Morning Report: Paging Helicopter Ben 3/23/16

Markets are lower this morning on no real news. Bonds and MBS are up small.

Mortgage Applications fell 3.3% last week as purchases fell 1% and refis fell 4.9%. Despite an 11 basis point drop in the 10 year yield, mortgage rates barely budged, falling only 1 basis point.

New Home Sales ticked up slightly to an annualized pace of 512,000. The increase was driven entirely by building out West where there is an acute shortage of housing. Note that homebuilder KB Home reports after the close tonight. The median sales price increased 2.6% to $301,400.

Hawkish comments out of St Louis Fed President James Bullard: “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” Bullard, who votes on policy this year, said in a Bloomberg interview in New York Wednesday. “I think we are going to end up overshooting on inflation and the natural rate of unemployment.” Perhaps, but the doves are in control of the FOMC at the moment.

Bullard isn’t the only dissenter, however. Janet Yellen has a bit of a mini-revolt on her hands (as much as central bankers can “revolt” in the first place)

If negative interest rates in Europe and Japan don’t do the trick, then the next step is “helicopter money” which has always been a textbook-only idea but is gaining fans. The government would issue debt directly to the central bank, which would print the cash which the government would immediately spend, bypassing the banking system entirely. The theory is that if there is a liquidity trap (where banks just sit on Treasuries and won’t lend them out), this would inject the money directly in the economy. It would probably require legislation to change the way central banks are run in Europe (and certainly the US), and if there isn’t the political will to do massive Keynsian spending programs, then there won’t be the political will to do this. What are the risks to doing it? Who knows? Weimar Republic-esque inflation is one, but probably the biggest one would be a loss in confidence in central banks globally, which would probably mean a collapse of the banking system worldwide. Anyway, it is just a theory that is gaining some traction, but it probably remains in the textbooks.

And don’t forget – ZIRP and NIRP aren’t “free.” Insurers need to earn a certain rate of return on their money to fund future payouts, and the actuarial tables couldn’t care less than rates are 0%. The latest victim is the oldest insurance company in the world, Lloyds of London who reported a big drop in profits due to sub-par investment returns.

11 Responses

  1. Ahem. Frist!

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  2. This is fascinating.

    “But if foreign policy is how you vote, if that is your central concern, if counterterrorism is what worries you, how do you not consider Hillary Clinton in November?” she added.

    What percentage of the electorate wants more wars?

    http://www.washingtonexaminer.com/consider-clinton-former-bush-official-tells-hawkish-republicans/article/2586644

    It is that douchebag, Nicole Wallace saying it though, so…

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    • I could see this view. A POTUS has more influence, by far, over FP than over domestic affairs.

      I have been negatively impressed by DJT on FP in the extreme, and so far Cruz has not seemed much better. Kasich, otoh, does seem level headed on FP. Bernie is not as incoherent as DJT, but seems to ne to be flailing about like Cruz, albeit with different slogans.

      BTW, I take some of Cruz’s suggestions about “securing Muslim neighborhoods” as a sort of pre-Bill of Rights Originalism. He might mean something useful, but he sounds like he wants to station FBI agents in convenience stores. Did you know that there are more than 1000 Muslim cops in the NYPD?

      I have no idea who Nicole Wallace is.

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      • Replying to my own bewilderment with Cruz’s neighborhood security, I wonder what constitutes a “Muslim neighborhood.”

        From my own experience, now fading into the past since I have retired, when I represented many Muslim convenience store owners, I know that the Austin Muslim community was very quick to tip the authorities on any suspicious activity. Anecdotally, I have heard that the FBI counts on the loyalty and good citizenship of American Muslims to keep us safe from radical infestations. Europe has less integrated Muslim communities with far more fundamentalist mosques. I doubt whether those Parisian Muslim gangs that attack Jews would countenance having a Jewish lawyer, which just was not an issue for my clients. Cruz is imagining an American Muslim demographic that just is not a reality.

        I do think that limiting/heavily screening refugees from ISIL makes good sense, considering the recent European experiences, but “securing” Muslim communities in America is an awful talking point.

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      • I have no idea who Nicole Wallace is.

        She’s the twat who blamed Sarah Palin for McCain’s shitty campaign.

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      • George, I do see your point. Many of the same people who said Iraq would be a cakewalk are pretty close to HRC, especially Robert Kagan and his wife, whom HRC took from Cheney’s staff and promoted onto her own, and who was in charge of our subversion efforts in the Ukraine, which seem to have not worked.

        I once joked that if she and Graham were the nominees there would be an escalating debate about who to bomb first, and second, and third.

        So yeah, I get it. It may leave me voting for Gary Johnson yet again. I know that is a tactically meaningless vote, but I really am not liking my choices. And as I have written before, Johnson was a pretty good governor – a libertarian who moved the scale back a bit, but did not try to blow up the whole enterprise at once, which he could not have done. Instead he bargained for what he prioritized and got a lot of it.

        I know you favor the burn it down approach, but I think that would be too disruptive and way too painful and dangerous for our security.

        So for me, choosing a cautious libertarian with no interventionist bloodymindedness would probably again be a conscience vote, if a wasted one.

        But it is a long way from November and I will start listening hard to the R and the D once they are actually nominated.

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  3. Worth a read:

    “Newt Gingrich Is Bullish on Donald Trump
    A spirited debate with the former speaker on the merits of the mogul.
    By Isaac Chotiner ”

    http://www.slate.com/articles/news_and_politics/interrogation/2016/03/newt_gingrich_discusses_the_merits_of_donald_trump.html

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