Golden Gate Bridge FAIL


U.S. Trade Gap Drops as Exports Rise to Two-Year High – The trade deficit in the U.S. shrank more than forecast in October as a weaker dollar and growing economies overseas propelled exports to a two-year high.  The gap narrowed 13 percent to $38.7 billion, less than the lowest estimate of 78 economists surveyed by Bloomberg News and the smallest since January, Commerce Department figures showed today in Washington. Exports were the strongest since August 2008 as Mexico and China bought record amounts of U.S. products. 3M Co. and General Dynamics Corp. are among companies that will probably benefit from growing demand in markets like China, Brazil and South Korea, which this year are among the top-10 buyers of American-made goods. Imports stagnated in October as U.S. demand for crude oil plunged, an outcome that may prove to be temporary as the world’s largest economy picks up

German 2 Year Auction Fails By 20% Of Notional As Rush From Government Paper Intensifies – There is only so long that the Bundesbank can keep ignoring the fact that it has recently started piling on failed auction after failed auction. Today, Germany tried to sell €5 billion in 2 Year 1% Schatz notes. And while the official tally on the auction was a 1.1 Bid To Cover at a 0.92% average yield, just above our own 3 Year auction yesterday, (and a drop from the 1.4 previously) this was yet another failed auction, as the bank managed to get only €4.33 billion in competitive and non-competitive bids. The kicker: the Bundesbank retained €995 million of the issue, a whopping 20% of the proposed issue size – this is the amount it could not find any buyers for, and the deficit to what have been a non-failed auction. In other words, after the entire world was rushing to buy German paper, suddenly there is nobody willing to get in.

 Is it time to call it quits on the Euro? – It pained me to write this as I have never been a Euroskeptic, but I fear the answer for Greece, Ireland, Spain, and Portugal may well be yes.  These countries need both debt restructuring and a boost in competitiveness, and it is very difficult to see how they will get those while remaining in the Eurozone.  The most likely alternative is economic decline and political turmoil. Through long and painful experience, Europe’s leaders first learned that financial integration requires eliminating volatility among national currencies.  Next they learned that eradicating currency risk requires doing away with national currencies altogether.  Now they are learning – but resisting – the lesson that you cannot achieve monetary union, among democracies, without political union. In other words, Europe is learning that political trilemma of the world economy applies there too.  It is a very sad story for one of this century’s boldest economic experiments. 

There Is No Such Things As Monetary Policy – In my last post, I argued that bank reserves, if they pay interest, are essentially a form of government debt. They’re issued by a different institution and have a different maturity than most government debt, but in their essential nature, they’re just a special case of government debt. I was agnostic about whether bank reserves should be considered “money.” If bank reserves are government debt, then, to be consistent, we should either consider all government debt to be money or consider bank reserves to be something other than money. In particular, Ben Bernanke’s use of the phrase “printing money” is consistent if you consider all government debt to be money, in which case QE2 only exchanges zero-maturity money for high-maturity money whereas QE1 exchanges money for private sector assets. If you take the second option, however, then neither QE1 nor QE2 was “printing money.” I want to explore that second option, which seems pretty reasonable in terms of the way I learned liquidity preference theory in school. In the simplest version of liquidity preference theory, money (1) pays no interest and (2) is controlled by policymakers. Obviously bank reserves no longer meet the first criterion, and bank deposits do not meet the second criterion. I’m increasingly coming to believe that the most reasonable definition of “money” is simply “cash” (negotiable central bank notes plus coins). But the Fed does not attempt to control the supply of cash.
The Number: $858 Billion – The Obama-McConnell tax compromise will cost $858 billion over the next 10 years, according to estimates from the Congressional Budget Office. In other words, the Republican-backed tax plan will cost more than the stimulus bill, which priced out at $787 billion. For starters, extending all of the Bush tax cuts for two years will cost a total $675.2 billion over 10 years, according to a Dec. 3 Congressional Research Service study. Setting the estate tax at 35%, adding an exemption for estates under $5 million, knocking 2 percentage points off employees’ portion of the Social Security payroll tax, and the cost quickly goes up. So, how does the U.S. pay the bill? Republicans, some Democrats and numerous economists argue the tax breaks will help quicken an economic recovery and eventually boost federal revenues.
Annals of CDS manipulation, Goldman Sachs edition – A politician whipping up a storm over artificial manipulation of the CDS market? So far so boring. But this time it’s different: the politician in question is Senator Carl Levin, and he has explicit emails from Goldman Sachs (oh yes) which show bond trader Michael Swenson trying to engineer a short squeeze in CDS: Goldman Sachs’ trading activities in the credit insurance market in 2007 have come under attack from a US senator after e-mails revealed a senior trader urged colleagues to “kill” some investors’ positions. Carl Levin, chairman of the Senate permanent subcommittee on investigations, told a hearing on Wednesday that the alleged activity “looks like a trading abuse to me”, If you look a bit closer into this story, it turns out to be doubly ironic. For one thing, the squeeze was meant to drive down the price of credit protection. The WSJ misses this, saying that Goldman “wasn’t the only player in subprime mortgages to bet that the market would suffer”; in fact, the scheme was designed to bolster the market and make it look artificially healthy. If it had worked, Goldman would have made money on bond values going up. Which raises the second irony: the strategy didn’t work. Which allows the bank to wheel out the rare Goldman Sachs Incompetence Defense:

