Mish's Global Economic Trend Analysis

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Occam's Razor and Bank Lending Posted: 23 Aug 2014 06:36 PM PDT I received an interesting question on bank lending just a bit ago. The question is in reference to Euro Bond Bubble Guaranteed to Burst where I stated ... "Would QE by the ECB spur European bank lending? Of course not. Banks do not lend from excess reserves. Banks lend (provided they are not capital impaired), when credit-worthy borrowers want credit and banks perceive risks worth lending." Reader Kenneth from Stockholm, Sweden writes ... As a layperson I must say this makes perfect sense, but I have a problem applying Occam's Razor to it. For Occam's Razor to hold, one must assume that the central bank has never talked to a banker, right? Surely the commercial banks must know why they are or aren't lending? Or is there a hidden pretext for the ZIRP and QE that the central bankers are not telling us? Please don't say it's because they're stupid. A well deserved insult maybe, but that would not hold as an explanation for this. Not quite. Occam's Razor suggests the simplest explanation is likely to be the correct one. In this case, central banks clearly want to spur lending. So why aren't banks lending? Two Possible Reasons Banks Aren't Lending Banks are capital impaired (even if they deny they are not) Banks have no credit-worthy borrowers who want loans I suggest both That is the simplest explanation that fits the bill, and it also fits in with sound economic theory. Thus, that is precisely what Occam's Razor would suggest. Whether or not central banks talk to, or understand banks or bank lending is irrelevant. Moreover, I stick with my assertion that central banks are generally clueless about the state of the economy. This has been proven time and time again. Thus, it should not at all be surprising to find that central banks are surprised to discover their attempts to spur lending have failed. For more on the state of lending in the eurozone, including the possibility of capital impairment, please consider Spotlight on European Bank Lending: Capital Impairment to the Forefront. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

40% of U.S. on Welfare; Obamacare Expands Welfare by 23 Million; More on Welfare Than Full-Time-Employed Posted: 23 Aug 2014 01:54 PM PDT As a result of Obamacare Medicaid expansion coupled with means-tested Obamacare assistance, I estimate welfare rolls expanded from 35.4% of the population in 2012 to  about 40% in 2014. Let's go through the math to see how I make that estimate. The latest welfare statistics are from year-end 2012. Those figures show 35.4 Percent: 109,631,000 on Welfare. 109,631,000 living in households taking federal welfare benefits as of the end of 2012, according to the Census Bureau, equaled 35.4 percent of all 309,467,000 people living in the United States at that time. When those receiving benefits from non-means-tested federal programs — such as Social Security, Medicare, unemployment and veterans benefits — were added to those taking welfare benefits, it turned out that 153,323,000 people were getting federal benefits of some type at the end of 2012. Subtract the 3,297,000 who were receiving veterans' benefits from the total, and that leaves 150,026,000 people receiving non-veterans' benefits. The 153,323,000 total benefit-takers at the end of 2012, said the Census Bureau, equaled 49.5 percent of the population. The 150,026,000 taking benefits other than veterans' benefits equaled about 48.5 percent of the population. In 2012, according to the Census Bureau, there were 103,087,000 full-time year-round workers in the United States (including 16,606,000 full-time year-round government workers). Thus, the welfare-takers outnumbered full-time year-round workers by 6,544,000. Breakdown by Category 82,679,000 Medicaid 51,471,000 Food Stamps 22,526,000 Women, Infants and Children Program 20,355,000 Supplemental Security Income 13,267,000 Public Housing or Housing Subsidies   5,442,000 Temporary Assistance to Needy Families   4,517,000 Other Forms of Federal Cash Assistance Population Estimates (2013 estimates) California 38,332,521 Texas 26,448,193 New York 19,651,127 Florida 19,552,860 Those four states have a population of 103,984,701. Those on welfare nearly totals that amount. Full Time Employment BLS figures show 115.735 million "usually" working full time at the end of 2012. There are currently 118.489 million "usually" working full time. Obamacare Welfare Expansion Inquiring minds may be asking "How did Obamacare effect welfare numbers?" Let's take a look. Anyone making up to 400% of the federal poverty minimum is eligible for some assistance. That's about 17 million according to the Kaiser Family Foundation. Also note that 28 states expanded Medicaid under Obamacare: AZ, AR, CA, CO, DE, DC, HI, IL, IA, KY, MD, MA, MN, MA, NH, NV, NJ, UT, NM, NY, ND, OH, OR, PA, RI, VT, WA, WV. On June 4, the US Department of Health and Human Services reported Medicaid Enrollment Shows Continued Growth in April. "As of the end of April, 6 million more individuals were enrolled in Medicaid or the Children's Health Insurance Program (CHIP) as compared to the period before the initial open enrollment under the Affordable Care Act started." In addition to regular expansion of welfare, it's safe to conclude Obamacare expanded the welfare rolls by at least 23 million. More will come. Welfare vs. Full-Time Employment Let's take the 2012 welfare total of 109,631,000 and add the 6 million Obamacare Medicaid expansion and the 17 million who get Obamacare subsidies and you have a minimum of 126 million receiving some sort of means-tested welfare vs. 118.5 million who "usually" work full time. Welfare vs. Population The 2013 US Population Estimate is 316 million. Using 316 million as a rough estimate of the 2014 population (it would likely be higher) and 126 million on welfare (that number is also higher, perhaps way higher),  about 40% of the country is on some form of means-tested welfare, up from 35.4% at the end of 2012. Over 50% of the country gets welfare or some other form of non-means-tested assistance. I estimate about 56% or so. Correction: I originally posted population of 4 states as the number on welfare in those 4 states. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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