Federal Reserve policy makers are ready to start tapering bond purchases in September after Chairman Ben S. Bernanke shocked markets by announcing a conditional timetable, said former Fed Governor Laurence Meyer.
“They have made a decision virtually to go in September unless the data disconfirms their expectations of the continued improvement of the economy,” Meyer said of the Fed policy makers’ meeting on June 18-19. “That was the shock of the meeting to have a schedule thrown out at this time with three months of employment data still ahead.”
2---The worst reading in 4 years. , sober look
Chris Williamson, Chief Economist, Markit [June Manufacturing PMI]: - Manufacturing clearly down-shifted a gear between the first and second quarters, and is at risk of losing further momentum as we head into the second half of the year.
Output growth remained well down on the robust pace seen at the start of the year and persistent weak order book growth suggests the sector is at risk of stalling. Domestic demand is far from lively, but it is a deteriorating export scene that is causing the real problems. Export orders are being lost at the fastest rate since the height of the financial crisis in mid-2009. ...
Bloomberg: - Service industries in the U.S. unexpectedly expanded in June at the slowest pace in more than three years, indicating widespread progress may elude the world’s largest economy even as manufacturing improves [?].
The Institute for Supply Management’s non-manufacturing index dropped to 52.2 last month, the lowest reading since February 2010, from 53.7 in May, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey called for a rise to 54. A reading greater than 50 indicates expansion in the industries that make up almost 90 percent of the economy.
3---Why Is Deflation Bad? (archive) NYT
when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. After all, when prices are falling, just sitting on cash becomes an investment with a positive real yield – Japanese bank deposits are a really good deal compared with those in America — and anyone considering borrowing, even for a productive investment, has to take account of the fact that the loan will have to repaid in dollars that are worth more than the dollars you borrowed. If the economy is doing well, all this can be offset by just keeping interest rates low; but if the economy isn’t doing well, even a zero rate may not be low enough to achieve full employment.
And when that happens, the economy may stay depressed because people expect deflation, and deflation may continue because the economy remains depressed. That’s the deflationary trap we keep worrying about.
A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation.
Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines.
4---Bernanke doesn’t fear deflation — but should, Marketwatch archive
5---Bond Funds Losing $60 Billion Foreshadow Risk of Fed Exit, Bloomberg
Investors have pulled about $60 billion from U.S. bond funds since Federal Reserve Chairman Ben S. Bernanke rattled markets by outlining his plan to end the central bank’s unprecedented asset purchases.
The redemptions foreshadow what’s in store for asset managers when the central bank eventually scales back the $85 billion in monthly purchases of bonds and mortgage securities that investors have come to rely on. Bond funds had $28.1 billion in net redemptions in the week ended June 26, the Washington-based Investment Company Institute said yesterday...
Retail investors, who fled volatile stock markets to pour about $1 trillion into the perceived safety of bond funds since the beginning of 2009, reversed that pattern in the past month in anticipation of rising rates. Casey, Quirk & Associates LLC, a consulting firm, in May warned that money managers that rely on bonds could face a difficult future as investors shift $1 trillion away from traditional fixed-income strategies.
“The increase in rates has caused investors to reach the reality that bonds are not a one-way street, which is what fixed income has been for the most part over the past five to seven years,” Geoff Bobroff, a consultant based in East Greenwich, Rhode Island, said in a telephone interview..
Last week’s withdrawals were the biggest since the trade group started tracking weekly numbers in January 2007. The redemptions over the past four weeks, according to preliminary estimates, represent about 1.7 percent of the $3.5 trillion held in fixed-income mutual funds. Taxable bond funds had redemptions of $20.4 billion and municipal bond funds saw $7.68 billion pulled in the week ended June 26, ICI’s data show.
6---Morsi ousted with US blessing’, RT
Egyptian army defends US-Israeli interests’
Again, for the military to have stepped in and removed him from power, and especially for General [Chief of the Egyptian Armed Forces, Abdul Fatah Khalil] Al-Sisi, who was instrumental in blocking and enabling the Israelis to kill the Gazans, for them rejoicing over that is just mindboggling. The [Egyptian] military is an instrument of the United States of America, and the billions [of dollars] in support it has gotten for years now goes towards maintaining peace with Israel, not to serve Egyptian people.
Very soon the Egyptian people will wake up and realize that they are perhaps cheering the wrong faction.
7---EU Parliament votes to scrap US data-sharing deal unless Washington reveals spying practices, RT
8---Goldman Sachs To The Fed: Taper But Don’t Tighten , Testosterone Pit
9---Banks may ignore expiry of swaps loophole, IFR
10---Despicable right wing fanatic Shinzo Abe lays out his deregulatory, anti-labor, neoliberal plan on the pages of "librul" Huff Post, Huff Post
(Do Krugman and Stiglitz read this drivel?)
Growth, followed by fiscal consolidation
Efforts to recover fiscal soundness are equally important. With the equivalent of Norway or Poland lost from Japan's economy as it contracted, the same amount was also lost from the taxation base, resulting in government debt more than twice the size of GDP. To lower the debt, it is vital to increase tax revenues through economic growth
open Japan and regulatory reform
First, we will open Japan and its markets, removing trade and investment barriers wherever possible. We will double the balance of direct investment in Japan by foreign companies. We should also be selling our agricultural products, which were never counted as export items before, to the global market.
Introducing people, goods, and capital from around the globe to Japan will be a powerful catalyst and will help to nourish our growth. It is for this reason that I thought Japan should join the TPP negotiations as early as possible.
Comprehensive regulatory reform comes next. Here, there are two important examples. First, structural reform in the electricity market, and putting an end to a market oligopoly that has continued for several decades. Taking the decision to separate the generation and transmission of electric power is to be a significant reform to a regulation that has existed over the last few decades.
Within this fiscal year, Japan's market for solar panels is expected to once again regain its status among the largest markets in the world. I expect to see the rise and growth of new companies, products and services through reform of the electricity market.
Urban reform as a showcase
The second major policy involves thorough deregulation and the creation of "National Strategic Special Zones" that will serve as a showcase of structural reform.
To make the most of urban functions, it is necessary to revise zoning regulations. The goal is to create urban configurations like Manhattan, where the distance between home and work is short and there is little difference between the daytime and night-time populations.
Another purpose is to create cities that are easy to live and work in for foreigners. To foster an international business environment, it is critical for us to provide the necessary support functions, such as high quality international medical and educational services, and making it easier for such services to be established.
11--Risks of a hard landing for China, FT