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EJ
12-05-06, 04:27 PM
Productivity Slows, Factory Orders Drop (http://biz.yahoo.com/ap/061205/economy.html?.v=9)
December 5, 2006 (AP)

Productivity Growth Slows Sharply While Factory Orders Plunge

Growth in worker productivity slowed sharply in the summer while wages and benefits rose at a rate that was far below a previous estimate, a development likely to ease inflation worries at the Federal Reserve.

Productivity edged up at an 0.2 percent annual rate in the July-September quarter, the Commerce Department said Tuesday. That was slightly better than the zero change reported a month ago.

Wages and benefits per unit of output increased at an annual rate of 2.3 percent in the third quarter, much slower than the 3.8 percent advance previously reported.

Analysts said this downward revision should ease fears at the Fed that wage pressures were threatening to send inflation sharply higher.

"Based on these numbers, the Fed can rest easy about the threat of inflation," said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm. "The only debate now seems to be about when the Fed will cut" interest rates.

AntiSpin: The disconnect between U.S. and other nations' financial press reporting on the U.S. economy is reaching an extreme. Maybe "when the Fed will cut interest rates" is the only debate going on around Wall Street. Given the Dow's performance this quarter, that appears to be the case. But the rest of the planet is trying to figure out how the Fed can cut interest rates as the U.S. economy nears recession, with the dollar weak and weakening and private equity and hedge fund bubbles churning out LBOs to make the 1980s LBO and 1990 NASDAQ bubbles look like huts beside skyscrapers, with respect to debt leverage.


http://www.itulip.com/images/creditbubbles.jpg

Can the Fed pour liquidity onto this or must Ben wait for it to collapse?


Dr. James Galbraith, whom we interviewed last week (http://www.itulip.com/forums/showthread.php?t=654), weighs in today with the following piece in The Guardian.
The Dollar is Dying, Burnt in Iraq's Flames (http://commentisfree.guardian.co.uk/james_k_galbraith/2006/12/the_dollar_melts_as_iraq_burns.html)

Moreover: the world has lost confidence in America's elites

The demise of the dollar has clear links to the Iraq war and the world's loss of confidence in America's elites.

The melting away of the dollar is like global warming: you can't say that any one heat wave proves the trend, and there might be a cold snap next week. Still, over time, evidence builds up. And so, as the greenback approaches two to the pound, old-timers will remember the fall of sterling, under similar conditions of deficits and imperial retreat, a generation back. We have to ask: is the American financial empire on the brink? Let's take stock.

It's clear that Ben Bernanke got buffaloed, early on, by the tripe about his need to "establish credibility with the markets." There never was an inflation threat, apart from an oil-price bubble that popped last summer. Long-term interest rates would have reflected the threat if it existed, but they never did. So the Fed overshot, and raised rates too much. Now long rates are falling; Bernanke faces an inverting yield curve and even bank economists are starting to call his next move. That will be to start cutting rates, after a decent interval, sometime next year.

Once again, all you monetary policy buffs, in unison please:

The grand old Duke of York, he had ten thousand men.

He marched them up to the top of the hill. And marched them down again.

This is not good news for the dollar.
AntiSpin for Galbraith: Aren't long term rates more a function of The Three Desperados (http://www.silverbearcafe.com/private/desperados.html): Asian central banks, OPEC, and U.S. corporations than a reflection of inflation risks?

One of the more intriguing comments to Galbraith's article comes from Thermopylae:
It is, in part, precisely because the Pax Americana is strong that investors are bidding up currencies other than the dollar. Historically, the dollar has been a safe haven in times of uncertainty. Its safe haven status is not required today, for the simple reason that the American peace is profoundly stable.

For example, the dollar strengthened against the euro for three months after 9/11. Once it became clear that America had capable wartime leadership, it has been weakening ever since. Sophisticated international investors understand that the removal of the Taliban and the dismembering of the former Iraq are all requirements for the continued health of the Pax.

With a healthy Pax, there is no reason to be obsessive about investing in the dollar. One of the distinctive features of the American centuries is globalization; it would be odd in an era of globalization for so much of the world's reserves to be held in just one currency.

Thus Pax today means globalization, and globalization means a lower dollar. But the rub, of course, is that a lower dollar means a diminution of American power and, ultimately of its Pax.
The argument appears to be that the U.S. dollar is weak because the U.S. centric Pax global economic system appears to be strong. I don't buy it. America's trading partners have spent over 30 years trying to get into bed with America and, finding him less than expected (he's aged a bit, not quite as frisky as some Asian nations today, never mind that they are even less well educated) are now trying to figure out how to get back out again.

