American Economic Outlook 2018-2020: Bad news?

[Oil exporting People]

Wasn't too far from this reality around 2011-2013, and especially in the Eurozone up to around 2014 where helicopter drops were genuinely a policy consideration, made worse by deflation.

Arguably this is accurate, but my comment was more meant in the here and now when it isn't.

[Hayo]

If things get really bad, so-called "helicopter money" is another unconventional policy option.

Not really, because the U.S. isn't in a liquidity trap.

Well yeah. I meant if the US was in a liquidity trap (say, hypothetically another downturn happened and they needed to ease policy beyond what they could do normally), not right now.

[Oil exporting People]

Well yeah. I meant if the US was in a liquidity trap (say, hypothetically another downturn happened and they needed to ease policy beyond what they could do normally), not right now.

As was noted upthread, Central Banks have largely exhausted their toolkit, so I don't think that's viable either.

[Trumptonium]

Wasn't too far from this reality around 2011-2013, and especially in the Eurozone up to around 2014 where helicopter drops were genuinely a policy consideration, made worse by deflation.

Arguably this is accurate, but my comment was more meant in the here and now when it isn't.

Of course.

It could have potentially sped up the recovery, though, as the recovery has notably only really reached certain sections of industry and society. Real wages today still remain below the turn of the century. It's even worse in Britain where real wages have fallen for the last 9 of 10 years, contrary to about 3 of 58 between 50 and 08.

I'm more inclined to believe however that deficit monetisation is a better idea than helicopter drops, especially in terms of creating money as a last resort for supply-side policies instead of trying to raise aggregate demand closer to potential, which would have happened anyway given steady employment growth, irrespective that the employment composition has shifted towards lower-skilled, lower-paid and fewer-houred work.

While mass QE enabled cheap-as-fuck borrowing for the federal government with depressed interest rates from bonds, it has also resulted in the decreasing saving rates of the American (and British) populations, as saving has become a bit of a waste of time unless your capital is large enough for 0.5% to make a genuine difference. So there is a trade-off, as the general American and British public are now even less prepared for an economic downturn than one, two, five or ten years ago.

[Oil exporting People]

Of course.

It could have potentially sped up the recovery, though, as the recovery has notably only really reached certain sections of industry and society. Real wages today still remain below the turn of the century. It's even worse in Britain where real wages have fallen for the last 9 of 10 years, contrary to about 3 of 58 between 50 and 08.

Indeed, although I think the wage issue is a result of the system itself at this point, given the overall stagnation since the 70s here in the U.S.

[Seleucas]

I am under no illusion that American long-term economic prospects any good.

Stocks P/E's are obscenely high, as is business debt, despite the fact that productivity, capital expenditures, manufacturing, etc. are languishing. It seems that corporations have used funny money to boost their short-term values at the expense of their long-term health. Not to mention that derivatives have proliferated once more.

The prime labor participation rate is still low, as is compensation for everyone but the top nth. Not surprising, considering the financial casino is sucking up so much money without any corresponding development of real assets.

US government gross debt is over 100% of GDP and will continue to grow. In all likelihood the cost of entitlements will continue to increase, since doing anything to fix them is politically impossible.

Will the bubble pop in 2018-2020? I can't say, and I am not staying out of the market while it is on such a bullish run. But considering how long it has been since any correction or recession, something will happen soon and happen hard.

[Oil exporting People]

One silver lining to what's coming: it'll kill off China.

[Petrolheadia]

One silver lining to what's coming: it'll kill off China.

1.3+ billion people get worse living standards.

Fucking awesome.

[Oil exporting People]

1.3+ billion people get worse living standards. Fucking awesome.

Unfortunately for those of weak will, that's geopolitics; it's the definition of "fuck you, got mine".

[Petrolheadia]

1.3+ billion people get worse living standards. Fucking awesome.

Unfortunately for those of weak will, that's geopolitics; it's the definition of "fuck you, got mine".

How is poverty in China going to help Americans?

[Oil exporting People]

How is poverty in China going to help Americans?

Removing the second largest economy and the closest thing we have to a peer competitor since the USSR means increased American influence and ability to exploit markets.

[Great Minarchistan]

If things get really bad, so-called "helicopter money" is another unconventional policy option.

Helicopter money is a zero-sum game (or even a negative one, as corrosive inflation levels heavily impact business activity by difficulting the capitalist calculus and by turn worsening the economy), as you are effectively expanding the money supply without the creation of additional wealth. So while the nominal consumption will increase you'll get an equally high increase on the CPI, not propping the real consumption at all.

[Petrolheadia]

How is poverty in China going to help Americans?

Removing the second largest economy and the closest thing we have to a peer competitor since the USSR means increased American influence and ability to exploit markets.

Remember that such a collapse would bring a global economic crisis, and decrease the buying power of the supposed buyers of US goods.

