidly growing: only 16 billion yuan of the bonds were sold in 2009. Then 35.7 billion yuan of dim sum bonds were sold in 2010. Then About 160 billion yuan, of dim sum debt was sold in the first 10 months of 2011. – Grew more than 10 fold in less than three years. (or > 20 fold if this is correct: Fund powerhouse BlackRock launched its first dim sum bond mutual fund in November 2011. It has about 190 million yuan in renminbi assets under management, according to The Wall Street Journal.)}

The fledgling dim sum market still has a long way to go before it's on par with comparable markets in the West and Japan. But if it is successful, then it will change the world as we know it. Not only will it facilitate the ]internationalization of the yuan, but it will also offer both individual and sovereign investors an alternative to government bonds issued by the United States, Europe, and Japan. The likely net result will be higher relative yields in the West.

There are two takeaways. The first and immediate one is that you can now gain direct exposure to China's {appreciating wrt dollar} currency via the dim sum market through the three exchange-traded funds mentioned above. And the second, albeit less tangible, takeaway is that the shifting onus of global financial power catalyzed by this market is something that you should exploit by diversifying at least a portion of your portfolio into emerging markets like China's. …”

From: http://www.fool.com/investing/general/2012/02/10/how-dim-sum-bonds-will-change-the-world.aspx This article entitled "How Dim Sum bonds will change the world" starts with:

"... {large US bond market & and dollar reserve status is} referred to derisively abroad as America's "exorbitant privilege" -- a term first coined by Valery Giscard d'Estaing, the French minister of finance under Charles de Gaulle. In short, this privilege refers to our ability to borrow cheaply and without limit in U.S. dollars. ..."

Billy T also notes that investing in real estate to rent is no longer attractive to wealthy Chinese. They will invest in Dim Sum bonds western companies (and very wealth westerners) issue to get Yuan for projects both in China and all over the world, which is increasingly happy to get appreciating RMB, instead of declining value dollars for their minerals, oil, food stocks, lumber etc. and for construction of facilities in Africa, etc. I.e. Rich Chinese give bond issuing firm some of their Yuan for the bond´s promisse to give it back in a few years with interest. (They will be repaid, even it the borrowing company does as US does - borrow again to pay off maturing bonds. Again China is where there is non borrowed money to lend.)

 

It's almost like a perfect shit storm.

 

The US economy is doing well if your someone like Corzine and can steal money with impunity. I hear the banking sector is going from strength to strength. Thank you Helicopter Ben - history will remember you kindly I am sure.

 

Here's another way to look at a country's prospects. It is another way of saying how the amount of natural resources that are generally available per person and the accustomed per person rate of consumption, taken together, can be used to determine economic security.
http://www.sciencedaily.com/releases/2012/02/120220142647.htm The U.S. isn't positioned very favorably.

 

The president is generally immune from subpoenas. Otherwise any morons could sue him and force him to neglect his duties.

 

The whole world* is going to hell in a flood of fiat money:

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ECB says: "anything the FED can do, we can do too - we´re a bigger economy." ECB has printed more than a trillion Euro in last 3 months!

* China is the main exception (perhaps Brazil, Australia & NZ too) with a currency that is appreciating in value as they have not got their money printing press up to 24/7 speed.

 

The government "sets" wage percentiles or just "reports" these percentiles? Could we say the government cannot stop wages from being too high for all jobs, including congressional wages? Are all wages and profits a level of welfare, entitlement, or even theft?
Is everybody on welfare? Does everybody make too much money? Should everybody, including drug testers and congress, be tested for drugs?

Are today's wealthy the same "robber barons" of yesterday?

 

“… all enterprises with an import-and-export license will {now} be allowed to settle their foreign trade in Yuan. Previously, only selected businesses were allowed to do this. … {China} has also made efforts to make the currency more convertible under the capital account over the past year, including allowing foreign direct investment to be settled in Yuan.

At present, most Yuan-denominated trade settlement is conducted in {China´s} imports. Foreign enterprises are more willing to receive Yuan than to use it for payment because the currency has been appreciating against the US dollar. …” From: http://usa.chinadaily.com.cn/business/2012-03/03/content_14746637.htm

Billy T, first restating the above more clearly, then some comments:
China would like buyers of Chinese goods to pay in Yuan, not dollars, but the buyers don´t want to give up any appreciating Yuan they have. They want to spend dollars before they lose even more purchasing power. Foreign firms are however; very happy to receive Yuan for the goods they ship to China.

