Wednesday, January 9, 2013

Obama to nominate Jack Lew for Treasury, avowed deficit hawk

Tomorrow Obama will announce that he is nominating Jack Lew for the post of Treasury Secretary. Lew is currently White House Chief of Staff and before that, he was Director of OMB. Lew was Clinton's OMB director from 1998 to 2001, a period that saw the Federal Government run budget surpluses, which resulted in a major collapse of private sector savings, a collapse in the stock market and a recession. (It's a sectoral balances thing.) Lew is an avowed deficit hawk and has been very vocal about reducing the government's deficit and supporting the president's push for a "Grand Bargain." This means that Lew will almost certainly be pushing for more austerity.

So once again Obama spits in the face of the millions of people who voted for him thinking he was was going to stand up for their interests. Austerity will create more unempolyment and sustain the current trend of funneling more and more of our national income and wealth to the top 1%.

38 comments:

Unknown said...

Check out this economist article on the platinum coin. They actually seem to get it! This could be a minor breakthrough.

http://www.economist.com/comment/1831443#comment-1831443

mike norman said...

People do get it, but it's not going to happen for the simple reason that Obama doesn't want it. He's a deficit hawk, so things like the coin or invoking the 14th Amendment and hashing it out in the courts is not his style. He WANTS deficit reduction. He WANTS a "grand bargain." He WANTS entitlement reform. And he will make a deal with the Republicans to raise the ceiling, but only after agreeing to major cuts.

paul meli said...

Then it's time for revolt and even bringing in the I-word (impeachment).

Obama needs to hear it from the left as well as the right.

Matt Franko said...

Mike,

Looks like Dan Kervick is right on board with your view on the President here...

Looks like Dan is actually going back into the press reports and trying to quantify this issue wrt the official comms from the Obama Admin...

Looks like it may come right down to the President himself....

rsp,

Matt Franko said...

ps contrast this to "W": 'this sucker could go down!...'

What the hell is wrong with "O"?

rsp,

Malmo's Ghost said...

Mike gets it. And in fairness to the nitwit masochist Obama, it's not as if he's going back on what he promised in the campaign.

Recession here we come.

Malmo's Ghost said...

Matt, "O" is a sterile Chicago machine politician. centrist that he is, he's no more ideologically driven than Mickey Mouse.

He has a chance to fuck things up so bad the next four years that the Republicans could very well get back 1600 Penn. Talk about supplying the rope to hang ones self.

Matt Franko said...

Mal,

The GOP seems more or less disfunctional now... they are screwing NJ on Sandy with a sitting GOP Governor at the helm...

And King in Nassau Co....

This is like the rise of the old Confederacy... scary!

The party may not survive this...

rsp,

Tom Hickey said...

@ y

OMG! Promoted.

Tom Hickey said...

Even worse is Brennan for CIA. He was a cheerleader for torture, which would indicate he has a criminal mindset.

Geoff said...

It's unfortunate that this guy seems to be so far out of paradigm, but the surpluses under Clinton had less to do with him and more to do with a growing economy and a strong private sector. Given that the private sector appears to be about to re-engage again (see Mike's post from yesterday), Jack Lew may just luck out for a second time.

paul meli said...

"It's unfortunate that this guy seems to be so far out of paradigm, but the surpluses under Clinton had less to do with him and more to do with a growing economy and a strong private sector." - Geoff

Geoff, something that tends to explain why Clinton got away with his surpuses for a while…the ratio of household debt to $NFA was very low, which left a huge amount of credit headroom to overcome the spending gap…this option is no longer available.

See here:

https://dl.dropbox.com/u/33741/Debt%20series%20v2.png

The trough in consumer debt (purple) as a ratio of $NFA at 1993 was the lowest in 30 years.

Geoff said...

Good stuff, Paul. Interesting that debt to $NFA is again at pretty low levels, which supports the point that the private sector could be ready and able to boom again. All this talk about austerity may be fighting yesterday's war.

Tom Hickey said...

which supports the point that the private sector could be ready and able to boom again

Questionable when debt is deconstructed.

Geoff said...

Could be, Tom. I'm just trying to put a positive spin on things to counteract most MMTers who are so f-ing negative it's depressing!

Tom Hickey said...

Geoff, it's the numbers, not the MMT'ers. The driver of the economy is housing. Housing is income sensitive and middle class in come is flat. Housing is also interest rate sensitive and depends on continuing low rates. when recovery comes, mortgage rates will rise. Unless labor share increases, income won't keep pace.

Matt Franko said...

Paul external balance was small also as oil went to like $10/bbl late 90s so high oil is an addl headwind today for the "little guy"...

That said, if they raise the debt ceiling like $1T or $2T, that opens up the spigot of $NFA and imo dont stand in the way...

The S&Ps will make their profits as there will be enough $NFAs issued to make their numbers ($600B profits/retained earnings?) and still let the external sector have their $NFAs also...

An increase in bank credit will only be "gravy"...

Things could be "good for business" if they get this f-ing debt ceiling thing behind us for a couple of years...

rsp,

paul meli said...

Guys, here's a chart comparing debt to domestic $NFA ($NFA less FDHBFIN), which should be more meaningful:

https://dl.dropbox.com/u/33741/Debt_NFA%28domestic%29.png

Looks like there's still quite a bit of deleveraging to go, and reduction in spending will make the slog longer.

Plus, I suspect that for a while at least borrowers are going to be very cautious about incurring unnecesary debt.

Matt Franko said...

Paul,

Consider that the corporate financial sector may already be irrelevant...

That sector's profits may be irrelevant to whether or not the S&Ps can make earnings...

We still have the non-financial corporate sector (ie "real business") that can do well IF the $NFA flows are there... selling food, electric, healthcare, etc...

