It's the Economy, Stupid!

[digitize]

I feel like we need a central economy thread. Mods/admins, if you feel like this shouldn't exist, feel free to merge it elsewhere. However, I wanted to make a post about today's economic news, and I hadn't the faintest idea in which thread to put it!

Anyway, today's economic news:

BBC News - Federal Reserve to buy more debt to boost US economy

The Fed is to begin QE3. They will buy $40bn per month of mortgage-backed securities with hot-off-the-presses money (well, sort of). The $40bn per month number seems a little low to me, but it makes more sense since the Fed is buying mortgage-backed securities. Past rounds of QE, I believe, were focused on buying treasuries. To me, this seems like a pretty direct attempt to stimulate the housing market, which makes sense. It's very targeted and very specific, gobbling up one type of asset instead of the underlying asset of world's financial system.

I worry, however, that nothing will really make an impact until the fiscal cliff is dealt with... hopefully with some sort of stability and security that fiscal cliffs won't be a possibility every year from now until forever.

[INDY500]

QE3 Sparks U.S. Credit Ratings Downgrade From Egan-Jones | Fox Business

QE3 Sparks U.S. Credit Ratings Downgrade From Egan-Jones


Read more: QE3 Sparks U.S. Credit Ratings Downgrade From Egan-Jones | Fox Business


Fearing the negative repercussions of the Federal Reserve’s latest easy-money program, ratings firm Egan-Jones once again slashed the U.S.'s credit rating on Friday.

The latest downgrade brings the firm’s rating on the world’s largest economy down to “AA-,” which is three notches below the coveted “AAA” threshold.

Egan-Jones said it believes the Fed’s third round of quantitative easing, which sent stock prices surging on Thursday, “will hurt the U.S. economy and, by extension, credit quality.”

The firm said that while the program should boost equity markets, issuing additional currency and depressing interest rates through purchasing mortgage-backed securities will hurt the value of the U.S. dollar and cause a painful increase in commodity prices.

That's a tax on the middle class folks.

[digitize]

QE3 will probably drive up commodity prices in some way, but so will any increase in demand, including that from economic recovery. Right now, the US has an enormous amount of unused capacity, partially from the fact that so much money was erased from existence in 2008. To me, QE, especially targeted to a badly hurt sector, makes sense.

[maycocksean]

"latest easy-money program"

I tend to automatically distrust sources that use loaded terminology like the above. And I note your link and sure enough. . .Fox News.

Same reason, on the other side of the ideological divided, I generally don't pay much attention to Rolling Stone's Matt Taibi (or really any of RS political reporting) or Michael Moore.

[INDY500]

Originally Posted by digitize

To me, QE, especially targeted to a badly hurt sector, makes sense.

Well, the government subsidizing the housing bubble through Fannie & Freddie's buying up and guaranteeing of subprime mortagages greatly distorted the housing market, until it all collapsed I don't see how this is any different. It will distort the market and create a false sense of growth.

Other than home mortgage deductions and a few other small programs the government needs to get out.

[digitize]

Originally Posted by INDY500

Well, the government subsidizing the housing bubble through Fannie & Freddie's buying up and guaranteeing of subprime mortagages greatly distorted the housing market

I agree that all of these are major issues. However, I also think that limited steps such as QE are appropriate under times of low growth partially due to a depressed money supply. That being said, it is a little scary, because there's a fine line and at some point the government needs to raise interest rates and not increase the money supply. The government does have a tendency to produce bubbles when they promote growth in times of growth. I'm a fan of counter-cyclical economics, but it's really difficult to do. Democrats and Republicans are more or less equally guilty of inflating bubbles.

[MrsSpringsteen]

Huffington Post

WASHINGTON -- There is an old saying among economists that the best way to assess the state of the economy is to look at people's underwear.

OK, there's no such saying. But when he served as chairman of the Federal Reserve, Alan Greenspan did use the sales of male underpants as a way to take the temperature of the country's economic well being. And if the Maestro were to take a peek right now, he'd find evidence that things are gradually improving.

The NPD Group, Inc., a leading market research company, has shown an uptick in sales of men's underwear over the past year. Between Aug. 2010 and Aug. 2011, sales for all men's "underwear bottoms" were roughly $2.074 billion. In the period between Aug. 2011 and Aug. 2012, that number was $2.194 billion. That represents a 6 percent jump in sales from year to year.

Looking closer at the data, specific undergarment companies are flourishing in the current economy. HanesBrands Inc., for example, has seen underwear sales increase steadily over the past three years, climbing from $1.83 billion in 2009 to $2.01 billion in 2010 to $2.06 billion in 2011, according to SEC files. Sales for the first half of 2012 -- the most recent available data -- are also stronger, coming in at $1.17 billion, compared to $1.15 billion in the first half of 2011. The company's stock price, which hit a 6-month low of $24.78 per share on May 18, was over $33 per share on Monday.

Limited Brands Inc., the parent company of Victoria's Secret, does not separate that company's revenues from those of its other brand names, like Bath and Body Works. The company's overall store sales for the first half of 2012, however, were up 8 percent from the first half of 2011, according to its latest earnings statement, and it saw its stock price rise from $45.11 on May 18 to more than $50 on Monday.

Greenspan's theory on underwear sales as an economic indicator was fairly straightforward.

"If you look at sales of male underpants it's just pretty much a flat line, it hardly ever changes," NPR's Robert Krulwich explained of the theory, after Greenspan's book "The Age Of Turbulence" was published. "But on those few occasions where it dips that means that men are so pinched that they are deciding not to replace underpants. And [Greenspan] said 'that is almost always a prescient, forward impression that here comes trouble.'"

In 2009, that certainly was the case. In April of that year, as The Huffington Post reported, the leading global research company Mintel produced a study showing a 2.3 percent drop in sales of all men's underwear products in 2009. The recession had come quickly and unexpectedly. In November 2008, Mintel had forecast underwear sales to grow by 2.6 percent in 2009.

Men, in short, were cutting back so dramatically on their spending habits that they were no longer buying underwear regularly. Three years later, with the economy showing some signs of growth -- albeit slow growth -- they're splurging a bit more.

But the theory has its limits. The Huffington Post reached out to several men who have endured lean times, but found none who obeyed Alan Greenspan's law of underwear sales.

Doug Walter of Ivyland, Pa. lost his job at a car dealership in 2009 and spent two years unemployed before starting a business. He said he doesn't expect to make a ton of money from his new Warrington, Pa. consignment store, but even in boom times he wouldn't go out of his way to buy underwear.

"Personally I figure I won't be buying underwear for myself," Walter, 45, said in an email. "That's what the holidays are for."

Walter's son, who helps at the store, suggested improved underwear sales might "be representative of men heading back into the dating scene in the aftermath of failed marriages caused by the recession."

Jim Chukalas of Fredon Township, N.J., said he hasn't started shopping for underwear less frequently since losing his job.

"I'm the kind of guy who buys underwear only when I have to," Chukalas said. "They could have more holes than swiss cheese, and be completely falling apart, before I trash them."

Chukalas added that his underwear behavior drives his wife insane.

[MrsSpringsteen]

Fourteen percent increase in money spent shopping this past weekend, don't think that even includes Cyber Monday.

Of course who knows what will happen with the fiscal cliff. But it appears that worries about that didn't impact that shopping. Hopefully it's not all a bunch of credit card debt that people can't pay off.