- US Markit Preliminary PMI improved to 51.9 in Aug vs 51.5 exp and 51.4 prev
- US Initial Jobless Claims increased to 372k last week vs 365k exp and 366k prev
- Most brokers now appear to expect some sort of Fed easing in September, with the extension of the rate guidance as the consensus favorite.
- EU PMI in Aug:
- Mfg improved to 45.3 vs 44.2 exp and 44 prev
- Services declined to 47.5 vs 47.7 exp and 47.9 prev. Looks like German Service companies drove the miss.
HSBC Flash Mfg PMI declined to 47.8 in Aug vs 49.3 prev
NYT: So many auto factories have opened in China in the last two years that the industry is only operating at about 65 percent of full capacity — far below the 80 percent usually needed for profitability. Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.
- Fri: US DGO
- Mon: German IFO, Dallas Fed
- Tues: US Consumer Confidence, Richmond Fed
- Wed: German CPI, US Pending Home Sales, South Korea PMI,
Commentary & Links:
The BoE published a study of the effects of QE today that is quite interesting. It acknowledges that because of wealth inequality, the benefits of QE predominately helped the wealthy. But there is more to the story.
One of the ways monetary and fiscal stimulus interact is that the increase in asset prices resulting from lower discount rates tends to increase capital gains, which in turn increases tax revenue. Ceteris paribus, this allows the government to pursue a more simulative fiscal policy. However, the sharp decline in capital gains taxes along with loopholes and tax evasion over the past few decades has sharply weakened this relationship.
Furthermore, the sharp decline in real interest rates is in effect a wealth transfer, from people who have not saved much (the young) to those who already have assets. (the elderly) This is of course because falling real interest rates increases the present value of cash flow streams and hence asset prices & retirement accounts. By definition, this also decreases future gains in real prices, which penalizes those trying to save. It is not a coincidence that the young, uneducated / poor segment of the population is experiencing much higher rates of poverty than the old & educated segment.
In general, I believe that the increased concentration of wealth has both increased financial asset volatility but also weakened policy makers’ abilities to stabilize it. A continuation of this trend of greater wealth inequality and more volatile business cycles is ultimately destabilizing for the political economy. Tea Partiers and Objectivists should to take note, and think beyond the next election cycle. The Gilded Age lead to the Progressive Era. A similar political swing could result in many more poor voters echoing the Cookie Monster in asking, Share It Maybe?