Long term, I'm not worried; it's the short term I'm concerned about. As Sir Winston Churchill said, America always does the right thing, but only after exhausting all other options.

The USA has a lot more bad options to exhaust before doing the right thing.

jk
12-05-06, 04:57 PM
you were right on target with your factory order prediction.

0tr
12-05-06, 08:22 PM
James Galbraith the son of J.K. Galbraith? What a complete and total difference in quality of writing and insight. I for one miss having comments by the father about the current situation(s).

EJ
12-05-06, 11:40 PM
James Galbraith the son of J.K. Galbraith? What a complete and total difference in quality of writing and insight. I for one miss having comments by the father about the current situation(s).
For my final piece on the 2007 recession, I attempt to do just that, asking, "What would JK say?" and using JK Galbraith's "galbraithmoney" as a guidebook. I think you'll like it.

For a taste, an excerpt from "Gold, Bank notes and Britain against Napoleon and the US" (Page 44 to 45):
Over the end of the century Britain was at war alternately on two fronts–first with the American colonies (with which, incidentally, differences of view over issuing money were an important cause of friction), then with Napoleon and then again with the new Republic. War had is usual consequences. Money was needed for sustaining the armies in the field, for the fleet and for the subsidies to allies that reflected the (for Britain) humane policy of contributing from more abundant wealth as allies contributing from more abundant manpower. Pitt was relentless and many thought ruthless in his demands on the Bank for loans. Though taxes were increased, and an income tax, also called a property tax, was levied against heavy resistance, the need continued. In the closing years of the century Bank reserves dwindled, and there were occasional runs. Finally, in 1797, under conditions of great tension which included the thought that the French might soon be landing, the Bank suspended the right of redemption of its notes and deposits in gold and silver. The principal immediate consequence was the prompt disappearance of gold and silver coins and a shortage of coins for modest transactions. People passed on the notes and kept the metal. Gresham again. The Bank hurriedly printed one- and two-pound notes, and it also redeemed from its vaults a store of plundered Spanish pieces of eight. The head of George III was stamped over the head of the Spanish monarch, inspiring an anonymous but notable anti-Establishment poet to write:
The Bank, to make their Spanish dollars pass,
Stamped the head of a fool on the neck of an ass.
The needs of the government continued to press. Loans and the resulting note issues continued to increase. And now so did prices and the price of gold. Wheat, which was six shillings and ninepence a bushel at Michaelmas in 1797 and at the same level a year later, went to above eleven shillings in 1799 and to sixteen shillings the following year. Bread went up accordingly. The price of uncoined gold bullion advanced substantially in the same period. In the next few years prices receded somewhat, only to rise sharply again. All this was a matter of concern, and, in reflection of the distribution of power in the British polity of the day, the concern was focused not on the price of food but on the price of gold. In consequence, in 1810, the House of Commons impanelled a committee to inquire into the matter–the Select Committee on the High Price of Gold Bullion. Its principal task, which many would think involved a different phrasing of the same question, was to ascertain whether Bank of England notes, the basic money, had fallen or the price of gold has risen. The committee deliberated and duly found against the notes.
JK Galbraith didn't write economics, he wrote literature. It was a different time. There's not much market for it today. I don't blame his son for that.

DanielLCharts
12-06-06, 04:46 PM
EJ, I have to challenge your anti-dollar/pro gold foreign markets trade here. i agree that the trade deficit is unsustainable. but i think that the dollar bubble, as you put it, has caused a bubble in foreign stock markets, and it looks like they're just about to come undone like the homebuilders did a couple of quarters back. very very speculative activity in those markets. looks like a peak to me. i fear the intl markets and gold are about to be hammered for a year. i smell a brutal, brutal bloodbath. consumption, consumption, consumption. it's slowing and it's going to hammer gold and the foreign markets. maybe even starting now. today's international mutual funds are the tech funds of 2000.


For my final piece on the 2007 recession, I attempt to do just that, asking, "What would JK say?" and using JK Galbraith's "<a href="http://www.amazon.com/gp/product/0735100705?ie=UTF8&tag=wwwitulipcom-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0735100705">Money: Whence It Came, Where It Went</a><img src="http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=0735100705" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" />" as a guidebook. I think you'll like it.

