Q. By Ambrose Evans-Pilchard, International Business Editor
Published: 8:52PM BST 15 Jul 2010 for UK-Telegraph
C/P
The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.
"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.
The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.
"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.
"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."
The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.
Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan's big exporters. The new twist is that SAFE, China's $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.
The signs of a deep and sudden slowdown in the US are becoming ever clearer as the "sugar rush" from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.
Thursday's plunge in the Philadelphia Fed's July index of new manufacturing orders to â4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute's ECRI leading indicator has tumbled, reaching â8.3pc last week. This points to a sharp slowdown or recession within three months.
While US port data looked buoyant in June, the details were troubling. Outbound traffic from Long Beach fell from 139,000 containers in May to 116,000 in June. Shipments from Los Angeles fell from 161,000 to 155,000. This drop in exports is worsening the US trade deficit, eroding the dollar.
The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the "shadow inventory" of unsold properties has risen to 7.8m. "The double dip in housing has begun," he said.
Alcoa, CSX, Intel, and JP Morgan have reported good earnings, but they mostly did so in July 2008 just before their shares collapsed. Such earnings rarely catch turning points and can be a lagging indicator. Profits have been boosted in this cycle by cost-cutting, which is self-defeating for the economy as a whole.
The minutes confirm the Fed is split down the middle over QE. Fed watchers say the Board in Washington wants to be ready to launch another round of bond purchases if necessary, pushing the banks balance sheet from $2.4 trillion towards $5 trillion, but hawks at the regional banks are highly sceptical.
A study by the San Francisco Fed said the interest rates need to be â4.5pc to stabilise the economy under the Fed's "rule of thumb". Since this is impossible, massive QE needs to make up the difference.
Tim Congdon from International Monetary Re
Published: 8:52PM BST 15 Jul 2010 for UK-Telegraph
C/P
The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.
"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.
The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.
"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.
"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."
The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.
Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan's big exporters. The new twist is that SAFE, China's $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.
The signs of a deep and sudden slowdown in the US are becoming ever clearer as the "sugar rush" from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.
Thursday's plunge in the Philadelphia Fed's July index of new manufacturing orders to â4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute's ECRI leading indicator has tumbled, reaching â8.3pc last week. This points to a sharp slowdown or recession within three months.
While US port data looked buoyant in June, the details were troubling. Outbound traffic from Long Beach fell from 139,000 containers in May to 116,000 in June. Shipments from Los Angeles fell from 161,000 to 155,000. This drop in exports is worsening the US trade deficit, eroding the dollar.
The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the "shadow inventory" of unsold properties has risen to 7.8m. "The double dip in housing has begun," he said.
Alcoa, CSX, Intel, and JP Morgan have reported good earnings, but they mostly did so in July 2008 just before their shares collapsed. Such earnings rarely catch turning points and can be a lagging indicator. Profits have been boosted in this cycle by cost-cutting, which is self-defeating for the economy as a whole.
The minutes confirm the Fed is split down the middle over QE. Fed watchers say the Board in Washington wants to be ready to launch another round of bond purchases if necessary, pushing the banks balance sheet from $2.4 trillion towards $5 trillion, but hawks at the regional banks are highly sceptical.
A study by the San Francisco Fed said the interest rates need to be â4.5pc to stabilise the economy under the Fed's "rule of thumb". Since this is impossible, massive QE needs to make up the difference.
Tim Congdon from International Monetary Re
A. End of the road? No.
End of the American Century? Possibly.
End of the American Century? Possibly.
WSJ- What impact will yesterday's important economic news have on the Presidential race?
Q. More economic evidence that the U.S. continues to do better than most other advanced economies of the world despite the fact that economists have been saying the weak global economy, especially the Euro-crisis, has slowed our recovery.
The conservative Wall Street Journal reports today after recent reports showing unemployment dropping and consumer confidence growing, now retail sales increased beating analysts expectations.
WSJ- a survey from the University of Michigan showed consumer sentiment hitting its highest level since before the recession. Other polls and surveys also have shown Americans becoming more positive about the economy.
Such optimism comes despite a weakening global outlook that has dragged down exports and hurt manufacturers. The domestic economy (the U.S.) is doing better even as the export side is weakening (because of a poor global economy).
Economists said the current rebound may reflect a broader improvement in household finances. Job growth has been slow but relatively steady over the past two years, and incomes are rising again. The stock market has been strong and the long-moribund housing market is finally beginning to
http://online.wsj.com/article/SB10000872396390443675404578058291688750404.html
In August we learned housing had it's first positive year June 2011-2012 since the Great Recession.
