Tag Archives: Elliot’s Blog

Big Banks are Challenged

The lobbying power of big banks is being seriously challenged by an alliance of big retailers. The issue; the Durban amendment lowering interchange fess that banks collect when anyone buys anything with a debit card. Retailers pay the fee but pass it on to consumers. The fee averages $.44 and is as high as $.98. These fees add up to $17 billion annually. The interchange fee for checks is 0. Go big box stores!

Chinese Trade Deficit!

Yesterday China reported that imports ($400bn) had exceeded exports ($399bn) in Q1 ‘11. This tiny deficit, China’s first in 7 years is an encouraging development for the world economy. It comes after 2 successive years of import growth outpacing exports. Hopefully this trend will continue. If so China will stop printing Yuan (to keep the exchange rate where it wants) and thus reduce domestic inflationary pressures.

Republicans Budgeting Badly

The Ryan G.O.P. Budget Proposal to abolish Medicare and replace it with vouchers to be used to buy private health insurance may be a great idea but privatizing Medicare does nothing to limit health-care costs. In fact, it almost surely raises them by adding a layer of private sector bureaucracy.Yet his plan assumes that we can cut health-care spending as a percentage of G.D.P. despite an aging population and rising health care costs.

ECB Wrongly Raises Rates

The ECB hiked its main interest rate to 1.25% from 1%, yet inflationary pressures and growth prospects are no different in Europe than in the US and UK and they are not raising. This decision marks the moment when differences in analysis and not divergent economic circumstances, affect policy decisions. This decision will hurt the fragile economic recovery and given the numerous event risks is not a wise idea.

No Government, No Problem!

If the federal gov’t closes does it matter to the economy? NO! Social Security checks will continue arriving and air traffic controllers will still land planes. The fragile recovery will not be harmed. The most serious and negative consequence; a strong signal that the upcoming debt ceiling increase and FY 2012 budget battles will be very contentious, which while not surprising is not good news.

Dibilitating Debt Service

Interest on the federal debt is 1.4% of GDP; $200 billion. But, it is projected to ramp up fast for 2 reasons. 1st we add $1.4 tillion to it every year and 2nd interest rates are at historic lows. If the annual deficit remains unchanged for 3 years and if interest rates double interest on the debt would climb to close to 4% of GDP or $500 billion; and would consume about 15% of all federal spending.

Treasury Yields, Stay!

There seems to be widespread view that Treasury yields will rise sharply once QE2 is over since the captive market for bonds, the Federal Reserve, will be gone. Wrong, wrong, wrong! The only way Treasury yields will increase is if we have an accelerating economy (not), rising credit demands met by increases in bank lending (not) and heightened inflation risk (not).

Consumer Confidence?

26 I think consumers felt better as ‘11 got underway. According to the latest Conference Board survey the index came in better than expected in Jan. rising to 60.6 from 54 in Dec. But, the Univ. of MI Consumer Confidence survey showed a near-two point dip in Jan. To put the CB’s Jan reading of 60.6 into context, the avg level during economic expansions is about 100; during recessionary periods the average is below 70.

Losing London

On the Data Front: December consumer spending surprised to the high side at 0.6% (consensus was 0.3%) and oil is down from its lofty heights on talk of increased supply coming out of Riyadh. Gold is also down based on the illusion that Germany will bail out the whole Club Med area. However, the big news is the 0.5% FALL in UK real GDP in Q4. The genius macro forecasters had the right digit but the wrong sign! Ouch!

Money, Money, Money….

Despite recent enthusiasm real incomes are under pressure. With the 0.5% hike in the December U.S. CPI, real wages fell 0.4% and have fallen in 3 of the 4 last four months. The pace over the past 6 months is now running just 0.15% above zero; way below the 3.6% trend of mid-2010 & the annualized 3-month trend is even worse. No matter how you slice it, wage growth is dramatically slowing and is barely positive