US electoral projection

Here's a map of the US with electoral vote projections from electoral-vote.com

The result of the election will be known early on election night. The four key swing states are all in the Eastern time zone.

Massive Soviet debt still owed by Russia

Bloomberg reports:  Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion - Bloomberg

"25 trillion rubles ($785 billion), equal to almost half of Russian economic output, the government says it still owes the public from lost Soviet savings. Putin is stalling, most recently signing an order in April to halt payments on the notes until at least 2015. Now, armed with court rulings, veteran speculators are joining pensioners in seeking to cash in. "

This represents a serious fiscal problem for Russia.  Defaulting would cause harm to a large number of Russian citizens, so it is not really an option.

Another quote from the Bloomberg report:

“This all should have been settled back in the 1990s,” said Boris Kheyfets, a Soviet debt specialist at the Russian Academy of Sciences’ Institute of Economics in Moscow. “How do you assume a debt that huge? It would collapse everything immediately.”

Defaulting was and is extremely damaging to a country's fiscal situation.  That's why Russia didn't repudiate these debts back in the 1990's.  However, since the government isn't fully paying interest on these as time passes, technically they are already in default.  The Finance Ministry is quoted in the report as follows:

“Clearly, implementing this plan to restore the public’s savings would impose exorbitant obligations on the federal budget,” the Finance Ministry said in its most recent debt strategy report, released a year ago. “Were that actually to happen, the state would be deprived of the ability to pay for other expenses for an extended period of time.”

That's clearly accurate.

Japan in fiscal crisis

According to the Telegraph:
Japan plans to cut state spending, could run out of money in a month - Telegraph

"Japan's government is planning to suspend some state spending as it could run out of cash by October, with a deficit financing bill blocked by opposition parties trying to force Prime Minister Yoshihiko Noda into an early election."

This would seem to be the first time that parliamentary disputes there have reached the point of holding up fiscal activity by the government.

Longevity still increasing in the US

In 2010, the age-adjusted death rate for the United States was 746.2 per 100,000 population.  Take a look at this chart that shows age adjusted death rates by state:

Notice how the highest rates are clustered in the Southeast.



Here is a chart of age specific death rates:

Infant mortality is improving (going down):

These charts were produced by the CDC.

US energy source mix

It's notable how nuclear power has increased from near zero in the early 1970's.  Heating your home with wood is still fairly common in older homes in areas where timber is widely available like the Pacific Northwest. 

Both charts are from Energy in the United States at Wikipedia.  Now that natural gas is relatively inexpensive, it is gaining share in energy generation particularly as a replacement for coal.

The costs of nuclear are understated because of failure to include waste handling costs.  Spent fuel is expensive to deal with and no long term solution has been agreed upon.

Three key factors point to GDP weakness

Household debt, labor force participation rate, and government spending all trend down with the exception of some increase in debt recently.  With both government spending and labor force shrinking, it's hard to see where GDP growth might come from.  Household debt has likely plateaued after the recent increase.  After all income is needed for consumers to support debt.

Twenty years of trade deficits

Here is a chart from the trusty FRED database at the FRB:

The US has run a trade deficit since the beginning of the Clinton administration.  The passage of NAFTA and allowing China to have permanent normal trade relations (PNTR) status in P.L. 106-286, which President Clinton signed into law in October 2000 facilitated China’s accession to the WTO in December 2000 and contributed significantly to the deficit.  The big explosion in US trade deficits with China occurred after accession to the WTO.

It appears that Ross Perot's prediction of job losses after passage of NAFTA, along with preferred trade status for China, was accurate.

Movie ticket price trend

Here is a chart of average movie ticket prices in the US; from data found at BoxOffice Mojo:

Prices were going down in the early 1990's and have now flattened out.

Japan economy weak in July

Japan is struggling at best.  Bloomberg reports that:

Japan reported a wider-than-expected trade deficit in July as Europe’s sovereign-debt crisis and a slowdown in China dragged down exports and higher oil prices boosted imports. 

Japan's trade deficit was 517 billion yen; per Bloomberg data Japan's trade balance has been near zero or negative every month since October 2011.  In July exports fell 8.1 percent year on year while imports increased 2.1 percent.  The Ministry of Finance reported that shipments to the European Union fell 25 percent in July year on year;  and shipments to China fell 12 percent. The trade deficit was the biggest for any July in data since 1979.