And it's quite possible that such a thing would rather drive the manufacturing to other developing countries, because in a crisis-stricken world, people would just want cheap stuff.

[Kramania]

The Russians are probably behind this.

Well you say that jokingly, but it's not like they haven't tried :^)

Two communist countries combined can't stop us.

*laughs in capitalist*

[Oil exporting People]

Remember that such a collapse would bring a global economic crisis, and decrease the buying power of the supposed buyers of US goods.

Well this entire thread is based on the speculation such is coming, so that's a moot point.

And it's quite possible that such a thing would rather drive the manufacturing to other developing countries, because in a crisis-stricken world, people would just want cheap stuff.

Extremely unlikely at this stage; manufacturing stabilized at around 12% of GDP in 2009 and has remained relatively steady there ever since, suggesting what can be off-shored has already at this point. Meanwhile labor costs, when productivity is factored in, are as competitive in America as they are in China now and this helps to explain the process of "on-shoring" that has begun in recent years.

[Oil exporting People]

U.S. home sales fall as record-low inventory boosts prices

WASHINGTON (Reuters) - U.S. home sales fell more than expected in December as the supply of houses on the market dropped to a record low, pushing up prices and sidelining some potential first-time buyers.

The decline in home sales reported by the National Association of Realtors on Wednesday followed three straight months of strong increases. Inventory constraints dogged the housing market last year against the backdrop of robust demand, largely driven by a labor market that is near full employment.

Economists expected supply to remain tight this year, which together with rising mortgage rates could result in modest home sales growth in 2018.

“We expect little growth in sales in 2018, given tight inventories,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York. “Affordability will be crimped by rising mortgage rates, posing an additional headwind to sales.”

Existing home sales declined 3.6 percent to a seasonally adjusted annual rate of 5.57 million units last month amid decreases in all four regions. Unseasonably cold weather probably accounted for some of the weakness as sales in the Northeast and Midwest fell sharply.

November’s sales pace was revised down to 5.78 million units, still the highest level since February 2007. Economists polled by Reuters had forecast home sales falling 2.2 percent to a 5.70 million-unit rate in December from a previously reported 5.81 million-unit pace in November.

Existing home sales, which account for about 90 percent of U.S. home sales, rose 1.1 percent on a year-on-year basis in December. They increased 1.1 percent to 5.51 million units in 2017, the most since 2006.

The number of previously owned homes on the market tumbled 11.4 percent to 1.48 million units in December, the lowest since January 1999 when the Realtors group started tracking the series. Supply has been tight at the lower end of the market.

Housing inventory was down 10.3 percent from a year ago. It has declined for 31 straight months on a year-on-year basis. At December’s sales pace, it would take a record-low 3.2 months to exhaust the current inventory, down from 3.5 months in November.

SUPPLY CONSTRAINTS
A six-month supply is viewed as a healthy balance between supply and demand. Supply could improve in the coming months as data last week showed permits approved for the construction of single-family homes increased in December to their highest level since August 2007, while the number of such dwellings under construction was the most in 9-1/2 years.

“New construction has showed signs of perking up, but remains well below estimates of demand,” said Aaron Terrazas, as senior economist at Zillow. “More importantly, builders face rising labor, materials and land costs making it difficult to build at a price point attractive to entry-level buyers.”

The median house price increased 5.8 percent from a year ago to $246,800 in December. That was the 70th straight month of year-on-year price gains. House prices increased 5.8 percent in 2017, rising for the sixth straight year.

The PHLX housing index .HGX initially rose following the data, but gave up gains to trade marginally lower. Stocks on Wall Street were mixed.

The dollar fell to a three-year low against a basket of major currencies after Treasury Secretary Steven Mnuchin said the weaker greenback was positive for American trade. Prices for U.S. Treasuries were trading lower.

A separate report from the Mortgage Bankers Association showed applications for loans to buy a home surging last week to their highest level since April 2010. Economists, however, worry that rising mortgage rates and caps on the deduction for mortgage interest following a recent overhaul of the tax code will slow demand for houses this year.

First-time buyers accounted for 32 percent of transactions last month, up from 29 percent in November, but unchanged from a year ago. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.

“A shortage of affordable homes for sale will frustrate the ambitions of many first-time buyers, who will be forced to stay in the rental market for longer than planned,” said Matthew Pointon, property economist at Capital Economics in New York.

House price increases have outpaced wage growth, which has struggled to break above 2.9 percent since the 2007/09 recession ended. In December, houses typically stayed on the market for 40 days, unchanged from November and down from 52 days a year ago.

Forty-four percent of homes sold in December were on the market for less than a month.

Yeah, it's starting to look like 2006-2008 all over again.

