Europe Tells Greece: You Made Your Bed, Now Sleep In It

The Lehmann Letter (SM) Greece will default on its debts if Europe refuses to lend Greece the additional funds that Greece requires to pay its debts. Europe has told Greece: Enough is enough. We are not a transfer economy that endlessly provides money to reward your profligacy. Now we wait and see as developments unfold. There have been two schools of thought on Greece. The Keynesian School is pro-bailout. The Keynesians say that Greece must receive additional funding to jump-start and grow its economy so that Greece can generate the revenue with which to repay its debts. To deny funding Continue reading

Greece and Europe

The Lehmann Letter (SM) See this article by Neil Irwin in today’s New York Times (posted yesterday) for an excellent summary of where things stand in Greece and Europe: “The Next Few Days Have the Potential to Transform Greece and Europe” http://www.nytimes.com/2015/06/29/upshot/the-next-few-days-will-transform-greece-and-europe.html?hp&action=click&pgtype=Homepage&module=b-lede-package-region&region=top-news&WT.nav=top-news&_r=0&abt=0002&abg=0 These paragraphs encapsulate the choices facing Greek voters in the scheduled July 5 referendum: “…A “Yes” vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the last five years, in exchange for keeping the euro currency and the monetary stability it provides. A “No” vote almost Continue reading

Greece vs. Argentina

The Lehmann Letter (SM) In an article in today’s New York Times, posted online yesterday, James B. Stewart provides historical background for Greece’s current predicament: “If Greece Defaults, Imagine Argentina, but Much Worse” http://www.nytimes.com/2015/06/26/business/an-echo-of-argentina-in-greek-debt-crisis.html?ref=todayspaper&_r=0 The article begins: “There may be a one-word explanation for why Greece will ultimately capitulate to European demands for more austerity: “Argentina. “Greece is hardly the first nation to face the prospect of defaulting on its sovereign debt obligations. Argentina has defaulted on its external debt no fewer than seven times since gaining independence in 1816, most recently last year. But it’s Argentina’s 2001 default on Continue reading

Federal Deficit Shrinks Again

The Lehmann Letter (SM) Yesterday the Bureau of Economic Analysis reported that the federal deficit shrank to its lowest level since the Great Recession: http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=87  (Row 45) You can see from the chart that the current level – $515.7 billion – is one-third of what it was at its maximum five years ago. Federal Receipts, Expenditures & Deficit (Recessions Shaded) If expenditures remain flat it’s only a matter of time until revenues rise to meet them. Assuming, of course, another recession and its accompanying tax cuts do not intervene. Questions or comments? Contact Mike Lehmann at lehmannm@usfca.edu. (To be fully Continue reading

Revised GDP and Profits Data

The Lehmann Letter (SM) This morning the Bureau of Economic Analysis issued a sharply revised estimate of first-quarter GDP: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm Note the change from negative 0.7% to negative 0.2%: “Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — decreased at an annual rate of 0.2 percent in the first quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis.  In the fourth quarter, real GDP increased 2.2 percent. “The GDP estimate released today is based on more complete source data than Continue reading

New Home Sales Stronger This Year

The Lehmann Letter (SM) Take a look at the table and you will see that recent new-home sales are about 100,000 per month greater than 2014. That’s a substantial gain of around 25%. The Census Bureau reported May’s 546,000 figure (at a seasonally-adjusted annual rate) this morning: http://www.census.gov/economic-indicators/#home_sales That’s a strong start for the year. But you can tell from the chart that even 500,000 sales are meager when compared to earlier expansions. New Home Sales (Recessions Shaded) Here are the seasonally adjusted data at an annual rate: 2013 January        442,000 February       439,000 March           449,000 April              451,000 May              430,000 June             Continue reading

Existing-Home Sales Remain in a Range

The Lehmann Letter (SM) This morning the National Association of Realtors reported 5.35 million existing-home sales (at a seasonally-adjusted annual rate) in May, a strong improvement over April’s 5.09 million rate: http://www.realtor.org/news-releases/2015/06/existing-home-sales-bounce-back-strongly-in-may-as-first-time-buyers-return But the chart and table complete the picture. Sales have fluctuated in a range – slightly above 5 million – for a couple of years. There’s no sign yet of an upward, breakout trend. Existing Home Sales (Recessions shaded) Existing home sales in millions: 2013 March           4.96 April              4.99 May              5.15 June             5.16 July              5.38 August          5.33 September    5.26 October        5.13 November     4.83 December     4.87 2014 January        4.62 Continue reading

Greece Negotiations Go Down to the Wire

The Lehmann Letter (SM) Greece, of course, wants continuing bailouts with minimal conditions. Greece’s creditors want Greece’s government to drastically reduce its spending before loaning Greece additional funds. Greece’s government responds by saying that a drastic reduction in its spending will not only exacerbate hardship among, for instance, those who – such as pensioners – rely upon that spending; further spending cuts will also continue to shrink a Greek economy that relies on government spending to keep it afloat. Too bad, respond the creditors. Excessive Greek government spending – financed by borrowing – drove Greece into default. Enough is enough. Continue reading

Balance on Current Account

The Lehmann Letter (SM) This morning the Bureau of Economic Analysis (BEA) announced a first-quarter 2015 deficit of $113.3 billion in the nation’s balance on current account: http://www.bea.gov/newsreleases/international/transactions/transnewsrelease.htm Notice in the chart that the deficit grew rapidly over the past 20 years as we borrowed from the rest of the world to purchase their goods. The Great Recession halted that growth. Today our net imposts and net borrowing are smaller. That’s evidence of a less-than-robust economy. Current Account Balance (Recessions Shaded) But borrowing more and more from the rest of the world in order to import more and more from Continue reading

Fed’s Encouraging Words

The Lehmann Letter (SM) The Federal Reserve released this policy statement today: http://www.federalreserve.gov/newsevents/press/monetary/20150617a.htm Its closing words are: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” It will be a while before the Fed nudges rates upward. To be fully informed visit http://www.beyourowneconomist.com/) © 2015 Michael B. Lehmann