This is fine example of centuries old Gresham Law. See: http://en.wikipedia.org/wiki/Gresham's_law
As commonly crudely stated “The good money drives out the bad.” Meaning if there is some sound, appreciating currency, people will hold on to it (save it in their mattress, etc.) and spend the “bad money” – the one losing value, etc. is driven out into circulation as all try to pass it on to someone else.

They Yuan is the good money and the dollar is the bad money. So if US firm or person has both and buys a good from China he wants to pay with the bad money (the dollar is “driven out into circulation”) Like wise, if US firm is selling some goods to China, he wants to be paid in Yuan, not decreasing value dollars.

Thus this new policy of China´s will not do much to make the Yuan more of an international currency as it is trying to violate Gresham´s Law. The same good money vs. bad money arguments is why US companies are rapidly increasing the use of DimSum bonds. Many rich Chinese have lost money investing in rental apartments in the last year. They don´t trust their government or banks and banks don´t pay high enough interest to cover inflation erosion. They have two new (less than one year legal) choices:

(1) Open gold account in their bank. – I.e. deposit X Yuan and get their account credited with G ounces of gold. They cannot take the gold out but if gold price goes up, they can convert their G ounces of gold in the account back into Z Yuan where Z > X. I.e. a safe and convenient way to speculate on rising price of gold in China. Chinese banks must buy gold to equal the sum of all the Xs in gold accounts. This means the population is helping China be the world´s largest buyer of gold as well as the world´s largest producer. {The CCP can always confiscate it at below market price as the US did, in 1930s, as I recall.}
As I have noted before I think in not too distant future, China will use it growing hoard of gold to back new RMB bonds, for central banks only, with gold – making them more desirable than US bonds (just paper promises) to hold as the central banks reserve currency, but China is not quite ready yet to destroy the dollar, for reasons I have often stated.

(2) A rich Chinese can lend his Yuan to bank in Hong Kong, which then will give it to a US (or other foreign) firm in exchange for the firm´s promise to pay back in T year in RMB with interest I, which is much more than the rich Chinese can get in China. These bonds are called DimSum bonds. McDonalds was the first to issue Dim Sum only a couple of weeks after they became legal - McDonald is rapidly expanding its food store in China and need RMB and this was the cheapest way to get them. There has been an explosion of new Dim Sum bonds issued and not all are being used to build stores, factories etc. in China. Again Gresham´s Law is operating- For example if you own a mine in Australia (or even the US) and want to sell it, which currency would you rather be paid in? Depreciating dollars or appreciating RMBs?

It is the Dim Sum bonds that are making the RMB an international currency, not this Gresham Law violating just announced legality to settle trade balance in RMBs (for reasons I explained at start of post). Most central banks cannot hold Dim Sum bond as issued by the likes of McDonalds, so the second “shoe” is the Chinese government RMB bonds back by gold is when the dollar collapses. Then the US´s decades long era of paying for imports with printed paper ends. Unable to pay for oil, etc. it needs, the US quickly descent into “Greek like chaos” (street riots, food stealing and worse, with a near worthless dollar.) – The worst and longest lasting depression in US and EU, but not in China and its suppliers of needed imports.

 

As many know (or certainly could) several years ago, I predicted China would issue interest paying, gold-back bonds to central banks (only) when they wanted the crash the value of the US dollar. I.e. for five years China is world´s largest gold producer - about 150% of the number 2. AND is also the would´s largest buyer. - I told the main things China would do first, before backing bonds with gold:

(1) lower the dollars in their reserves (as they did in 2011) by buying real assets they will need - paid up front contracts for up to 30 years into the future delivery. One of these gave 10 billion to Brazil´s PetroBras about 5 years ago which will be paid back over 20 years by the delivery of 200,000 barrels oil crude EACH DAY.

(2) Convert to more of a domestic and less of an export based economy, but note China will remain one of the world´s largest exporters. The change is in to whom they export. Much more to Asian suppliers of lower value components (like fans) they build into high value added products like computers and cars, etc. AND to the suppliers of raw materials, energy & food (buying foreign farms included) like Brazil & Australia, both already have China as their main trading partner, not the US as a few years ago. I.e. China knows the US and EU are broke - can only buy if China lends them the money or they run currency printing presses 24/7 (as they currently are - ECB more than a trillion Euros in last three months!).

