Financial Repression Watchtower

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April 27, 2012 - 9:35am

#62

Eric Original

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GDP underwhelms

1Q GDP dropped to 2.2%. Add in my calculation of CPI of 3.6% and we get an eyeball on Nominal GDP of 5.8%. Treasury Debt still growing at a healthy 9.3%, for a Gap of 3.5%.

Error Correction

I see I made a simply math error in the prior post, the Gap should have been 2.9%, not 3.9%. But still, I think that was an anomaly due to having current inflation data, and old GDP data. This months 3.5% is more likely to be correct. This is still something of a narrowing though. For a while on this thread I was coming up with Gaps in the 4% to 7% range. The narrowing largely due to slight increases in Nominal GDP, and those are largely due to increases in inflation. The Fed is getting what they want, but not enough of it yet.

Upcoming data points:

CPI releases: May 15, June 14, July 17, August 15.

GDP releases: May 31, June 28, July 27.

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May 16, 2012 - 9:31am

#63

Eric Original

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New Numbers

April CPI came in unchanged yesterday (yeah, right), putting my quick & dirty annualization at 2.8%. GDP is still sitting at 2.2%, for a guesstimate at Nominal GDP of 5.0%. Treasury Debt growth has ticked back up to 9.6%, putting the Gap at 4.6%, within that same 4%-7% range we've seen most of the time.

To reiterate what this means, it means that Debt is growing 4.6% faster than the economy.

The yield on a 1 yr treasury remains pinned close to zero (0.19%), and therefore real interest rates remain steeply negative. Just how steeply negative depends on what you want to use for inflation.

New GDP numbers are coming on 5/31.

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May 31, 2012 - 8:53am

#64

Eric Original

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GDP revised down

1Q GDP was revised down to 1.9%. Combine that with my CPI number of 2.8% for an eyeball on Nominal GDP of 4.7%. Treasury debt growth stands at 9.5% YoY, for a Gap of 4.8%, still very much in line with prior data.

At this point, I'll suspend updating the data stream here for a while. I'll still be tracking things on my own, and will chime in with an update if we see any big changes such as a break out of the Gap, out of the range of 4% to 7%, or big changes to the negative interest rate situation.

News articles relating to any Financial Repression issues will remain of interest. Here's a repost of a short article on what to watch for, such as increased inflation, capital controls, captive bond buyers, etc.

http://danielamerman.com/articles/2011/RepressionA.htm

Note that historically, financial repression regimes have been used over long periods to reduce debt burdens by 3% to 5% per year. Our "Gap" calculation shows that we have generally been running 4% to 7% in the opposite direction!

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May 31, 2012 - 10:33pm

#65

Teach

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A Zero Hedge article...

This pretty much lays out how I expect to see things unfold. I am not looking forward to what comes after the great "reset" in the least, but I am gearing down for it. I see little chance that this storm can be avoided: http://www.zerohedge.com/news/big-reset-2012-and-2013-will-usher-end-scariest-presentation-ever

June 2, 2012 - 9:48pm

#66

Eric Original

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Captive Bond Buyers

Time Bomb? Banks Pressured to Buy Government Debt

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says...

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June 14, 2012 - 10:07am

#67

Eric Original

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Wow

Wow. No sooner do I say that I'll be suspending this data stream until I see my Gap calculation break out it's range...with the very next data point it breaks out of the range!

CPI has collapsed. Negative 0.3% for May, and the last three months annualize out to dead flat ZERO. Combine that with the latest GDP growth rate of 1.9% and we get a guesstimate on Nominal GDP of just a pathetic 1.9%.

Meanwhile, Treasury debt growth has also posted a new year-over-year high of 9.8%. The range since starting this thread has been 8.3 to 9.7, with the higher numbers lately.

Therefore, my Gap calculation has busted out of the range, with a new high of 7.9% (9.8 minus 1.9).

In other words, Debt is growing faster than the economy as whole by an annual rate of 7.9%, the highest that's been calculated on this thread. The Fed not getting any success in inflating our way out of the debt. In fact, we are going faster than ever in the opposite direction.

Another way to look at this, is that if we are right around the 100% debt to GDP ratio right now, the old "rule of 72's" will tell you that at 7.9% we'll ramp up to 200% debt to GDP in just 9.1 years. Wow.

I don't know where the Fed's magic numbers lie, in terms of debt to GDP, or any of these calculations, but if this doesn't bring QE3, and fast, then it's quite clear that I just have no idea what the heck is going on around here.

I used to comment on this thread that the Fed was getting what it wanted, but not enough of it. Now, the Fed is not even getting what they want. Big difference.

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June 14, 2012 - 10:11am

#68

DrkPurpleHaze

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Thanks EO

Anytime I see a "Wow" in the recent comments side bar I have go there immediately.

Yep, those are some startling and dismal numbers and trends. Whew!

Thanks for doing what you're doing here

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June 14, 2012 - 10:21am

#69

ReachWest

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Thanks for the Heads Up.

Thanks, Eric. Guess we won't have too much longer to wait to see if the Fed acts on this. Everything we have been discussing for a long while seems to now be unfolding.

