Archive for January 2013
GDP Behaving Badly
Despite GDP contracting at an annual rate of 0.1% in Q4 2012, the worst quarter since the end of the recession in 6/09, another recession isn’t in the cards. That’s because the data also showed relatively strong spending by consumers and businesses. Military spending posted its sharpest quarterly drop in 40 years, 22.2% (a one-time…
Read MoreSequester Certainty
Given Republican unwillingness to raise taxes and Democratic insistence on it, the delayed automatic $110 billion sequester will kick-in on March 1st. This will reduce GDP growth by 0.75% and guarantees a weak first half of ’13 as the economy is already painfully digesting the two percentage-point Social Security tax hike that began 1/1/13. The…
Read MoreReserved Federal Reserve
As the economy strengthens, the Fed must begin to end its exceptionally expansionary monetary policy of the last half decade. It will begin by halting its purchases of $85 billion/month in Treasuries and mortgage-backed-securities. Second, it will stop reinvesting interest and principal on its holdings. Third, it will start raising overnight interest rates and lastly…
Read MoreGovernment Goes On!
If a continuing resolution is not passed by the Congress by 3/27/13, the Obama administration will be forced to shut down activities funded by appropriations and all non-essential government operations. But this isn’t that ominous. Only 40% of federal spending relies on appropriations and two-thirds of that is considered “essential” and thus will continue even…
Read MoreNobel Chocolate
The Friday File: Flavanols in cocoa slow and even reverse age-related cognitive decline. Better yet, a nations’ annual per-capita chocolate consumption is correlated with the number of Nobel laureates. The country with the most Nobels per-capita and the greatest per-capita chocolate consumption: Switzerland, followed by Sweden and Denmark. The U.S. was in the middle. To…
Read MoreGimme Growth
While raising taxes and cutting spending can solve our debt problem, a better approach is to foster faster growth! If an increase of 1% in the economy’s growth rate were maintained over the next decade, the debt-to-GDP-ratio in 2023 would be reduced by 17 percentage points and our fiscal problems would be largely solved. And,…
Read MoreMonetary Slow Down
While the Fed has increased the money supply by $2 trillion and will increase it by another $1 trillion by 1/1/14, inflation is MIA. This is because the velocity of money, or the number of times a dollar changes hands before it is saved, has collapsed. Before the Great Recession, M1 (cash) velocity was 10.5,…
Read MoreHouses for Nothing
According to CoreLogic, house prices rose 7.4% for the 12 months ending 11/12 (6.7% excluding short sales), the best numbers since 5/06! With 30-year mortgage rates at 3.4%, this means that the real cost of financing a home is NEGATIVE 4%! That’s like getting paid 4%/year to buy a house. As a result, it’s not…
Read MoreBaby Me!
The Friday File: To see if having children shortens your life, childless couples who sought in vitro fertilization (IVR) and were successful were compared to those who tried and were unsuccessful. Turns out women who ended up childless had a death rate four times greater than those who gave birth. For childless men, the death…
Read MoreOctane Economics
Because households irrationally assign fixed amounts to budget categories such as clothes or food, price changes within a category can result in bizarre behavior; case in point, gasoline. Seems a rise in gas prices (which reduces purchasing power) causes households to shift from high-grade gasoline to low-grade gasoline 20 times more than when purchasing power…
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