Friday, March 5, 2010

Jobs, Jobs, Jobs

Only at CNBC is a jobs loss considered "positive".

from CNBC:
Friday's better-than-expected jobs report, while cheering stock investors, hasn't taken the threat of a double-dip recession off the table.
Even as the jobless rate held steady at 9.7 percent and the 36,000 workers laid off in February was much less than expected, economists and investment analysts said it's still too early to discount the economy's chances of revisiting recession.

"Eight months into the much-touted recovery, the economy should be adding jobs not just losing jobs at a slower pace," University of Maryland economist Peter Morici wrote in an analysis.
"No study of economic history could yield a conclusion other than that the US economy (walks) along the precipice of a double dip recession."
There were two ways to view the Friday jobs report, and Wall Street clearly chose the more optimistic.

Obama Has Underestimated His Deficits By $1.2 Trillion

March 5 (Bloomberg) -- President Barack Obama’s budget proposal would generate bigger deficits than advertised each year for the next decade, with the 10-year shortfall totaling $1.2 trillion more than the administration estimated, according to the Congressional Budget Office.
The nonpartisan CBO, in an annual analysis of the White House budget proposal, said today that under Obama’s plan deficits would never shrink below 4 percent of the economy between now and 2020. The cumulative deficits would total $9.76 trillion, and debt held by the public would amount to 90 percent of the nation’s gross domestic product by 2020, the CBO said.

Thursday, March 4, 2010

Pending Home Sales Plunge Most Since April

WASHINGTON (MarketWatch) - A forward-looking gauge of home buying declined sharply in January, dropping to the lowest seasonally adjusted level since last April, an industry trade group reported Thursday. The pending home sales index fell a seasonally adjusted 7.6% in January after a revised 0.8% gain in December. The index remained 8.8% higher than in January 2009. The index tracks sales contracts signed on previously owned homes.

Stocks gave up all gains as a result, are now building a foundation to attempt another rise.

Wednesday, March 3, 2010

Another FInancial Crisis Coming

from ABC News:

Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis one that will be even worse than the current one is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.
In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.
The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management and when the risks go wrong, the banks receive taxpayer bailouts from the government.
"Risk-taking at banks," the report cautions, "will soon be larger than ever."
Without more stringent reforms, "another crisis a bigger crisis that weakens both our financial sector and our larger economy is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.
The institute's chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report "an important point of departure for a debate on where we are on the road to regulatory reform."
The report blasts some of Washington's key players. Johnson writes, "Our government leaders have shown little capacity to fix the flaws in our market system." Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"
The study says that "In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so 'lucky.' The threat of the doomsday cycle remains strong and growing," they say. "What will happen when the next shock hits? We may be nearing the stage where the answer will be just as it was in the Great Depression a calamitous global collapse."

The panelists call for major banks to maintain liquid capital of at least 15 to 25 percent of their assets, the enactment of stiffer consequences for executives of bailout recipients and for government officials to start breaking up firms that grow too big.
In the report, Elizabeth Warren, who was chair of the Congressional Oversight Panel, reiterates her calls for an independent agency to protect consumers from abusive Wall Street practices.
"While manufacturers have developed iPods and flat-screen televisions, the financial industry has perfected the art of offering mortgages, credit cards and check overdrafts laden with hidden terms that obscure price and risk," Warren writes. "Good products are mixed with dangerous products, and consumers are left on their own to try to sort out which is which. The consequences can be disastrous."
Frank Partnoy, a panelist from the University of San Diego, claims that "the balance sheets of most Wall Street banks are fiction." Another panelist, Raj Date of the Cambridge Winter Center for Financial Institutions Policy, argues that government-backed mortgage giants Fannie Mae and Freddie Mac have become "needlessly complex and irretrievably flawed" and should be eliminated. The report also calls for greater competition among credit rating agencies and increased regulation of the derivatives market, including requiring that credit-default swaps be traded on regulated exchanges.
With the Senate Banking Committee, led by Chris Dodd, D-Conn., poised to unveil its financial regulatory reform proposal sometime in the next week, the report calls on Congress to enact reforms strong enough to prevent another meltdown.
"Sen. Dick Durbin once said the banks 'owned' the Senate," says Johnson. "The next few weeks will determine whether or not that statement is true."
In response to the report, a spokesman for the Treasury Department told ABC News that the administration's regulatory reform proposals would be the most significant Wall Street overhaul in generations.
"We laid out our strong principles of reform last June and we have been fighting every day since to see them enacted in law," said Treasury spokesman Andrew Williams. "While we have a tough fight ahead, we are getting close to seeing Congress pass the most significant overhaul of the financial sector in our lifetimes."