Fed Assets Reach Record $2.39 Trillion on Purchases of Bonds – The Federal Reserve’s balance sheet reached a record $2.39 trillion as the central bank increased its holdings of Treasury securities as part of a bid to boost economic growth.  Treasuries held by the Fed increased by $32.2 billion to $949.6 billion as of Dec. 8, according to a weekly release by the central bank today, while the Fed’s holdings of mortgage- backed securities and federal agency debt securities were unchanged.  The Fed has bought $106.3 billion in Treasuries on its way to purchasing $600 billion of government debt through June 2011. Separately, it has purchased $75.8 billion of Treasuries as part of its plan, announced in August, to reinvest maturing mortgage holdings. The second round of unconventional monetary easing is aimed at spurring economic growth and preventing inflation from falling too low.

Governor says Arizona wants Medicaid waver – PHOENIX – Arizona Gov. Jan Brewer said Thursday she’ll ask for a waiver under the federal health care overhaul so Arizona can reduce its Medicaid rolls to lower costs that Brewer and fellow Republicans say the cash-short state can’t afford. If approved, the change could mean the loss of government-funded health care for hundreds of thousands of people.  Brewer’s administration previously said it might request a waiver, but the governor on Thursday said "yes we are" when asked directly whether she would.  "We need flexibility from the federal government in order to get our state budget in line," she said.  Brewer spokesman Paul Senseman later said details of the waiver request are still being decided, including how many people could lose coverage. 

Nevada Medicaid Program Continues To Grow, Adding To State Budget Challenges– Despite the need for drastic spending reductions to balance Nevada’s budget, the government program that provides health care to the poor continues to expand, consuming a growing share of the state’s scarce state revenues. Medicaid, the cost of which is shared by both the federal government and the state, could require about $1.25 billion in state general fund support in the upcoming two-year budget. That’s a spike up from the $835 million approved by the 2009 Legislature for the current spending plan. The increase is due both to an ever rising caseload and the loss of federal stimulus funds that paid for a greater share of the Medicaid budget in the current biennium. Unlike many other state-funded programs, the state must provide Medicaid coverage to those who qualify. Higher education funding can be cut and prison populations can be managed with early parole or alternative sentencing.

