1st Q US GDP: Right for the wrong reasons

1st quarter US GDP was reported at +0.5% yesterday, which is weak but still positive. This graphic from the WSJ shows that consumer spending on services, residential investment, and state and local government have accounted for more than all the increase.



Here is are some factoids from the "Contributions to Percent Change" table of the BEA press release:



Without the housing bubble (thanks, Fed), Obamacare, and government spending, 1st Q GDP would have been down .82% This does not seem like a productive economy to me, or am I missing something?

What, after all, is truth?

From today's Wall Street Journal:

Encouraging decline in gun-related deaths in the USA

among suiciders, according to yesterday's Wall Street Journal.

Although the suicide rate among both men and women in the USA is rising rapidly, it is good news that fewer suicides are using guns. (for men from 61.7% in 1999 down to 55.4% in 2014) The big increase in method has been in "suffocation," which I take to mean hanging. (Assuming that the number of serial killer assisted suicides using pillows is not significant)

Should restrictions be placed on the sale of ropes?

The article states: "The report showed a surge in suicides among middle-age men and women, a factor noted in rising death rates among middle-aged people and a decline in white Americans life expectancy in 2014." The writer searches for an explanation but cannot come up with one. (Is Global Warming the cause?)

(Click on the graph to see the full article in the Wall Street Journal.)

Driving Lessons from Greece: The consequences of central bank policy

Central bank policy has evolved from unorthodox to downright strange as politicians have failed to take control of the post-crisis economy. Sooner rather later they will confront a stark choice signposted Greece or Ireland.

Full article: http://www.euromoney.com/Article/3543283/Inside-investment-Driving-lessons-from-Greece.html?printrequest=true&copyrightInfo=true

How investors are playing climate change

From this morning's Boston Globe:

Stairway to heaven: time for another step up?

There's a lady who's sure
All that glitters is gold
And she's buying a stairway to heaven

-- Led Zeppelin

Middle aged white women are killing themselves.

Middle aged white women are killing themselves.

And they are not alone.

There was a fascinating article, “A great divide in American death,” about the decline in life expectancy of rural white women in today’s Washington Post. It can be found at this site:

http://www.washingtonpost.com/sf/national/2016/04/10/a-new-divide-in-american-death/

Here is one of many fascinating graphs (click on graph to see it more clearly):

There is more and more drinking, smoking, drug-taking and depression in rural America, and it’s not working out very well.

Caveat emptor: The Wall Street Journal tosses out some interesting numbers, some of which are wrong.

I was recently embarrassed by quoting some statistics from the Wall Street Journal that were completely wrong. (I'm not saying which ones.) The WSJ people seem to be doing this more often than in the past. Perhaps there are fewer experienced editors and perhaps reporters are more rushed than they used to be.

In today's WSJ, an article ("Budget Cuts Fuel Monetary Policy Clashes," p. A2.) discusses how declining government revenues combined with rising transfer payments are turning the Federal budget into transfer payments only. Here is the graph:

The article states "Consumption and investment by all governments -- local, state and federal combined -- dropped to 17.6% of gross domestic product in the fourth quarter of 2015, matching its lowest level in 66 years, according to the Commerce Department." The fact is that the 17.6% number is for the federal government alone. But it's worse than that. The 17.6% figure is the approximate number for 2014 federal government tax receipts. Federal outlays in that year were 20.4% of GDP. So the graph relates federal tax receipts (not expenditures) to transfer payments. (The point that transfer payments are devouring the federal budget is correct, nonetheless, but the problem is not the level of expenditure as the article suggests.)

Moreover, state and local government spending isn't much less than federal spending, so total government expenditures are in the 35%-40% of GDP range, which is not abnormal.

The White House website has the following table of federal receipts and spending which I presume to be accurate;




The reporter graduated from college in 2001 and has been an economics reporter for three years, first for the Economist and then for the WSJ, so he should be a bit more aware of basic facts. Even more, his editor should.

"All power to the Soviets!" Central bank overreach in Sweden and elsewhere

I remembered Lenin's phrase "All power to the Soviets!" when I read this morning that Stefan Ingves, head of Sweden's central bank, thinks that the bank should have more power over the economy. Specifically, the Financial Supervisory Authority (FSA) is standing in the way of the central bank's direct regulation of the housing market. Ingves proposes that the FSA be merged into the central bank. (i.e. eliminated and its authority given to the CB)

Sweden's economy grew 4.5% last year and is expected to grow 3.5% this year. The central bank lending rate is -0.5%. (I believe that Sweden was the first to go negative.) The bank has also done the requisite quantitative easing. The fly in the ointment is that inflation is only 0.4% whilst the target is 2.0%.

Personally, I don't see why stable prices and a booming economy is not considered a good enough result. The Central bank, which seems quite pleased with itself, says, however, that it needs more power so that things will be even better.

It's human nature: everyone thinks he ought to have more power.

Will Armenia be center stage for the conflict between Russia and Turkey?

Azerbaijan has been gearing up to recapture Nagorno Karabakh from Armenia. It now spends more on defense than the entire Armenian budget. Here are two paragraphs from a recent article:

Azerbaijan's government has consistently bragged about its defense budget, which, starting in 2011, it claimed exceeded Armenia's entire state budget. Azerbaijan's Foreign Ministry spokesman Hikmat Hajiyev told the American newspaper Defense News in a story published this week that that "defense spending had enabled the Azerbaijani armed forces to be supplied with requisite advanced weaponry needed to re-take 
'its Armenian-held territories.'"

“It is our priority and we will continue to increase military spending," said Azerbaijan President Ilham Aliyev in 2014. "Over the past 10 years, our military spending has increased more than 20-fold, and our spending allocated to the armed forces is approximately twice as large as Armenia’s overall state budget."

The drop in oil prices means that this level of spending cannot be sustained, so the time to act is now. Russia has a base in Armenia that is a potential threat to Turkey. President Erdogan of Turkey, who may be one of the most dangerous men in the world with his dreams of the restoration of the Ottoman Empire, said, “We pray our Azerbaijani brothers will prevail in these clashes.” Azerbaijan would not have attacked without Turkey's acquiescence.

Will Armenia be center stage for the conflict between Russia and Turkey?

Deutsche Bank is not a happy camper

Deutsche Bank has been deleveraging. (WSJ, A1) Leverage pre-crisis was 61:1 compared to a European bank average of 39:1 and a US average of 13:1. Now, after selling €11 billion in equity and €5 billion in CoCos and shrinking its book leverage is 21:1, compared to 18:1 for the average European bank and 12:1 for the US. (WSJ numbers) The new CEO John Cryan is making further cuts after the €6.77 billion loss in 2015; his nickname in the bank is “Mr. Grumpy.”

Lower leverage means lower profit (and loss) potential.