Here is a long link telling sort of the same thing, but suggesting that China will back the Yuan with gold. - I think only bonds issued to central banks will be gold backed. - But I agree they want RMB to be the world´s reserve currency - I.e. to do as US has done for ~50 years - pay for imports, oil included, with printed paper:

http://pro.stansberryresearch.com/1202CHINAPSI/LOILN310/

 

Following, on the surface, looks like very good news, but it ain´t:


“…The U.S. Treasury Department is selling $6 billion in shares of American International Group Inc. (AIG), the insurer rescued in 2008 … Orders were received for all of the shares, which were offered at $29 apiece, and the books are closed. … The department {also} sold 200 million shares of New York-based AIG in May at $29 each, cutting its stake {then} to 77 percent.

The Treasury recovered about three-quarters of the $413 billion disbursed under the Troubled Asset Relief Program, according to an October report. Aid to GM and Chrysler LLC helped avert the loss of more than 1 million jobs, said the Center for Automotive Research in Ann Arbor,Michigan. Treasury Secretary Timothy F. Geithner told Congress in 2010 that AIG had to be saved to avoid an “utter collapse” of the global financial system. ..." From: http://www.bloomberg.com/news/2012-...ts-shares-on-offer-in-6-billion-u-s-sale.html

Billy t notes that is purchase price was $28.6 per AIG shair. I.e. on the surface it seems the Treasury has made profits with the AIG part of its TARP program, but one should note that since 2008 there has been huge printing of fiat money.

The inflation effect of this flood of dollars has not shown up yet as banks which received the dollars are not lending them but sending them back to the Treasury for sure safe profits. I.e. this fiat money is not circulating to any significant extent. When it does the treasury will take a huge hit (not a profit) on the purchasing power of the TARP investment.

I.e. this is just more “kick the can down the road” to postpone / avoid now/ the disaster that is coming.

 

I realize that this thread title speaks predominantly to the U.S. economy but I figure that as China is a huge part of the global economy that the following item may be of interest to those following this thread, especially those who enjoy drinking Bordeaux wines.

http://uk.reuters.com/article/2012/03/06/us-france-wine-china-idUKTRE8250UZ20120306

 

Rich communists? Mao would not approve.

 

By "sending them back to the Treasury", you mean banks are buying bonds. That's normal. But if it gets to the point that it reduces liquidity, the FED steps in and buys the bonds back, dumping liquidity back on them and encouraging the pending loans to go through.

I don't see this as kicking the can down the road, but merely the natural ringing in a feedback control system. It may actually be a sign that quantitative easing is producing the desired results.

 

No not normal. Normally the role of banks is to attract funds from people who want to save by paying them interest, and then lend those fund to other people (to buy house, expand their business, pay for kids college, etc.) The FED has made interest rates on bank saving account so low that few funds are being depoisted. Thus, the banks don´t get funds from the public like they normally would. Also, the banks are sacred to lend to the public and now have much higher requirements for granting a loan. (Almost: If you need a loan, then your not qualfied for one.) The FED tried to (and did) supply the banks with funds they could lend to the public hoping to get the economy more robust; however, most of the funds the FED supplied were used to buy US treasury bonds. This problem is even worse in EU - The ECB has given banks more than one trillion euros in last three months, and essentially 100% of it has been used to buy goevernment bonds - this did drive the interest rates Italy etc. had to pay from >7% to less than 5% but did nothing to stim the EU´s slide into negative GDP growth / recession.

Yes the FED is the main buyer of bonds, now. That is main way the deficits of the government are financed. Your "buys the bonds back" seems confused. The FED did not give the banks any bond. It 12 "participating" simple were told to increase the FED´s accounts in them by X billion dollars. These "new deposits" in the bank were the money the banks used to buy bonds from the treasury. True, the banks could sell these bonds to the FED or the buying public, but why would they do anything different with the funds rasised than they did before? - I. e. They would just buy more Treasury bonds again.

The FED is making the money supply greatly increase, but it is not entering the economy - just buying bonds; however, there will come a day when all this new printing press money does enter the economy as the bonds are being sold -They are dropping in value as interest rates rise. There really is no way to undo all the fiat money produced. When it does enter the economy, the value for the dollar will drop, increasing rapidly, interest rates will rise, etc.

The FED can (and is) holding interest rates down by printing dollars to buy bonds, but all know that is just making more fiat money and must end in terrible inflation. I.e. that problem is not yet here - it has been kicked down the road, not cured.



It is the old "you can lead a horse to water, but you cannot make him drink" problem. The banks don´t find many to lend to - you can not make them lend.
So by pushing more money on the banks the FED is "pushing on a string" - not getting the money into circulation as Joe American is not borrowing but "deleveraging" (reducing his debts, not increasing them).