June 14, 2012 - 10:30am

#70

DBean

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Thanks for this thread

It was and still is way over my head...I come back to it every few months and read the entire thread. It's beginning to sink in but it takes time to absorb. The time you take to post here is appreciated. It's the numbers that keep me from thinking I'm crazy...

June 14, 2012 - 10:31am

#71

LaMachinna

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Although I don't understand it perfectly...

my general understanding makes me say wow too!~ Thanks! Wonder what's coming down the pike??

June 14, 2012 - 10:34am

#72

Dr G

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Great thread, Eric. Thanks

Great thread, Eric. Thanks for the info/data.

June 14, 2012 - 10:44am

#73

onealpha

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The pressure is building

The pressure is building and we are headed for change. Change we all know is coming, but not the change we want. Thanks

June 14, 2012 - 10:59am

#74

Vernon Wormer

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Thanks Eric (I think)

I'm sure there are numerous nuances that I am missing in the data. WOW indeed. Thanks again for all you do.

June 14, 2012 - 11:13am

#75

onealpha

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Ok, this is funny

Comments I read on Zerohedge below your article on the FX markets.

They were commenting on how Silver got smacked this morning. The a couple of responses followed with,

Comment 1: Dimon now exacting his revenge in the PM markets.

Reply 1: Exactly my thought, as it hit right at 9am, right when he sat down at his desk and said, "Bring me my espresso, slave, and hit those silver f$ckers in the mouth, now!"

It made me laugh so I thought I would share.

June 14, 2012 - 11:22am Response to: Thanks Eric (I think)

#76

Desert Fox

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Impressive work!!!

Since our great country doesn't build as much "stuff" as it used to the new "driver" is debt creation and they'll seemingly only be satisfied when they get this baby airborne. Great work you've presented Eric-O.

Take-off should be any moment now! {Landing gear not included or considered}

June 14, 2012 - 11:35am

#77

Be Prepared

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@Eric O - Fantastic Work... Worrisome Data

Thanks Big O! You rock with this analysis and you bring so much to the table when you post.... :-)

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June 14, 2012 - 2:57pm

#78

Irene

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It's falling apart

Eric,

Great work, Eric. Good to know someone this solid is on our side!

Your stats confirm what I've been seeing as I noodle around NYC. More and more homeless, stores suddenly gone out of business and general signs of serious economic contraction. On Saturday, I passed by a business and asked my husband to stop in on Monday - it was closed and emptied down to the last dust ball. Usually, when businesses closed here, they leave beyond stuff. No stuff was too small to bail this time around.

Just another marker.

June 14, 2012 - 4:35pm

#79

Eric Original

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Rule of 72: perhaps some explanation is in order

Not sure if perhaps that might have gone over some folks heads.

The Rule of 72 is a mathematical oddity that financial professionals use to estimate the number of years it would take for an amount to double. Take 72 divided by the interest rate. It's not exact, but close enough.

http://www.investopedia.com/ask/answers/04/040104.asp#axzz1xnf7jSqw

So, you have $100 in a savings account, how long will it take to double to $200 at 5%? 72 divided by 5 gives @ 14.4 years. At 10% it will double in 7.2 years, etc. Like I said, it's not totally exact, but close enough.

So in our case, we have Nominal Debt growing faster than Nominal GDP by 7.9%. (remember Nominal means just adding up the raw dollars, not adjusted for inflation or anything) Whatever our Debt to GDP ratio is right now, at 7.9% it should double in 72 divided by 7.9 equals 9.11 years. Scary stuff.

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

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June 14, 2012 - 7:10pm

#80

chinaussiedoll

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Thanks here also

This really puts the icing on the cake for my decision to bail out from China (JimRogers views it differently but I dont have the monetary insulation he does) with the family and return home to Australia - would rather ride out the coming storm in a familiar culture.

@IRENE - those personal observations are a great insight into what's going on on the ground around the world. In Hong Kong I watch the container trucks on my way to work and the empty ones piled up in the storage yards - they are telling the same story despite the recent figures out of China.

June 15, 2012 - 3:21pm

#81

Hrunner

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So what you're saying is deflation is bad?

Thanks Eric, echo what others said.

Why hasn't $6 trillion yielded inflation/ CPI increases?

The B is on record for money printing as much as it takes. The consensus seems to be that QE has gone to banks, which have bought UST, shored up their balance sheets.

This does not directly stimulate aggregate demand (The B's stated goal).

The chatter at Turdville is that we are at or near the final endgame. I have a nagging feeling that B has some cards to play/ things to try. CPI goes up when salaries go up, or people feel richer (ala housing bubble), and they go out and spend. This is not happening. In fact the opposite, consumers are nervous, shunning luxuries, putting money into savings, rainy day funds. I need to think more about QE possibilities, but examples could include clearing the foreclosed mortgages by buying them out, infusing money in the "investment" part of the economy (one of the terms in GDP calculation) i.e. small business grants ( I haven't thought through the exact mechanism), student debt forgiveness. Once this infusion occurs, we will get a short burst in the CPI, maybe take a year to unwind, but then as always, we will return to financial crisis.