For a taste, an excerpt from "Gold, Bank notes and Britain against Napoleon and the US" (Page 44 to 45):
Over the end of the century Britain was at war alternately on two fronts–first with the American colonies (with which, incidentally, differences of view over issuing money were an important cause of friction), then with Napoleon and then again with the new Republic. War had is usual consequences. Money was needed for sustaining the armies in the field, for the fleet and for the subsidies to allies that reflected the (for Britain) humane policy of contributing from more abundant wealth as allies contributing from more abundant manpower. Pitt was relentless and many thought ruthless in his demands on the Bank for loans. Though taxes were increased, and an income tax, also called a property tax, was levied against heavy resistance, the need continued. In the closing years of the century Bank reserves dwindled, and there were occasional runs. Finally, in 1797, under conditions of great tension which included the thought that the French might soon be landing, the Bank suspended the right of redemption of its notes and deposits in gold and silver. The principal immediate consequence was the prompt disappearance of gold and silver coins and a shortage of coins for modest transactions. People passed on the notes and kept the metal. Gresham again. The Bank hurriedly printed one- and two-pound notes, and it also redeemed from its vaults a store of plundered Spanish pieces of eight. The head of George III was stamped over the head of the Spanish monarch, inspiring an anonymous but notable anti-Establishment poet to write:
The Bank, to make their Spanish dollars pass,
Stamped the head of a fool on the neck of an ass.
The needs of the government continued to press. Loans and the resulting note issues continued to increase. And now so did prices and the price of gold. Wheat, which was six shillings and ninepence a bushel at Michaelmas in 1797 and at the same level a year later, went to above eleven shillings in 1799 and to sixteen shillings the following year. Bread went up accordingly. The price of uncoined gold bullion advanced substantially in the same period. In the next few years prices receded somewhat, only to rise sharply again. All this was a matter of concern, and, in reflection of the distribution of power in the British polity of the day, the concern was focused not on the price of food but on the price of gold. In consequence, in 1810, the House of Commons impanelled a committee to inquire into the matter–the Select Committee on the High Price of Gold Bullion. Its principal task, which many would think involved a different phrasing of the same question, was to ascertain whether Bank of England notes, the basic money, had fallen or the price of gold has risen. The committee deliberated and duly found against the notes.
JK Galbraith didn't write economics, he wrote literature. It was a different time. There's not much market for it today. I don't blame his son for that.

EJ
12-06-06, 04:48 PM
EJ, I have to challenge your anti-dollar/pro gold foreign markets trade here. i agree that the trade deficit is unsustainable. foreign markets looks like they're going to come undone like the homebuilders a couple of quarts back. very very speculative activity in those markets. looks like a peak to me. i fear the intl markets and gold are about to be hammered for a year. i smell a bloodbath.

That's entirely possible, in fact likely, per Ka-Poom Theory.

jk
12-06-06, 04:59 PM
That's entirely possible, in fact likely, per Ka-Poom Theory.

are you saying we're still only entering the "ka" phase?

akrowne
12-06-06, 05:09 PM
I think there is some truth to your call here. But the floor under gold and other commodities has proven incredibly resilient. It will take a steep global slowdown <i>without</i> any financial system instability to produce a real routing from here (as we're already off the spring and summer's highs).

If there's any hint of a systemic crisis, gold and other real assets will become relatively attractive.

I'm adding on weakness, when I can.

EJ
12-06-06, 05:19 PM
are you saying we're still only entering the "ka" phase?

Well, it's a slooooow "Ka" because unlike the collapse of the stock market market, the collapse of the housing bubble is slower but more broad. Then there's the eventual collapse of the PE and hedge fund bubbles. The "Ka" might then intensify quite a lot. The wild card is how the markets will respond to the asset deflation, monetary disinflation, monetary reflation, asset inflation cycle, now that particants have been "trained" by the previous cycle.

DanielLCharts
12-06-06, 05:24 PM
That's entirely possible, in fact likely, per Ka-Poom Theory.


ha ha. ok, cool. i guess watching the canadian tv clip made me think you were unambiguously pounding the table on foreign assets regardless of where we are in kapoom theory.

maybe i need to buy the book and read!

spunky
12-07-06, 10:41 AM
Well, it's a slooooow "Ka" because unlike the collapse of the stock market market, the collapse of the housing bubble is slower but more broad. Then there's the eventual collapse of the PE and hedge fund bubbles. The "Ka" might then intensify quite a lot. The wild card is how the markets will respond to the asset deflation, monetary disinflation, monetary reflation, asset inflation cycle, now that particants have been "trained" by the previous cycle.


Markets. :confused: I am more concerned on how Uncle Sammy is going to act. The markets are going to take care of themselves.