Today Business Insider reports DEUTSCHE BANK says"The Housing Market Is Telling Us The Rest Of The Economy Will Accelerate Within Months.'...this recovery in housing is important because housing is what led the U.S. economy into a recession, and is part of the reason the recovery has been so slow"
http://www.businessinsider.com/lavorgna-housing-recovery-is-for-real-2012-10#ixzz29OwbBsRZ
John Walsh, president, Total Mortgage Services- not a big Obama fan- has said "I believe President Obama can claim a victory in the housing war to date".
http://thehill.com/blogs/congress-blog/economy-a-budget/242905-obamas-housing-victory
See the Official charts on economic growth at http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf
The conservative Wall Street Journal reports today after recent reports showing unemployment dropping and consumer confidence growing, now retail sales increased beating analysts expectations.
WSJ- a survey from the University of Michigan showed consumer sentiment hitting its highest level since before the recession. Other polls and surveys also have shown Americans becoming more positive about the economy.
Such optimism comes despite a weakening global outlook that has dragged down exports and hurt manufacturers. The domestic economy (the U.S.) is doing better even as the export side is weakening (because of a poor global economy).
Economists said the current rebound may reflect a broader improvement in household finances. Job growth has been slow but relatively steady over the past two years, and incomes are rising again. The stock market has been strong and the long-moribund housing market is finally beginning to
http://online.wsj.com/article/SB10000872396390443675404578058291688750404.html
In August we learned housing had it's first positive year June 2011-2012 since the Great Recession.
Today Business Insider reports DEUTSCHE BANK says"The Housing Market Is Telling Us The Rest Of The Economy Will Accelerate Within Months.'...this recovery in housing is important because housing is what led the U.S. economy into a recession, and is part of the reason the recovery has been so slow"
http://www.businessinsider.com/lavorgna-housing-recovery-is-for-real-2012-10#ixzz29OwbBsRZ
John Walsh, president, Total Mortgage Services- not a big Obama fan- has said "I believe President Obama can claim a victory in the housing war to date".
http://thehill.com/blogs/congress-blog/economy-a-budget/242905-obamas-housing-victory
See the Official charts on economic growth at http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf
A. The first two people who answered lack an education. The Koch Brothers are worth twice what they were in 2008. The stock market has never increased by this large of a margin ever in its history. Unemployment was forecasted to hit 20% when Obama was elected and today according to Gallup it's at 7.3, that's insanely close to 6%. Obama and Democrats have been great for the economy despite Republicans voting down a jobs bill and a veterans' jobs bill and putting the economy on the brink of absolute failure with the debt deal just because they don't like Obama's political party and/or race. They were perfectly willing to raise the debt ceiling for both Bushes and Reagan multiple times, as were Democrats.
Edit:
Tyler,
Clearly Americans don't know a lot about the economy, they voted for Bush twice and look what he did to the economy. Half of them still think supply side economics work, a policy only supported by three sitting presidents, ever, and they all presided over pretty bad economic times. The president has absolutely zero control over gas prices, in fact think of how high they'd be if Obama hadn't expanded domestic oil drilling. Our country isn't doing better than the socialist countries in Europe, Sweden and Norway are two examples of countries with socialist policies that are better off than we are. We've been printing money to make up for the lack of money to pay down debt since Bush was in office and Republicans were okay with it then, I'm just asking for a little consistency from them. This is the first substantial, long term recovery since WWII and we're doing it without raising taxes substantially (in fact we cut taxes on the middle class) and with a political party that refuses to follow sound economic policies and ideals, pass a jobs bill, or make a plan for substantial economic growth. In fact, the GOP candidate for the presidency won't even tell you the math behind his tax plan or his economic plan, he just say "trust me, I'm a businessman" but I don't trust him, one of his plants in Illinois is flying the Chinese flag in front of it and they're shipping the jobs in that plant overseas to China on November 5th. I see no reason to vote for the Republican based on economic values.