[Oil exporting People]

Banks Have No Plan For New Financial Crisis: Harvard's Rogoff

The shares of big U.S. banks have been surging on growing optimism about profits, making the financial crisis of 2008 a distant memory for many investors. Nonetheless, economics professor Kenneth Rogoff of Harvard University is concerned. Though he does not feel that a new crisis is building at least right now, he recently warned attendees at the World Economic Forum (WEF) in Davos, Switzerland that central banks are unprepared to deal with one, CNBC reports. "If we have another financial crisis, there isn't even a plan A," Rogoff said, per CNBC.

Big Gains For Big Banks
Rogoff makes these sobering comments as the biggest U.S. banks have posted major gains in the past year, per CNBC, with JPMorgan, 41.0%, Morgan Stanley, 36.4%, and even lagging Goldman Sachs Group Inc. posting a 11.5% increase.

While these robust stock price gains reflect investor confidence that banks have fully recovered, Rogoff is clearly ambivalent. "We're still coming out of the last financial crisis," he said per CNBC, adding, "but I'm kind of optimistic going forward with where the world economy is at the moment. Could there be a financial crisis? Of course."

Rising Debt, Falling Stocks?
Rogoff advises banks to be cautious, and sees a growing risk from "debt rising at an aggressive pace," as CNBC quotes him. This is bound to push up interest rates, and thus may trigger a stock market selloff. "It is not hard to imagine a stock price collapse--it's built on price growth but also very low interest rates," he said per CNBC.

Moreover, a global uptick in central bank interest rates that slash U.S. stock prices may originate elsewhere around the world. Rogoff suggested that a widespread increase in interest rates may start in countries that already have significant debt burdens, such as Japan, Italy, and various emerging market economies. (For more, see also: How The Fed May Kill The 2018 Stock Rally.) Rogoff is well-known for his provocative comments on the the economy and financial system. Investopedia talked to Rogoff in an earlier interview about how young investors should factor in rising interest rates into their portfolio strategy. (Click here for Rogoff video).

Big Banks Still Risky
Rogoff's analysis reflects a gloomy December report from an independent research arm of the U.S. Treasury, the very department that managed the bailouts of big U.S. banks during the financial crisis. The report found that, despite all the measures taken to prevent or at least mitigate a new financial crisis, big banks still pose a major risk to the financial system. In particular, the report concludes that regulators would be overwhelmed if more than one systemically important financial institution (SIFI) were to become insolvent, or teeter on the brink of insolvency, at the same time.

Today, systemically important U.S.-based banks include not only the six listed above, but also two lower-profile institutions that provide vital infrastructure and support services for the financial system. These are Bank of New York Mellon Corp and State Street Corp.

Blunted Weapons
Key events in the financial crisis of 2008 were the failures of two leading investment banking firms, Bear Stearns (acquired at a fire sale price by JPMorgan Chase) and Lehman Brothers (which was not rescued). Merrill Lynch was on the verge of insolvency when bought out by Bank of America. Wachovia Bank was near failure when acquired by Wells Fargo. American International Group Inc, a major player in the derivatives markets, also was in danger of bankruptcy, saved by a federal bailout under the Troubled Asset Relief Program (TARP).

In response to the crisis, the Federal Reserve responded with an aggressive policy of quantitative easing that sent interest rates near zero. With rates still near historic lows, this policy lever has diminished efficacy today. Meanwhile, the TARP program, which injected capital into troubled financial institutions, was a one-off response to the 2008 crisis authorized by an Act of Congress. Whether Congress would vote similar emergency measures in a new crisis, and in a sufficiently rapid fashion, is anyone's guess.

If a similar crisis happened today, it's unclear how early or quickly the Fed and other central banks would be willing to move to stanch the bleeding. And it's also unclear whether U.S. taxpayers would be willing to fund hundreds of billions of dollars of bailouts - if needed.

[Great Minarchistan]

Been checking the yield curves (30Y-3M, 10Y-3M and 10Y-2Y) and its trend over the time and if they tell us something, it is recession ahead within 12-24 months. Knowing other indicators I've used, I would say 18-20mo.

[Trumptonium]

Been checking the yield curves (30Y-3M, 10Y-3M and 10Y-2Y) and its trend over the time and if they tell us something, it is recession ahead within 12-24 months. Knowing other indicators I've used, I would say 18-20mo.

thats not how it works

[Great Minarchistan]

Been checking the yield curves (30Y-3M, 10Y-3M and 10Y-2Y) and its trend over the time and if they tell us something, it is recession ahead within 12-24 months. Knowing other indicators I've used, I would say 18-20mo.

thats not how it works

Hmmmm?