Japan's goods exports to the EU have fallen sharply the last two months.

Dependence on energy imports and falling exports means that Japan will probably run trade deficits for at least another year.

Bernanke's fallacy

It is as follows:

asset price increases are good, but wage price increases are bad.

 Take a look at three asset classes that FRB policy has contributed significantly to price levels in recent years:

Crude oil prices represent at least partly easing monetary policy, and crude is an asset only to large institutions.

Using a search engine will make it clear that the FRB doesn't want equities to drop.

The FRB is explicitly supporting housing prices through its policies and statements.

Now take a look average hourly earnings of all private employees:

This is a small increase relative to the changes in asset prices shown above.  Of course, FRB policy is explicitly design to minimize wage price increases.

July unemployment in US weak

Calculated Risk reports on BLS release today that State Unemployment Rates increased in 44 States in July:

Forty-four states recorded unemployment rate increases, two states and the District of Columbia posted rate decreases, and four states had no change...Nevada continued to record the highest unemployment rate among the states, 12.0 percent in July. Rhode Island and California posted the next highest rates, 10.8 and 10.7 percent, respectively. North Dakota again registered the lowest jobless rate, 3.0 percent.

In its release the BLS says that "The national jobless rate, at 8.3 percent, was essentially unchanged from June but 0.8 percentage point lower than in July 2011."

 

So most states' UE rates are higher but the national UE rate is unchanged.  So two states and the DC offset the other 47 units.  That probably hasn't happened very often in the US since 1947.

August 2012 1st half month: not hot

It's been ugly:

-Europe reports a negative growth Q2: 

"Eurostat, the European Union's statistics agency, revealed that the economies of both the eurozone and the wider 27-country EU shrank by a quarterly rate of 0.2% in the second quarter of the year. In the first quarter, output for both regions was flat"

It's essentially a recession already for Europe; and Q3 is likely to be negative as well.  Can the zone avoid a full year of zero to negative growth?  It will be difficult.

-Real earnings in July :

"Real average hourly earnings rose 0.2 percent, seasonally adjusted, from July 2011 to July 2012. The increase in real average hourly earnings, combined with a 0.3 percent increase in the average workweek, resulted in a 0.6 percent increase in real average weekly earnings over this period."

This implies that real average hourly earnings rose 0.016 percent each month between July 2011 and July 2012. 

Put another way, a wage of $25.00 per hour in July 2011 would be a wage of $25.05 in July 2012.  The employee gets an extra nickel per hour, or an extra $8.40 a month based on 168 work hours in a month.

-CPI was up:

"Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment"

Of course, you can't pay your bills or buy groceries at a seasonally adjusted price.  So the CPI grew 7 times faster that real hourly earnings.  That's not sustainable.

-Employment is flat by most measures:

"Total nonfarm payroll employment rose by 163,000 in July, and the unemployment rate was essentially unchanged at 8.3 percent...the civilian labor force participation rate, at 63.7 percent, and the employment-

population ratio, at 58.4 percent, changed little in July."   Population is growing roughly 263,000 per month so payroll growth isn't keeping up.  And it shows up among 25-34 year olds..Here's a trusty FRED graph of US population 25-34:

Finally, Next, It's Soap is an excellent summary of the current economic situation by MaxedOutMama. My takeaway in a nutshell: China is contracting, Europe is as well, oil prices will break downward very soon, and the US is about to enter an inventory based recession.

Unlimited bank deposit guarantee to end soon

Reuters reports that the FDIC's Transaction Account Guarantee (TAG) program, which insures all bank deposits in checking accounts above the $250,000 coverage already provided by the is scheduled to expire on December 31, 2012 and that $1.3 trillion of TAG-insured deposits that do not pay interest are on deposit at U.S. banks.

The TAG program is likely one big reason why the FDIC is not taking down more banks; they can't afford to cover losses on the extra deposits. Apparently only about three weeks of legislative days are left for Congress to create an extension of the TAG insurance program before the election, if they wanted to.  This should be allowed to expire, as taxpayers are potentially on the hook for much larger losses with the program.  Expiration would give the FDIC room to take over more insolvent banks, since the covered deposits would be less.