User 268734

Is the Consumer Confidence Index an Indicator of Future Spending?

<The study tracked both the University of Michigan index and the Conference Board index from 1968 to 2002. Ludvigson found the Conference Board and University of Michigan’s consumer confidence indexes to have “…both statistically and economically significant predictive power for quarterly consumption growth, in a variety of expenditure categories.”>

Nice statistics, but the current state of US consumer income flows and balance sheets are far more relevant. Without the aid of any statistical props, I'd hazard a guess that these are far more predictive than surveys of feelings - which have anyway been artificially shaped by media happy-talk and the bank recapitalisation rally.

What Went Wrong in 2008?

Yes indeed, root causes always need to be addressed. Trouble is that the underlying root cause of many of today's problems is a broken economic model based on overindebtedness, overconsumption, and the subordination of genuine wealth creation to financial smoke and mirrors. Unfortunately, there is no Plan B - so nobody is addressing the root cause. Instead, one easy, expensive, and ultimately futile 'fix' after another is being rolled out in pursuit of a Hollywood ending - a quick and painless solution that in the real world does not exist. The only open questions are how gullible the public in general and investors in particular are going to be, and how much the bail-outs and market manipulations will delay a soundly based recovery.

The Law of Unintended Consequences: 20th Century and Beyond

Chris B: I can't disagree with any of the six steps you suggest, but I wouldn't characterise them as 'relatively minor'. In the context of the existing US political system they are as revolutionary as rolling out the guillotine was in France.

Deflation: It's Starting to Get Silly

Bail-outs, stimulus packages, hand-outs, and market manipulation look to me like a vote of no confidence in free markets and in the resilience of the American people by the leadership class. Or perhaps it's more self-serving than that.

Fed Watch: Starting the Year on an Ugly Note

Great post - thank you.

Asset Re-Allocation Might Make S&P Rise 20%

"Even in 2008, the classic Bond/Equity portfolio still worked well. As you can see from the chart below, a very simple portfolio with only Equity (SPY: S&P 500) and bond (TLT: iShares Lehman 20+ Year Treas Bond ) diversified your risk and did much better than the market: this simple portfolio was down 16%, vs. –40% for SPY in 2008."

If this is the writer's definition of working 'well', I'm wondering what it would take to do 'badly'.

Preview from Europe: Stocks Get Stimulated, Again

"....dangerous decline in prices can be seen all around from UK retail rents falling in 2008...."

Why is a downward correction in the commercial real estate bubble 'dangerous'? Amidst all this talk of collapsing aggregate demand, I'm searching my own experience of life in the UK for tangible evidence. Sure, my house is worth less - heavens, it's back down to 2005 levels and now only worth twice what it was six years ago. Rail fares to London from the provincial city in which I live increased last Friday by high single digit to low double digit percentages - depending upon time of travel. My weekly food bill is barely changed over the year. My utility bill is substantially higher. My local taxes are higher and set to rise further. No doubt I could go and buy a couple more flat-screen TVs at lower prices than last year, however: first, how long will that last with the GBP tanking against Asian currencies (in fact, against anything bar the Zimbabwe dollar and the Rouble)? second, is it just possible that the decline in demand for consumer electronics reflects a sated consumer and overinvestment in production facilities (ditto re cars)? Enough of the deflation talk - it's nothing more than a cover-story to justify fiscal and monetary profligacy in an attempt to reflate a broken economic model.

Obama's Tax Cut: A 'Mustard Seed' of Hope for Investors

Pretty shallow post, on two grounds:

1. Whether a tax cut will in fact deliver much of a stimulus at all depends upon the extent to which money not handed to the IRS instead circulates around the economy. Under normal circumstances a fairly significant multiplier effect could be anticipated - but it hardly needs saying that these are not normal circumstances.

2. Even if a tax cut does provide significant stimulus, its effect is unlikely to be any longer-lasting than earlier government handouts. It does nothing to address the fundamental cause of our current mess: a thoroughly broken economic model built on successive asset price bubbles, binge-borrowing (by households and governments), and overconsumption.

Of course, the 'mustard-seed brigade' don't care about any of this - they just want your money.

Is America on a Downward Slope?

"Have the extreme socialist schemes implemented by the President, Treasury, Federal Reserve, and Congress marked the climax of our great capitalist experiment?"

Very interesting article, most of which is hard to disagree with. However, like many who post on SA the author has a rather strange notion of 'socialism'. There is no doubting that the wider US economic system does have elements of socialism (although not very strong elements, at least by European standards). However, the bail-out bubble strikes me as just the opposite of socialism; few genuine socialists would advocate channelling public money to cronies on the scale we are now witnessing in the US (although of course such cronyism does happen in countries that are ostensibly, rather than genuinely, socialist). I think there is an argument that the the US is - and in fact has for some time been - an essentially corporatist state, with power shared within the corpus by the financial elite, the defence-industrial complex, senior corporate management of large non-financial companies, and those who feed off scraps from their table - notably politicians (acting for the most part in their own rather than the public's interests) and lobbyists.

Of course, it could be that the next President will do some stuff that really is socialist. He need only look to Britain for ideas. For example, subsidising pregnant teenage single-mothers or buying, taxing, and insuring cars for people in lieu of disability benefit. Not sure which is worse - my hell or yours.

U.S. Debt Is Staggering, But Not Unprecedented

"Debt to GDP hit 120% during World War II, roughly double the ratio today."

Two differences: 1. Despite Afghanistan and Iraq, today's economy is not one being distorted by the exigencies of total war - it's being distorted by self-inflicted economic mismanagement. 2. Debt run up in WW2 was largely owed to domestic creditors. Today it isn't.

Fed's Latest Rescue Package Throws Lifeline to Home Buyers

I agree with Smarty_Pants. The Anglo-American economic model based on binge-borrowing fuelled by asset price bubbles is bust. What's going to replace it within an electoral cycle? I have no idea - and neither do the ruling elites, which is why they're desperately trying to keep their sinking ships afloat.

The Failure of TARP and the Government's Solution

RCA: "Will we become The United Socialist States of America? "

Questionable choice of tense.

'D' Is For Dreadful Dreary Deflation

"While the idiosyncrasies of British 'flation calculations relative to those in the U.S. are not known to me, it's pretty clear from this report in the Telegraph that some measure of home prices works its way into their price statistics."

There are two widely used price indices in the UK: the retail price index (RPI), and the consumer price index (CPI). As the Telegraoph article explains, the former incorporates certain housing-related costs, whereas the latter doesn't. The CPI has therefore been consistently lower than the RPI throughout the housing boom. Guess which measure the government prefers to cite and the Bank of England uses for inflation-targeting? Just as the BLS fiddles US inflation figures with hedonics and the like, so the UK authorities like to stuff the CPI full of things that are getting cheaper. So maybe property will soon find its way from the RPI into the CPI for a while.

Essentially, the UK politico-financial complex has been up to exactly the same tricks as the US complex during the cheap credit years: pump up an asset bubble, make people feel richer, artificially suppress the inflation indices, and keep the increasingly indebted consumer spending so that our retal--driven economy looks to be growing strongly. On both sides of the Atlantic, they're up to their old tricks, but this time under the guise of saving the financial system: obscenely loose monetary policies bidding to buy off voters. Talk of deflation is a scare tactic to justify efforts - which will hopefully be unsuccessful - to get another asset bubble going.

Credit Markets Showing Signs of Thawing

Take a look at the longer end. It ain't so pretty.

Adrian Day: Causes and Consequences of the Current Crisis

Interesting article. Thanks.