China Holds Far More U.S. Gov Debt Than Official Figures Indicate

Despite recent government reports that China's holdings of U.S. Treasury debt declined during the second half of last year, the Asian economic giant almost certainly owns far more Treasury securities than official statistics indicate.
After peaking at $801.5 billion, China's holdings of U.S. Treasury securities declined to $755.4 billion at the year's end, dropping the communist power into the position of second-largest holder of Treasury debt after Japan's $768.8 billion, official government data reveal.
But these numbers don't tell the whole story.
"The U.S. Treasury data almost certainly understate Chinese holdings of our government debt because [the U.S. figures] do not reveal the ultimate country of ownership when [debt] instruments are held through an intermediary in another jurisdiction," Simon Johnson, an economics professor at the Massachusetts Institute of Technology, told the U.S.-China Economic and Security Review Commission, a bipartisan forum established by Congress in 2000 to monitor the security implications of the U.S. economic relationship with China.
Mr. Johnson told the commission last week that "a great deal" of last year's $170 billion increase in Treasury holdings by the United Kingdom "may be due to China placing offshore dollars in London-based banks" and then using the funds to purchase Treasury debt.
Mr. Johnson, a former chief economist for the International Monetary Fund, estimated that China owns about $1 trillion in U.S. Treasury securities, or nearly half the $2.37 trillion stock of Treasury debt held by "foreign official" owners.
The amount of U.S. debt held by China is even higher than that, said Eswar Prasad, an economist at Cornell University.
Under the widely held assumption that 70 percent of China's $2.4 trillion in foreign exchange reserves is invested in dollar-denominated bonds, Mr. Prasad told the commission that China probably holds about $1.7 trillion in U.S. government debt.
That would include the more than $400 billion in debt issued by U.S. government agencies, such as Fannie Mae and Freddie Mac, whose obligations are liabilities of the U.S. government, Mr. Prasad said.
Derek Scissors, a China scholar at the Heritage Foundation, described as "unusable" the official U.S. government data on foreign holdings of Treasury debt.
China's mercantilist policies generate "by far the world's largest balance of payment surpluses" and contributed to China's $453 billion increase in foreign exchange reserves last year — surpluses that "are too large to put anywhere other than the United States. No other country has financial markets capable of absorbing them," Mr. Scissors said.
But the economists at last week's hearing disagreed about how much leverage China's creditor status commands over the U.S.
Maj. Gen. Luo Yuan told China's state-run Outlook Weekly magazine last month, shortly after the U.S. detailed new arms sales to Taiwan, that China's "retaliation should not be restricted to merely military matters" but also should be "covering politics, military affairs, diplomacy and economics."
"We could sanction them using economic means, such as dumping some U.S. government bonds," Gen. Luo said.
Michael Wessel, a member of the U.S.-China commission, began the hearing by noting that China, whose economy expanded by 10.7 percent during 2009, "emerged from the global recession stronger than ever, expecting its status as America's banker to convey new political power."
"The United States government, with its fiscal and monetary tools constrained by the recession, cannot easily extricate itself from its growing financial dependence on China," he said.
Leverage, however, works both ways, Mr. Wessel suggested, when he quoted oil magnate J. Paul Getty. "If you owe the bank $100, that's your problem," Getty famously said. "If you owe the bank $100 million, that's the bank's problem."
Mr. Johnson also downplayed China's leverage.
"There is a perception that China's large dollar holdings confer upon that country some economic or political power vis-a-vis the United States," said Mr. Johnson, citing the view that Chinese reserves prevent the United States from pressuring China to increase the value of its currency, the yuan, also known as the renminbi. "This view is incorrect and completely misunderstands the situation."
Daniel Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, compared today's financial situation between China and the U.S. to the Cold War nuclear situation between the Soviet Union and the U.S.
He argued that the "balance of terror," which was connected with the nuclear policy of mutually assured destruction adopted by both adversaries, proved to be "a source of stability."
Mr. Drezner approvingly cited the analogy of Lawrence H. Summers, President Obama's chief economic adviser, who earlier coined the phrase "the balance of financial terror" to describe the U.S.-China financial relationship. Such a scary balance, Mr. Drezner told the commission, is "a source of stability and a source of anxiety."
Economists generally agree that the yuan is 25 percent to 40 percent undervalued, in large part because Chinese authorities instruct the central bank to purchase massive amounts of dollars in order to peg the yuan's value to the dollar at a level much lower than it otherwise would be, Mr. Johnson said.
A bipartisan coalition in Congress wants the Treasury Department to label China a currency manipulator in its next report, due April 15. Such a designation would require the Treasury Department to begin negotiations with China to let its currency rise in value and reduce the massive U.S. trade deficit with China, which has exceeded $200 billion for each of the past five years.
Under legislation proposed in Congress, currency manipulation would be designated as an unfair trade subsidy and would let U.S. companies seek import duties on Chinese goods.
"China is obviously a currency manipulator and should be so labeled by the U.S. Treasury," Mr. Johnson said.
Mr. Johnson called Chinese threats to dump dollar-denominated assets a "paper tiger" and "at worst a bluff and at best a way to help the U.S. with a depreciation of the dollar."
Mr. Scissors agreed. "Until the Chinese government is willing to break its dependence on the dollar — which there is not the slightest indication it is willing to do — [China] is compelled to buy American bonds and lacks the flexibility to wield any influence," he said.
Mr. Johnson said the current U.S. economic situation ensures that a substantial downward movement in the dollar "would have no noticeable effect on inflation and therefore would not force the Federal Reserve to increase interest rates."
Mr. Prasad, however, noted that the damage to the two countries' economies would not be equal.
"Any Chinese threat to move aggressively out of Treasuries is a reasonably credible threat as the short-term costs to the Chinese of such an action are not likely to be large," he said.
Moreover, even though China's share of the financing of the soaring U.S. budget deficit has declined over time, its actions still could affect U.S. interest rates, Mr. Prasad said.
"Its actions could serve as a trigger around which nervous market sentiments could coalesce," Mr. Prasad said. "Given that there are no clear prospects of reining in exploding deficits and debt in the U.S.," he added, "changes in availability of deficit financing at the margin can have potentially large consequences."
Mr. Scissors estimated that U.S. interest rates would rise at most three percentage points.
However, with U.S. national debt set to exceed $14 trillion before the end of the year, a three-percentage-point increase in interest rates would raise the annual cost of paying interest on that debt by more than $400 billion.
The commission was told that U.S. policymakers also need to consider the geopolitical and national security implications of operating a fiscal policy that depends on China and other foreign creditors, who collectively hold 50 percent of U.S. publicly held debt.
Clyde Prestowitz, president of the Economic Strategy Institute, recalled for the commission Britain's experience with the United States in 1956 after Britain joined France and Israel in seizing the Suez Canal after Egypt's nationalization of the waterway.
"President Eisenhower was furious over the seizure of Suez and informed the Brits that America would ruin the pound sterling if Britain did not withdraw," Mr. Prestowitz said. "And that was the end of the seizure.
"Now, America is not Britain and China is not America," Mr. Prestowitz said. "But if that is how your friends can treat you when you owe them, it is not difficult to imagine that less-friendly states could be quite difficult in certain circumstances."

