Category Archives: Economic fundamentals

Mortgage Rate Shock Likely to Dent the Housing Market

As regular readers know, your humble blogger, along with a lot of investors, was taken by surprise when the typically dovish Bernanke not only started using the taper word a month ago, but then made the demise of Fed heroics sound even more imminent by talking about higher unemployment “thresholds,” namely 7%, than had been voiced previously. And the reading of Fedwatchers like Tim Duy and (even before the FOMC statement) James Aitken is that the central bank wants out of the QE business sooner rather than later.

The impact on mortgage rates already looks very likely to throw a big bowl of cold water on the housing party.

The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder

If anyone doubted that Ben Benanke’s “we’re convinced the economy is getting better, so take your lumps” press conference after the FOMC statement last week was awfully reminiscent of 1937, the newly-released Bank of International Settlements annual report is tantamount to a kick to the groin. And to change metaphors, if the Fed’s sudden hawkish posture is playing Russian roulette with the real economy, the BIS just voted loudly for putting a couple more bullets in the cylinder.

Monday DataDive: Fedspook, May Reports on Consumer Prices, New Home Construction, and Existing Home Sales

By RJS, a rural swamp denizen from Northeast Ohio, and a long-time commenter at Naked Capitalism. Originally published at MarketWatch 666.

Lambert here: rjs does what he does every weekend: Covers the most important economic releases from the previous week. Thanks, readers, for your feedback on formatting from last week; I hope you see some improvements. Don’t hesitate to make more suggestions. Also, the FRED geekery is fun.

Fedspook

The financial news of the week came as a result of the two day meeting of the Fed’s Open Market Committee, which really produced no news on its own. The statement barely changed from the statement issued after the last meeting, and Bernanke’s responses to questions at his press conference after the meeting (pdf transcript) were pretty much a reiteration of his statements in testimony before the Joint Economic Committee of Congress roughly 4 weeks earlier, i.e, that the economy was improving and they would soon be starting to taper off the from the $85 billion a month they’ve been injecting into the financial system, mostly by buying mortgage backed securities and reinvesting the interest proceeds of the Treasury bonds and MBS that they already hold on their balance sheet. However, market players must have not believed the first iterations, because as soon as the statement was released and Bernanke began to confirm what he’s already said previously, financial markets started heading south, and by the time the planet had spun once on its axis, prices in every market around the world & for most every asset class were down by 2% or more.

Bill Black: How Ecuador Won By Defying Neoliberal “Washington Consensus” Playbook

Heritage Foundation’s distorted reporting of Ecuador’s economic success illustrates the lengths neoliberal loyalists will go to promote their bankrupt theories.

Warren Mosler: Consumer Borrowing Has Kept Economy Afloat, but for How Much Longer?

Yves here. Warren Mosler, who is one of the leading writers on Modern Monetary Theory, circulated an e-mail with his assessment of the state of the economy and the impact of quantitative easing and agreed to letting me publish it.

The Taper is Too Sharp

Yves here. I have to say I’m still gobsmacked by the Fed’s belief that the labor markets are showing meaningful improvement, and the further “clarification” that this means the central bank thinks it’s on track to start easing up on bond buying this year.

Pepe Escobar: Why American Worries about “Containing China” Are Off the Mark

Yves here. As China has become more powerful economically, and is building up its navy (a substantial navy is a precondition of being a true superpower), some pundits have taken to anticipating a world where US cedes dominance to China over a protracted and likely unstable transition period, using the decline of the British Empire and the rise of American influence as a guide.

That’s unlikely to be the right frame of reference.

Bernanke Kills Fed Credibility and the Confidence Fairy in One Shot

How many markets are in upheaval right now? We’ve pointed to several things that have been troubling about the Fed’s apparent view prior to the FOMC statement yesterday and the Bernanke press conference, which only rattled investors further.

Chinese Interbank Markets Having a Heart Attack, Repo and Shibor Skyrocket, Could Trigger Bigger Unraveling

The Chinese central bank is playing very high stakes poker. China’s interbank markets have been highly stressed for the last two days. An effort by the central bank to tighten in order to put a crimp on shadow banking activities looks to be spiraling out of control as one-week repo rates hit nearly 8.3% up 144 basis points in a day, and one-week Shibor has risen from its June 5 level of 4.8% to just shy of 8.1% today.

Robert Wade: Elite Denial of Corruption and Inequality – World Bank Case Study

Yves here. While readers may think development policy has limited relevance to US and advanced economy readers, the IMF and World Bank have been and continue to be vehicles to make the world, particularly smaller or otherwise more influenceable regimes, more friendly to the interests of US multinationals. And at the same time US companies are taking down a record share of GDP in profits, the country’s ranking in inequality is worse than that of many developing economies. New York City is more unequal than China, and as the chart below shows, is also more unequal than Russia, famed for its oligarchs, and India, which still has hundreds of millions living in abject poverty.

So the World Bank’s efforts over time to exclude issues like corruption and inequality from its analysis have direct and obvious parallels to policy discussions here. Wade’s anecdotes of the way the World Bank refused to even allow the “c” word to be acknowledged are striking.

Is the Fed Going to Dial Down Its QE Taper Talk?

We’ve suggested that the Fed has drunken a bit too much of its own confidence Kool-Aid to be talking about tapering QE. The problem now, as we’ve stressed, is that the effect of QE may prove to be asymmetrical.

Nikkei Falls 6.4%, Overseas Markets Escalate Hissy Fit Over Cut in World Bank Forecasts, Fed Taper Talk

The big shortcoming being exposed by the Fed’s talk of tapering QE isn’t just that it’s premature. The central bank could have had its cake and eaten it too by using the “T” word and then in case of overreaction, sending minions out to reassure investors that it didn’t mean it, really, they just had to say it to appease the hawks (not in that formula, mind you, the mere fact of running around and looking concerned about markets having a bit of a swoon is more important than content). It’s that any QE exit subjects the Fed to conflicting objectives and Mr. Market may have finally awoken to that fact.

China to Build Panama Canal Bypass Through Nicaragua

Yves here. Reader From Mexico often chides readers in comments who like try to depict Argentina and other Latin American states as failures, when the ones who have distanced themselves from American/neoliberal policies have made solid social and economic progress.

This piece highlights a tangible indicator of the wane of US influence in the Americas.

Mortgage Delinquencies Down….But a Record 843 Days to Foreclose

Yves here. While most investors and analysts were busy fixating on the Fed’s taper and the unemployment report and the Abenomics roller coaster, some important housing market news slipped under the radar.