-Bill
Edit:
Tyler,
Clearly Americans don't know a lot about the economy, they voted for Bush twice and look what he did to the economy. Half of them still think supply side economics work, a policy only supported by three sitting presidents, ever, and they all presided over pretty bad economic times. The president has absolutely zero control over gas prices, in fact think of how high they'd be if Obama hadn't expanded domestic oil drilling. Our country isn't doing better than the socialist countries in Europe, Sweden and Norway are two examples of countries with socialist policies that are better off than we are. We've been printing money to make up for the lack of money to pay down debt since Bush was in office and Republicans were okay with it then, I'm just asking for a little consistency from them. This is the first substantial, long term recovery since WWII and we're doing it without raising taxes substantially (in fact we cut taxes on the middle class) and with a political party that refuses to follow sound economic policies and ideals, pass a jobs bill, or make a plan for substantial economic growth. In fact, the GOP candidate for the presidency won't even tell you the math behind his tax plan or his economic plan, he just say "trust me, I'm a businessman" but I don't trust him, one of his plants in Illinois is flying the Chinese flag in front of it and they're shipping the jobs in that plant overseas to China on November 5th. I see no reason to vote for the Republican based on economic values.
-Bill
crime census?
Q.
A. In the last several years, when the Commerce-Justice-State appropriations bill moves through the House of Representatives, a ritual of a sort unfolds. A Member expresses concern over the underfunding of federal assistance for state and local law enforcement, speaks against waste at the Census Bureau, and then offers an amendment to move money from the Census Bureau to the Department of Justice. Two years ago, an effort to shift $107 million failed; last year, the House agreed to transfer $20 million from the Census Bureau to fight methamphetamine production and trafficking. One is hearing rumblings of a similar sortâmove money from Census to DOJâthis year.
Related Content
Research and Commentary
Anticipating the Unimaginable: The Crucial Role of the Census in Disaster Planning and Recovery
Andrew Reamer, The Brookings Institution, July 10, 2006
Research and Commentary
Understanding Our Communities: Funding the American Community Survey
Andrew Reamer, The Brookings Institution, 30-Nov-04
Research and Commentary
Of Silk Purses and Sows' Earmarks
Andrew Reamer, The Brookings Institution, September 25, 2006
More Related Content »
The logic of these moves is appealing. Federal funding for state and local law enforcement is politically popular and often programmatically effective means of reducing crime. The Census Bureau seems like an inviting target. It gets hundreds of millions of dollars a year and it's difficult to see any connection between public safety and reams of census numbers. So it's understandable that one amendment sponsor would say: "Do our cops, who are on the front lines of homeland security, not need the money more than the bureaucrats at the Census Bureau?"
However, while the logic seems appealing, reprogramming Census Bureau funds actually is counterproductive to the aims of amendment supportersâbecause census data are critically important to fighting crime.
Every day, police commanders must make decisions about how to effectively deploy scarce manpower, equipment, and other resources. Crime mapping has emerged as a critical tool in ensuring that these scarce resources are used to the best effect. While New York City's CrimeStat is the most prominently heralded crime mapping effort, there are thousands of similar efforts in states and communities, large and small, across the U.S. As a Department of Justice publication indicates, "(A)n understanding of where and why crimes occur can improve attempts to fight crime. . . . Mapping crime can help law enforcement protect citizens more effectively in the areas they serve."
Crime mapping applications at the state and local levels rely heavily on Census Bureau's demographic and housing data. Crime mapping is most effective when analysts can see the relationship between various types of criminal incidents (e.g., homicides, drug dealing) and neighborhood characteristics (risk factors such as poverty, population density, and vacant housing), pinpoint where crimes are most likely to occur (hot spots), and focus police resources accordingly. For state and local crime mappers, the Census Bureau is the single most important source of population and housing data at the neighborhood level.
Members concerned about methamphetamines will find the work of the Illinois State Police of particular interest. The state police use decennial census data to map potential "hot spots . . . that should be closely monitored for new methamphetamine activity." Six of the eight risk factors used to identify meth hot spots rely on census figures, including the percent of the population that is white (most meth users are white), between ages 25 and 29, in poverty, single, with less than a high school education (average educational attainment of a meth user is 11 years), and in a rural county. Members also will find of interest that Crime Mapping News, which highlighted the Illinois anti-meth effort, is published by DOJ.
As valuable as decennial census data are for mapping hot spots, they are produced only once a decade, and so become increasingly out of date. In Illinois, for instance, while the use of meth exploded statewide in the late 1990s, the only small area demographic data available was from the 1990 Census. Once the Census 2000 data arrived, this problem was addressed, but now these data also are getting old.
With funding from Congress, the Census Bureau is rectifying the problem of obsolete neighborhood data by implementing the American Community Survey (ACS). The ACS will provide neighborhood-level data every year, rather than once a decade. With current rather than old data in hand, crime-fighting efforts through mapping of hot spots, in Illinois and across the U.S., will be more effective.
