by Calculated Risk on 6/06/2010 08:49:00 AM

First, from the Financial Times: G20 drops support for fiscal stimulus

Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday ...

The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances.
Excerpts with permission

And from the G20 communiqué:

The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation.

And from Paul Krugman: Lost Decade, Here We Come

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.
...
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
...
Utter folly posing as wisdom. Incredible.

by Calculated Risk on 6/05/2010 10:28:00 PM

Since we all need a laugh - Jon Stewart has a suggestion for how to use a vacant McMansion ... Here is the link at the Daily Show

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Spilling Fields - To Shell and Back
www.thedailyshow.com

by Calculated Risk on 6/05/2010 05:46:00 PM

Some comments from Fannie Mae chief economist Douglas Duncan ...

From Greta Guest at Freep.com:

Douglas Duncan, chief economist for Fannie Mae, said he expects the home-building industry to be tested until early 2013 before demand will catch up with the large supply of houses on the market.

He said the combination of current inventory of unsold homes plus the foreclosures not yet for sale has elevated supply by roughly 2 million houses over normal levels.

He said that housing starts would be below normal levels until that inventory is absorbed.

And from Elizabeth Razzi at the WaPo: Is bulldozer the best option for some boom-time housing?

Said Duncan: "Some of that shadow investment could have to be torn down. It was not economically viable when it was put in place." ... Duncan said people could find that the cost of sustaining their lifestyle in some developments--including high transportation costs to far-away jobs--is greater than the cost of the home. That would wipe out demand.
...
The idea is being discussed by economists, but Duncan said he doesn't know of any policymakers who are considering it. "It's un-American to think about tearing down housing," he said. "But we have a long history of ghost towns."

And I posted this comment yesterday via Kathleen Howley and Daniel Taub at Bloomberg: Fannie Mae’s Duncan Says Homebuyer Tax Credit Shifted Demand

“Temporary tax credits change behavior temporarily. It’s simply shifted demand forward. ... It actually created some price appreciation that’s not supportable long term.” [said Douglas Duncan, Fannie Mae chief economist]

by Calculated Risk on 6/05/2010 01:16:00 PM

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories as provided by the BLS: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

As we've discussed before there was more turnover in the '70s and '80s - back then the 'less than 5 weeks' category was much higher as a percent of the civilian labor force than in recent years.

What really makes the current period stand out is the number of people (and percent) that have been unemployed for 27 weeks or more (red line). In the early '80s, the 27 weeks or more unemployed peaked at 2.9 million or 2.6% of the civilian labor force.

In May 2010, there were a record 6.763 million people unemployed for 27 weeks or more, or a record 4.38% of the labor force. This is significantly higher than during earlier periods.

It does appear the number of long term unemployed is near a peak (the increases have slowed). But it is still very difficult for these people to find a job - and this is a very serious employment issue.

by Calculated Risk on 6/05/2010 08:33:00 AM

There were a few reports yesterday of a Hungarian official talking about a possible "default", and saying the budget numbers had been "manipulated". A couple of readers (from Hungary), sent me better translations - and the comments were clumsy, and not as scary.

Today from Reuters: Hungary government says aims to meet 2010 deficit goal

Hungary's government said on Saturday it still aimed to meet this year's deficit target, as it sought to draw a line under "exaggerated" talk of a possible Greek-style debt crisis that had unnerved markets a day earlier.

State secretary Mihaly Varga ... said Hungary's previous socialist governments had hidden the true state of the country's public finances, and that additional measures would be needed to reach the 3.8 percent of GDP target.
...
"Those comments which were made on this issue are exaggerated, and if a colleague makes them it is unfortunate," Varga told a news conference.

"I have to say that the situation is consolidated, and the planned deficit (target) is attainable, but for it to be attainable the government must take measures."

This scare helped push the euro to the lowest level against the dollar since March 2006.

More from the WSJ: Hungary Rushes to Calm Markets

Click on graph for larger image in new window.

The Euro has only been around since Jan 1999. The graph shows the number of dollars per euro since Jan 1, 1999.

The dashed line is the current exchange rate. Just a little further (below 1.1667 dollars per euro), and we will be discussing the lowest level since 2003.