China: Lots of news, signifying nothing new

I don’t think there is a whole lot to say about this week’s numbers beyond what I have been saying for the past several months. Nothing substantial has really changed. China’s external account is worsening, and will continue to worsen since global imbalances have no choice but to adjust. Growth in China is slowing but remains relatively rapid, and as unhealthy as ever, but there is little likely to be done to improve the quality of growth until 2013. Beijing will continue veering back and forth between stomping on the credit accelerator and stomping on the credit brakes as the only way they can manage the economy

The hidden meanings of debt

In Europe, the discussion of fiscal prudence vs. fiscal profligacy seems to have taken on a normative hue. It’s doesn’t seem to be just about economics, it’s also about who’s a saint and who’s a sinner. In the US, strategic default was portrayed as the act of dishonorable deadbeats. The discourse is of a discourse of “shame, guilt, and fear”. This is the psychology behind the apportionment of losses between creditors and debtors

Herbert Hoover: White House Statement on Federal Expenditures, June 1931

The following is a statement issued by Herbert Hoover’s White House on 2 June 1931 regarding the federal budget deficit for the year. I have highlighted the parts most relevant to today’s situation

More Charts of the Day: Italy Works Over 20% More Hours Than Germany and France

The stereotype of lazy southern Europe and the hard working North is just not reflected in the data. We came across this BLS data set over the weekend which was very enlightening and, in part, smashes this widely held generalization

Chart of the day: Euro nations with largest deterioration in fiscal situation

Here are two interesting charts courtesy of the Macro Business Superblog. In outlining how the latest European crisis response policy fails to deal with the underlying issues in Euroland, Macro Business also illuminated the individual debt and deficit trajectory of each euro nation. The charts highlight where the euro area countries have broken the Maastricht stability and growth pact criteria

Nonlinear Thinking: Drone Valet Parking Attendents

If this doesn’t convince you we’re on the elbow of the technology exponential curve, nothing will. Stay tuned, it’s going to be interesting next 20 years!

Men Are from the Feds, Women from State and Local

Here’s some interesting data from the Atlantic that shouldn’t have surprised us, but was an eye opener, nonetheless. The U.S. Federal payrolls are dominated by men and state and local government by women

The Collapse of Construction Employment

Here’s a great chart from the BLS showing the collapse of construction employment from May 2006-10. No surprise the largest declines are in the four housing bubble states — Nevada, Arizona, Florida, and California. Stunning employment in this sector is down 40-55 percent and one reason why the traditional monetary transmission mechanism is broken — lower rates sparks construction spending and thus hiring of construction workers

Additional Liquidity Is Not A Solution

In sum, it seems clear that the next few days will not produce a long-term solution to the European debt crisis. However, the various nations and financial institutions realize the gravity of the situation, and it seems likely that they will make every effort to reassure the bond markets and stop interest rates from continuing to climb, at least temporarily. It therefore would not surprise us to see a combination of financial institutions inject massive doses of liquidity into the markets in an effort to buy some time. While markets profess not to like government interference, they do love liquidity, and another brief rally is quite possible. However, this treats the symptoms rather than the disease. A dose of liquidity does not cure insolvency, recessionary economies, massive budget deficits and huge debts. At best, this will be another case of kicking the can down the road. At worst—-we don’t even want to think about it

Worrisome Signs

Opinion polls and surveys are finding an increasing number of people expect one or more countries to leave the euro zone. Investors are anxious. What is to be done? What makes this so difficult is that there are so many moving parts and possibilities. The way the question is asked often conditions the answers

Liquidity is the Word

Tomorrow the central banks will auction dollars for the first time under the lower rates. There was some talk that the lower take down at this week’s regular refi operation (about 13 bln less euros than were maturing from last week’s operation) was due to the fact that participants are anticipating taking up dollars tomorrow.

It may seem counter-intuitive, but the larger the participation tomorrow the more risk-on (in whatever limited way ahead of Thursday ECB meeting and Friday’s summit) insofar as banks would secure their dollar funding in a less disruptive way. The smaller the take down, the more dysfunctional the system may appear

Buiter: no politically feasible route to sustained growth for many years to come

In the aftermath of the emergence of a “reinforced ‘Stability and Growth Pact’”, Citigroup chief economist Willem Buiter is pessimistic about growth outcomes in the major developed economies because the political economy of the sovereign debt crisis will stymie any pro-growth policy solutions. While Buiter sees giving the ECB a green light to monetise euro area government debt as the genesis of the deal, he anticipates years (or decades) of low growth and he warns that ECB policy support will neither be “open-ended” or “unconditional”. On a positive front, Buiter says it “should allay concerns about disorderly sovereign defaults by Italy or Spain and about euro area break-up.”