And cost-efficient. Neighborhood-level decennial census and ACS data are available to state and local governments free of charge. Moreover, a significant number of police departments download Census TIGER files to generate the mapsâthe streets, bridges, and so forthâover which crimes and neighborhood characteristics are laid. The Census Bureau has been providing this direct federal assistance to state and local law enforcement for some time. Without the Census Bureau's freely available resources, state and local police departments would need to divert precious funds and not get nearly as much value in the process.
To maintain the Census Bureau's assistance to crime-fighting efforts around the nation, it must receive adequate fiscal year 2007 funding to carry out the ACS and plan for the 2010 Census, the foundation for an accurate ACS. Members of Congress who want to take a bite out of the Census Bureau in the name of fighting crime will only hinder the police efforts they so want to help.
Related Content
Research and Commentary
Anticipating the Unimaginable: The Crucial Role of the Census in Disaster Planning and Recovery
Andrew Reamer, The Brookings Institution, July 10, 2006
Research and Commentary
Understanding Our Communities: Funding the American Community Survey
Andrew Reamer, The Brookings Institution, 30-Nov-04
Research and Commentary
Of Silk Purses and Sows' Earmarks
Andrew Reamer, The Brookings Institution, September 25, 2006
More Related Content »
The logic of these moves is appealing. Federal funding for state and local law enforcement is politically popular and often programmatically effective means of reducing crime. The Census Bureau seems like an inviting target. It gets hundreds of millions of dollars a year and it's difficult to see any connection between public safety and reams of census numbers. So it's understandable that one amendment sponsor would say: "Do our cops, who are on the front lines of homeland security, not need the money more than the bureaucrats at the Census Bureau?"
However, while the logic seems appealing, reprogramming Census Bureau funds actually is counterproductive to the aims of amendment supportersâbecause census data are critically important to fighting crime.
Every day, police commanders must make decisions about how to effectively deploy scarce manpower, equipment, and other resources. Crime mapping has emerged as a critical tool in ensuring that these scarce resources are used to the best effect. While New York City's CrimeStat is the most prominently heralded crime mapping effort, there are thousands of similar efforts in states and communities, large and small, across the U.S. As a Department of Justice publication indicates, "(A)n understanding of where and why crimes occur can improve attempts to fight crime. . . . Mapping crime can help law enforcement protect citizens more effectively in the areas they serve."
Crime mapping applications at the state and local levels rely heavily on Census Bureau's demographic and housing data. Crime mapping is most effective when analysts can see the relationship between various types of criminal incidents (e.g., homicides, drug dealing) and neighborhood characteristics (risk factors such as poverty, population density, and vacant housing), pinpoint where crimes are most likely to occur (hot spots), and focus police resources accordingly. For state and local crime mappers, the Census Bureau is the single most important source of population and housing data at the neighborhood level.
Members concerned about methamphetamines will find the work of the Illinois State Police of particular interest. The state police use decennial census data to map potential "hot spots . . . that should be closely monitored for new methamphetamine activity." Six of the eight risk factors used to identify meth hot spots rely on census figures, including the percent of the population that is white (most meth users are white), between ages 25 and 29, in poverty, single, with less than a high school education (average educational attainment of a meth user is 11 years), and in a rural county. Members also will find of interest that Crime Mapping News, which highlighted the Illinois anti-meth effort, is published by DOJ.
As valuable as decennial census data are for mapping hot spots, they are produced only once a decade, and so become increasingly out of date. In Illinois, for instance, while the use of meth exploded statewide in the late 1990s, the only small area demographic data available was from the 1990 Census. Once the Census 2000 data arrived, this problem was addressed, but now these data also are getting old.
With funding from Congress, the Census Bureau is rectifying the problem of obsolete neighborhood data by implementing the American Community Survey (ACS). The ACS will provide neighborhood-level data every year, rather than once a decade. With current rather than old data in hand, crime-fighting efforts through mapping of hot spots, in Illinois and across the U.S., will be more effective.
And cost-efficient. Neighborhood-level decennial census and ACS data are available to state and local governments free of charge. Moreover, a significant number of police departments download Census TIGER files to generate the mapsâthe streets, bridges, and so forthâover which crimes and neighborhood characteristics are laid. The Census Bureau has been providing this direct federal assistance to state and local law enforcement for some time. Without the Census Bureau's freely available resources, state and local police departments would need to divert precious funds and not get nearly as much value in the process.
To maintain the Census Bureau's assistance to crime-fighting efforts around the nation, it must receive adequate fiscal year 2007 funding to carry out the ACS and plan for the 2010 Census, the foundation for an accurate ACS. Members of Congress who want to take a bite out of the Census Bureau in the name of fighting crime will only hinder the police efforts they so want to help.
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