MacroScope

Japan’s ‘quadrillion’ feat

The age of the quadrillion is finally here.

After years of being stuck in millions, billions, trillions and other terms that usually come up short of twelve zeros, Japan has broken out, with its debt crossing the magical 15 zero barrier.

Japan’s public debt exceeded 1 quadrillion yen — or 1,000 trillion yen ($10.39 trillion) — for the first time in June, Finance Ministry data showed last week.

Those are eye-popping sums even if you consider that a dollar fetches 96 yen today and the U.S. has a much higher public debt burden in dollar terms.

That is twice the sum of all goods and services produced by the country in a year, or GDP. It also means if every Japanese citizen were to try to pay it off, they would have to shell out at least 7,895,172 yen.

The usage of these mind-boggling numbers has increased ever since the financial crisis of 2008 prompted major central banks to print money to support their economies, through quantitative easing.

Why the mediocre U.S. July jobs report was worse than it looked

U.S. economists were generally disappointed with the net gain of 162,000 jobs last month, well below forecasts around 180,000 and market talk of a possible reading above 200,000. The jobless rate did fall to 7.4 percent from 7.6 percent, but labor force participation also resumed its recent descent.

Thomas Lam, chief G3 economist at OSK-DMG/RHB, says the underlying details of the report make employment conditions actually look worse than at first glance. Here’s why:

The most striking aspect of the Jul employment report is that details of the release appear generally weaker than the uninspiring headlines figures.  The nonfarm payrolls print of 162k in Jul, while modestly softer than expectations, was accompanied by narrower gains in private payrolls (the weakest 1-month and 3-month diffusion data since Aug & Sep 2012), and net downward revisions of 26k in prior months (-19k in May and -7k in Jun, confined within private employment).  Moreover, the employment and workweek details from the Jul release imply that real GDP growth in early Q3 2013 might be tracking weaker than the advance Q2 2013 print of 1.7%.

Amnesty for undocumented immigrants would not burden U.S. economy – Levy Economics Institute

The recently passed Senate bill – S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act – that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.

A recent report from the Congressional Budget Office estimated the following:

All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.

Nathan Sheets and Robert Sockin at Citigroup are even more sweeping in their endorsement of immigration’s economic upside:

Brazil’s foreign reserves are not all that big

Traumatized by several currency crises in the past, Brazil has made a dedicated effort in recent years to amass $374 billion in foreign reserves as China bought mountains of its iron ore and soybeans. When the next crisis came, policymakers figured, the reserves would act as Brazil’s first line of defense.

It turns out that those reserves, which jumped from just $50 billion in 2006, may still not be large enough, Bank of America-Merrill Lynch analysts found in a report on the increased volatility in foreign exchange markets as the U.S. Federal Reserve prepares to scale back part of its monetary stimulus.

Using central bank monthly data on the stock of foreign investments in Brazil, David Beker and Claudio Irigoyen estimated that foreigners hold about $1.2 trillion in Brazil. While most ($785 billion) of that amount consists in longer-term direct investments, portfolio investments such as equities and debt still far exceed the central bank’s reserve cushion at $415 billion.

Recalculating: Central bank roadmaps leave markets lost

Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with traditionBut, as in the Fed’s case, the increased transparency seems to have only made investors more confused.

The latest instance came as something of an embarrassment for Mark Carney, the Bank of England’s new superstar chief from Canada and a former Goldman Sachs banker. The BoE shifted away from past practice saying it planned to keep interest rates at a record low until unemployment falls to 7 percent or below, which it said could take three years.

Yet the forward guidance announcement went down with a whimper. Indeed, investors brought forward expectations for when rates would rise – the opposite of what the central bank was hoping for – although the move faded later in the day.

China’s new economy needs fresh, reliable indicator on consumers

China’s transition into a domestic demand driven economy has kicked off with the government announcing long-awaited reforms, but it is missing a key element — an indicator to measure the success of the plan.

Long considered the ‘factory of the world’, China has a vast population that works in factories that produce everything from consumer and electronic goods to clothes, technology equipment and trinkets of everyday value.

Accordingly, its achievements are measured by economic indicators like exports, industrial production, gross domestic product and trade surplus, among others.

Obama’s second chance to reshape the Fed

Lost in the bizarre Yellen vs. Summers tug-of-war into which the debate over the next Federal Reserve Chairman has devolved, is the notion that President Barack Obama is getting a second shot at revamping the U.S. central bank.

The perk of a two-term president, Obama will get to appoint another three, potentially four officials to the Fed’s influential seven-member board of governors in Washington. This may buy the president some political wiggle room when it comes to his pick for Fed chair, since he might be able to placate Republicans with one or two “concession” appointments. Every Fed governor gets a permanent voting seat on the policy-setting Federal Open Market Committee.

Elizabeth Duke, the last George W. Bush appointee, is already on her way out. So is Sarah Bloom Raskin, who after a relatively short stint at the board is moving to the Treasury, to be Jack Lew’s Deputy Secretary. Then there’s the awkward suspicion that, if Obama passes up Fed Vice Chair Janet Yellen, by far the favorite for the top spot, she will also step down after a long career in the Federal Reserve system, including many years as head of the San Francisco Fed.

Forward!

The Bank of England will give the government its blueprint for “forward guidance” when it publishes its quarterly inflation report, a big moment in British policymaking.

Canadian Mark Carney, in his second month at the helm, was heralded in advance as the man to kick start a languishing economy but with green shoots sprouting all over the place that may not be needed. Nonetheless, if companies and households can be convinced interest rates will stay at record lows for a prolonged period, that could boost investment and spending and help solidify a recovery that now looks to be in train.

After the U.S. Federal Reserve indicated that it may soon start to phase out its bond purchases – two of its policymakers again pointed to September yesterday – the Bank of England made a first stab at forward guidance last month, saying a rise in UK market rates was misguided. Now it will be more precise.

U.S. job openings rise, but nobody’s hiring?

It’s a good news, bad news story: The U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover (JOLTS) survey in June showed an increase in job openings, but a decline in new hires. The ratio of unemployed Americans to each open job fell in June to its lowest level in over four years.

The number of job separations (government code for layoffs) also fell, mainly due to fewer layoffs. The June numbers suggest some retracing of the gains of the previous month or two, but does not erase them, says Stone & McCarthy Research Associates economic analyst Terry Sheehan.

Job openings rose by 29,000 in June, but the number of new hires fell by 289,000. Simultaneously, the number of job separations also fell 300,000, mainly on declines in layoffs which fell 215,000.

Silvio’s trials

Italy’s Supreme Court last night upheld Silvio Berlusconi’s conviction for tax fraud and a four-year jail term, to the fury of the man who has dominated Italian politics for 20 years and throwing a fragile coalition government into peril.

The markets have been sanguine about Italy, maybe with good reason, since its reform and debt-cutting programme is well in train and no one seems to want fresh elections. But that could change for a country that has always been viewed as “too big to bail” by the euro zone.

Italian bond futures have even risen a little, taking a wait-and-see view. There is of course the little matter of the U.S. non-farm payrolls report looming later, with markets still fixated on the chances of the Federal Reserve slowing its bond-buying programme this year.