The key is to get the ceiling raised..

rsp,

Geoff said...

Tom, it looks like a real estate recovery is already on its way. Mortgage rates will likely lag the recovery. We'll see.

Tom Hickey said...

it looks like a real estate recovery is already on its way

Maybe. Robert Shiller is less sanguine. Dr. Housing Bubble, too. Need to read both sides.

paul meli said...

Matt, the last 8 years of corporate profits (Billions):

2011……$32.1
2010……$271.9
2009……$120.2
2008……($242.0)
2007……($56.6)
2006……$121.7
2005……$304.5
2004……$263.6
2003……$86.7

…and something like 60% of 2012 S&P profits were earned by (4) companies, with Apple accounting for more than half of that.

Looks like Apple will eat the rest of the S&P companies, leaving small business to carry the hod.

Jonf said...

What Mike said.

Jonf said...

It does come down to the pres. He will find the pres has wanted to cut the safety net since before he was elected. It was a sort of stealth thing, but after Bush we all just wanted a "change".

Matt Franko said...

Paul,

Is that "cash basis" ?

ie the retained earnings in $NFA would be in the earning based on "cash basis" not accrual... ie not GAAP...

"How much cash do they have at the end of the year vs when the year started?"

If they have more "cash" ie $NFA it has to have come from somewhere... if bank credit is flat, then that leaves the deficit or a draw down of savings of the household sector...

paul meli said...

Matt, the data comes from the CP series at FRED.

Don't know the answer your questions re accounting methods…how is it done re Z.1, which is the source of FRED data?

Over time it shouldn't matter because everything comes out in the wash. Besides, retained earnings has to come from net increase in cash year-to year right?…isn't that how their revenue comes in.

Matt Franko said...

Paul they can take non-cash charges which reduce reported GAAP earnings...

ie a firm could start out the beginning of the year with 100M in the bank and end the year with 200M in the bank and report that it "lost money"....

Remember a while back HP reported a whatever 10B loss? Well, they didnt have a bank account with 20B in it and now it only has 10B in it... they bought some pig in a poke with shares and then there looks like there was fraud and they have to take a 10B or whatever writedown to earnings... this doesnt have anything to do with how much $NFA they have in their accounts... rsp,,

paul meli said...

"if bank credit is flat, then that leaves the deficit or a draw down of savings of the household sector…" - Matt

Or a decrease in the increase of the level of savings.

In 2011 GPSAVE only increased by $7B.

In 2010 GPSAVE increased $260B

Since 2003 GPSAVE increased by $1,170.7B

Since both CP and GPSAVE sucked in 2011 we have to wonder where the deficit monies are going, … are we prepping for a contraction?

paul meli said...

Matt, I know that's the case but it can't be done year-in-year-out, eventually losses and gains have to be booked.

Their $NFA should be equal to their cash-on-hand (including marketable securities) less outstanding liabilities.

Matt Franko said...

Does GPSAVE contain retained earnings?

Matt Franko said...

Paul,

I think it would just be the "cash on hand" ie no "less outstanding liabilities" as those liabilities are only "on paper"... ie only for accounting purposes...

paul meli said...

Matt, outstanding liabilities are loans, so they I would think that would be subtractions from Cash and Marketable securities. I can't think of any liabilities that aren't payable in dollars.

$NFA is not the same as net worth.

Also, you got me thinking…CP (corporate profits) is an aggregate figure…all corporate businesses combined, so that should be pretty close to the cash they are holding…net is net. It would be pretty hard to hide losses in there since one company's loss is another company's gain (cash wise).

I doubt that CP is part of GPSAVE but I can't say for sure.

Still. I will think about this some more.

Matt Franko said...

Paul:

Lets say that they raise the debt ceiling by like 2T.

Banks will not lend (stuck at $7T)

2013 projected S&P operating earnings are like 100/share lets say that equates to $700B.

Deficit will be self determining and comes out at year end at 1.1T

S&Ps make 500B USD plus $200B USD Euro equivalent in Europe... they make their 700B number...

500B can still go to the Chinese and japanese and OPEC..

leaves 100B leftover for household savings and non S&P retained earnings...

This cannot happen if ceiling is not raised... turns into 10 dogs after 8 bones... and nobody makes their numbers...

rsp,

paul meli said...

Matt, we are seeing things the same way.

it doesn't look good, these clowns are playing with fire.

The big question is who will be blamed and what will be the response.

It reminds me of Warren Mosler's quip "no matter how much I cut the board it's still too short".

I have no confidence that they will do the right thing after everything falls apart, because I don't think they know what they are doing.

They will likely assume they didn't cut enough.

Tom Hickey said...

ONe thing is sure. They are never going to assume they were wrong.

John Zelnicker said...

Matt and paul -- The corporate statement you want to look at is called "Flow of Funds" in quarterly and annual reports. This is a summary of the flows in from cash revenue received and loan proceeds, minus cash expenditures and loan repayments. It nets out the receivables and payables used in GAAP accrual accounting.

paul meli said...

John, thanks for the input. This clears up some of the questions that have been lingering.

Here's the way I look at $NFA and balance sheets:

Take your own balance sheet...add up all of your cash holdings...wallet, mattress, petty, demand deposits, savings accounts...everything that can be turned to cash immediately on demand...

Subtract all outstanding loan balances owed to FRBS banks...

That's your $NFA.

Do the same for every balance sheet in the domestic economy...

Add them all together...

Add in government bonds held by foreign investors (FDHBFIN)....

That's total $NFA and should be equal to the penny to the sum of all deficits over history.

Roger Erickson said...

Prepare to be Lewd! But try not to look like you're being lewd.