[Trumptonium]

thats not how it works

Hmmmm?

yields on treasuries do not tell us anything in an age of zirp and 5tn cbbs, they are completely redundant as an indicator. their trend might be useful to display inflation sentiment especially in terms of a transfer of capital but for all intents and purposes it is void of any useful information

either way the global economy is not showing signs of any weakness or flaws and to the contrary, is showing signs of faster growth, coming back to trend.

the eurozone* especially is catching back up to where it should be through an unexpected upturn, the UK isn't as bad as investors feared and inflation expectations are falling, and the focus is back on emerging markets, particularly india/china and cee europe who are driving global growth

*eurozone being everyone-but-italy-and-greece, but especially france which is almost booming back to 2001 and driving eurozone growth

either way, there's nothing to suggest a recession of any kind, let alone a downturn.

I prefer using confidence surveys actually, be it PMI or consumer. both were better at indicating dotcom and 2008. currently there's nothing but momentum, with US PMI at its highest level since the Reagan boom of 1983 and small business optimism at record high since the first 1975 noting

you'll note 10y-2 was completely useless in dotcom and rather redundant in 2008, but now with zirp and 5tn cbbs it's really just as useless of an indicator as car registrations.

more importantly, there isn't an indicator out there that can 'predict' recessions anyway. it can be tomorrow if there's enough market panic.

there is a lot of cash on the sidelines. ... We're going to be inundated with cash. If you're holding cash, you're going to feel pretty stupid. The tax cut is going to swell American markets and I do not see a correction before a rise to 30k dow sometime this late spring/early summer. and if earnings reports from the giants do not come out bearish (as in, they will actually make these prices realistic) .. then who knows where we'll end up this time next year. amazon is a good example - we want to be bearish on it, but their earnings reports are just exponential and we can't. i can't see a reason to be bearish on the economy

i'm not even considering pulling out and im not a value investor.

[Great Minarchistan]

Hmmmm?

yields on treasuries do not tell us anything in an age of zirp and 5tn cbbs, they are completely redundant as an indicator. their trend might be useful to display inflation sentiment especially in terms of a transfer of capital but for all intents and purposes it is void of any useful information

either way the global economy is not showing signs of any weakness or flaws and to the contrary, is showing signs of faster growth, coming back to trend.

the eurozone* especially is catching back up to where it should be through an unexpected upturn, the UK isn't as bad as investors feared and inflation expectations are falling, and the focus is back on emerging markets, particularly india/china and cee europe who are driving global growth

*eurozone being everyone-but-italy-and-greece, but especially france which is almost booming back to 2001 and driving eurozone growth

either way, there's nothing to suggest a recession of any kind, let alone a downturn.

I prefer using confidence surveys actually, be it PMI or consumer. both were better at indicating dotcom and 2008. currently there's nothing but momentum, with US PMI at its highest level since the Reagan boom of 1983 and small business optimism at record high since the first 1975 noting

you'll note 10y-2 was completely useless in dotcom and rather redundant in 2008, but now with zirp and 5tn cbbs it's really just as useless of an indicator as car registrations.

more importantly, there isn't an indicator out there that can 'predict' recessions anyway. it can be tomorrow if there's enough market panic.

there is a lot of cash on the sidelines. ... We're going to be inundated with cash. If you're holding cash, you're going to feel pretty stupid. The tax cut is going to swell American markets and I do not see a correction before a rise to 30k dow sometime this late spring/early summer. and if earnings reports from the giants do not come out bearish (as in, they will actually make these prices realistic) .. then who knows where we'll end up this time next year. amazon is a good example - we want to be bearish on it, but their earnings reports are just exponential and we can't. i can't see a reason to be bearish on the economy

i'm not even considering pulling out and im not a value investor.

I see, thanks for the hints. It's also important to check at industrial growth since it has went down during/right before all recessions IIRC. One of the rare cases was 2016 when it went down at a prolonged time (although the economy showed recession signs everywhere but on GDP growth, that was saved by Trump's election).

[Oil exporting People]

I see, thanks for the hints. It's also important to check at industrial growth since it has went down during/right before all recessions IIRC. One of the rare cases was 2016 when it went down at a prolonged time (although the economy showed recession signs everywhere but on GDP growth, that was saved by Trump's election).

Would you care to elaborate on this a bit, it's interesting from an allo-historical viewpoint.

[The of Japan]

Shadow banking in china may also be a concern.
http://www.businessinsider.com/chinas-s ... omb-2017-8
https://www.brookings.edu/wp-content/up ... ber_yu.pdf
https://www.huffingtonpost.com/otaviano ... 91706.html

[Oil exporting People]

Shadow banking in china may also be a concern.
http://www.businessinsider.com/chinas-s ... omb-2017-8
https://www.brookings.edu/wp-content/up ... ber_yu.pdf
https://www.huffingtonpost.com/otaviano ... 91706.html

China is particularly scary, as corporate profits have been in decline since 2008 but their debt level has reached 169% of GDP while off balance sheet level is 109%; this is a dangerous amount of over-leveraging, as should be obvious.