Data suggest sluggish US economy

3 weak data point to sluggish US economy – Reuters

1. Case-Schiller 20-city home price index falls in March
2. Consumer confidence declines in May
3. Chicago PMI falls in May

ITG’s Blitz : Economy lacks impetus to grow

Oxfam : Food prices will double by 2030

Food prices ‘will double by 2030’, Oxfam warns – BBC
The prices of staple foods will more than double in 20 years unless world leaders take action to reform the global food system, Oxfam has warned.

QE2 did not ignite economy

QE2 was a bust - Brett Arends, MarketWatch
Economic data is worse than before

QE3 coming?

Bernanke will be forced to do QE3 - Jeff Harding, The Daily Capitalist
The effects of freezing the balance sheet - Frank Shostak, Mises Institute

We suggest that once Fed policy makers freeze the balance sheet of the US central bank, the growth momentum of the money supply will slow down. As a result various bubble activities that emerged on the back of the rising growth momentum of the money supply will come under pressure. A visible strengthening in the growth momentum of the CPI may prevent Fed officials from introducing QE3 as suggested by some experts.

JPM-Chase warns on economy

If the United States fails to get its fiscal house in order it will trigger financial consequences that will “dwarf Lehman Brothers” and seriously diminish the nation’s role as a world economic leader, the CEO and chairman of JPMorgan Chase & Co, Jamie Dimon told a Denver audience Thursday night.

JPMorgan Chase CEO issues warning on economy – Dayton Business Journal

Chances of US economic slowdown

The world is headed for an economic slowdown, according to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth. Lakshman Achuthan, founder and managing director of the research center, said the US economy will not escape the downturn, but will “participate in it … and in one way, shape or form, it is going to impact this recovery.”
Prieur du Plessis, Seeking Alpha : Assessing the Chances of a Severe US Economic Slowdown
[Interview with Achuthan]

Andy Xie: Hard landing for global economy

In a tight spot - Andy Xie
Desultory efforts to check easy money won't stop the global economy from suffering a hard landing.

What happens when US Debt Ceiling is hit

The Debt Crisis & Mortgage Rates - Diana Olick, CNBC

Michael Barr/Fmr. Asst. Treasury Secretary for Financial Institutions

"If the US continues to bump up against the debt limit but Treasury uses "extraordinary measures" to keep the US from exceeding the limit, then the damage is likely to be modest and short-term. I would expect rates to rise, temporarily, by up to low single-digit basis points.

It is a bit hard to forecast exactly what the effect will be. Prior experience suggests low single digit bps, but there are a number of factors in play today that were not present in previous debt ceiling crises: fragile economy, fragile housing finance sector, fragile home prices and sales, F/F in conservatorship, no securitization to speak of, higher debt to GDP ratio, turmoil in Europe (exacerbated by DSK's arrest), extremely high levels of US dollar reserves already in China, extremely low Treasury rates.

Long term, if we actually default, it is simply devastating, and permanent."

Peter Boockvar/Miller Tabak:

"I think the market has spoken and the almost 50 bps drop in the 10 year note yield since mid April is clear evidence that the debt ceiling debate has had zero impact on market psychology. Everyone assumes that a deal of some sort will occur and the market impact will be nothing. More impactful in the direction of lower yields has been concerns with growth and a flight to safety due to renewed concerns with Europe." 

Glenn Kelman, CEO Redfin

"We see people being very sensitive to the cost of money; they're very concerned about the debt crisis, they're very concerned about all these rumors that the US could have a money supply problem, so we think that interest rates are the real X factor to watch." 

Treasury Secretary Timothy Geithner made it clear what would happen should the U.S. ultimately default:

"Because Treasurys represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale." 

Related Links

1. Debt Limit D-Day Spells Tough Choices for Obama
2. Boehner Says Ready to Cut US Budget Deal Today
3. Medicare, Social Security Will Go Bust Sooner: Report

Grantham: Exit riskiest investments now

Sell riskiest investments now, Grantham urges - MarketWatch

Jeremy Grantham's advice to investors in GMO Quarterly Letter :
Time to be serious (and probably too early) once again - May 2011
Time to wake up: days of abundant resources & falling prices are over forever - April 2011

Housing continue to crash

Housing crash is getting worse - Brett Arends, MarketWatch

Andy Xie: Stagflation to come

Chimerica's slippery slope to Stagflation - Andy Xie
Watch for more Fed quantitavie easing, slower growth and policy traps in coming quarters

The global economy is heading toward another double-dip scare, possibly in the third quarter, in what could be a repeat of summer 2010.

Financial markets may stumble in a few months, and that could prompt the U.S. Federal Reserve to introduce a third round of quantitative easing or an equivalent, which would be another step down the path toward stagflation. In this scenario, China’s current monetary tightening policy would be difficult to sustain.

MS & GS drop bets against Treasuries

Morgan Stanley, Goldman Sachs counter bearish Gross on US Debt – Wes Goodman, Bloomberg

Morgan Stanley and Goldman Sachs Group Inc. are dropping bets against Treasuries.

Economic growth is falling short of forecasts, and market participants may need to reduce their yield predictions, Jim Caron, the New York-based global head of interest-rate strategy at Morgan Stanley, wrote in a report yesterday. Goldman Sachs cited Fed comments and the pace of inflation in a report the same day.

China dumping US Treasuries won’t be disastrous

What would happen if China sells US Treasurys ? – MarketWatch video

Neither the Dollar nor the US Economy would collapse if China were to dump Treasury securities, since the Fed owns more of them, and also because the Chinese need to stock dollars somewhere – according to Fundmastery blogger Kurt Brouwer.

Heading for Hyperinflation & double-dip Recession

John Williams: Hyperinflation & Double-dip Recession ahead – The Gold Report

Economic recovery? What economic recovery? Contrary to popular media reports, government economic reporting specialist and ShadowStats Editor John Williams reads between the government-economic-data lines. "The U.S. is really in the worst condition of any major economy or country in the world," he says. In this exclusive interview with The Gold Report, John concludes the nation is in the midst of a multiple-dip recession and headed for hyperinflation. (possibly as soon as 2014)