Fiscal experts set NC budget gap at $3.7 billion – There’s now a better estimate of how wide the gap between expected revenues and expenses could be in North Carolina state government in 2011. Fiscal experts at the Legislature announced this week the preliminary gap for the year starting July 1 is $3.7 billion. That’s $500 million more than the minimum budget gap discussed after the current year’s $19 billion budget was approved last summer. Most of the gap is caused by the loss of federal stimulus dollars and temporary taxes set to expire. The increase can be attributed to high-priority spending items the General Assembly usually agrees to such as increasing school enrollment, state pension funds and the employee health insurance plan
US Third-Quarter Federal Reserve Flow of Funds (Text) – Following is the text from the Federal Reserve’s flow of funds report. Flow of Funds Summary Statistics Third Quarter 2010 – Debt of the domestic nonfinancial sectors is estimated to have expanded at a seasonally adjusted annual rate of 4¼ percent in the third quarter of 2010, ½ percentage point less than in the previous quarter. Private debt changed little in the third quarter, while federal government debt continued to grow rapidly.  … At the end of the third quarter of 2010, the level of domestic nonfinancial debt outstanding was $35.9 trillion; household debt was $13.4 trillion, nonfinancial business debt was $11.0 trillion, and total government debt was $11.5 trillion.

Feeding A Larger Population On A Warmer Planet
- At a recent event hosted by the International Food Policy Research Institute (IFPRI) in Washington D.C., Mark Rosegrant, Director of the Environment and Production Technology Division, said, “Income and population growth drive food prices higher, putting pressure on our food system.” And climate change adds more pressure to these already big challenges. “We can expect to see more extreme events – more floods, more droughts, more shocks to agriculture,” noted Sherman Robinson from the United Kingdom’s Foresight Programme on Global Food and Farming Futures Project. There is, therefore, an urgent need to manage these challenges in a more sustainable way.The event marked the launch of a new IFPRI report titled “Food Security, Farming, and Climate Change to 2050,” co-authored by Rosegrant and a team of 12 other researchers. By focusing on the period between 2010 and 2050, the report details the impact of climate change on food security, highlighting how policymakers can effectively facilitate adaptation and mitigation.

Tax Package Changes – Renewable Energy Programs are Back in Business – Clean and renewable energy provisions that were set to expire have been added into the tax package. This is good news for progressives and friends of clean energy, depending on how you look at it – we get a pittance out of the near-trillion dollar deal, but if the monster was going to go through anyway, this way at least we get a few crumbs to move renewable energy forward. Led by California’s Senator Dianne Feinstein, 17 Democratic Senators had been pushing to get these items added in. It’s still unclear just what is going into the package, set to be voted on Monday – nobody has seen an actual text of the bill yet. “I believe they are [in],” Feinstein  told reporters in the Capitol. ” ‘Believe’ is the operative word because I haven’t seen it.” One big item: the Treasury Grant Program. With the economy in the doldrums, financing for big-bucks wind and solar projects had tanked. This program provided direct grants to jump-start projects ($2 billion in government seed money brought in another $9 billion in private funding); looks like it’s back for at least one more year at the behest of Sens. Feinstein, Maria Cantwell (D-Wash.) and the other 15.

China Can Slow Global Warming If The US Won’t – Below are charts for current emissions and cumulative emissions. The United States bears 27% responsibility for cumulative emissions. China is second at 9.5%. On a per capita basis, the United States is more responsible than China by about a factor of ten. Nevertheless, China’s annual emissions have rocketed past those of the United States and other developed countries, and, if they continue on their current growth path, China will become the principal cause of climate change within the next few decades. Also, as shown in the graphs below, the task of getting global CO2 emissions to stabilize can be accomplished only if the rapidly growing emissions of all developing countries can be stabilized and begin to decline over the next few decades. How can I possibly be optimistic about that? I must start with a fundamental law: as long as fossil fuels are the cheapest energy, they will continue to be burned. This law is as certain as the law of gravity. No "caps," "goals" for future emissions, or other self-deceptions can alter this fact. Caps only alter who burns the fuel and the pace of burning – they will not leave fossil fuels in the ground, as science demands. Caps are also inherently disingenuous – a pretense that the price of fossil fuel energy does not need to steadily rise, an attempt to circumvent the "law of gravity" 2.

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