Expectations Rise But No Recovery
By Colin Twiggs
April 29, 2009 4:00 a.m. ET (6:00 p.m. AET)
Consumer confidence turned up from its 2009 low, but it is too early to call this a trend change.
This has so far not translated into an increase in activity levels......
The up-turn in durable goods orders is no more than normal seasonal variation, with no sign of a recovery.
The decline in new residential building permits and new housing starts shows no sign of abating.
The Credit Contraction
The contraction of bank and consumer credit continues.
Total commercial paper issued has contracted by almost $800 billion from its peak in 2007. The contraction exceeds $1 trillion if we exclude Fed purchases of $240 billion (H.4.1).
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House prices are now roughly 30 percent below their 2006 peak, according to the Case-Shiller index — and continue falling.
The Fed are suppressing home mortgage rates in an attempt to stabilize house prices — evident from the 30-year fixed home mortgage rate crossing below long-term treasury yields. House prices have so far failed to respond.
The price-to-rent ratio still has a long way to fall to match the 1997 low. The lower the ratio, the greater the appeal of home ownership compared to rental.
The Fed is rapidly expanding the monetary base in an attempt to stimulate credit expansion and increase inflationary pressures. Their efforts have so far had little effect. Banks are finding it difficult to lend and most of the new money created finds its way back to the Fed — deposited as excess reserves.
A widening of the gap between the monetary base and excess reserves would indicate that demand for credit is increasing — a bullish sign for the economy. And that inflationary pressures are rising — a bullish sign for commodities (especially gold) and the stock market.
It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation.
We have seen that this is not so. What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax.
What a government spends the public pay for. There is no such thing as an uncovered deficit.
~ John Maynard Keynes (1923)
Note to readers:
I will be taking a break next week. Newsletters will resume on Monday, May 11th. Regards, Colin