Tuesday, March 2, 2010

Running Out of Other People's Money

from the Striker Report:

USA Today recently reported that the number of federal employees making salaries of $100,000 or more increased from 14% to nearly 20% of civil servants in the first year and a half of the recession. The average federal worker's pay is now $71,206, compared with $40,331 in the private sector, according to the article.

These numbers seem likely to arouse taxpayer ire, at least among workers in the private sector.

The Obama Administration has countered these charges by observing that federal civilian workers are on average better educated then their private sector counterparts. By some estimates twenty percent of federal workers have a master's, professional or doctorate degree, compared with only 13 percent in the private sector.

Nevertheless, job growth in government has far exceeded that of the private sphere even as federal and state deficits have soared. In fact, the U.S. private sector has shed over 200,000 jobs in the last decade, while government employment has expanded.

British Prime Minister Margaret Thatcher once famously observed that "the trouble with socialism is that sooner or later you run out of other people's money to spend".

While the American economic system is currently far from socialism, the trend toward increasing public domination of the economy will likely give pause to advocates of private enterprise.

Some economists have become concerned that Washington�s policies may be 'crowding out' private investment; after all, why should banks loan money to risky private businesses when they can park it at the Fed and receive a safe rate of interest?

Business Week's Adrian Slywotsky has written that of the 130 million or so jobs currently in the U.S., only 20% pay more than $60,000 a year, while the other 80% pay an average of $33,000.

Meanwhile, the number of Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, according to USA Today.

This brings us back to Mrs. Thatcher's question: where is the money going to come from to pay for the expanding Federal and state payrolls?

The problem is compounded by health care and pension issues.

California Governor Arnold Schwarzenegger recently told the Sacramento Press Club that over the last 10 years, state pension costs have gone up by 2,000 percent from $150 million per year to $3 billion a year, not including health care costs.

What's more, the number of public employees in California collecting $100,000-plus pensions has risen from about 2,500 in 2004 to 15,000 currently. State Treasurer Bill Lockyer told lawmakers they needed to reform the pension system or face bankruptcy.

A further concern is the composition of the public expenditures; California taxpayers are on pace to spend more on incarceration then on public universities by 2012.

California is hardly alone in its budget woes. A study by the Pew Charitable Trusts found that U.S. states in general have promised at least $2.73 trillion in pension, health care and other retirement benefits for public employees over the next three decades. While the study showed that the states have saved enough to cover 85% of this amount, they have only enough to cover 3% of the health care and non-pension benefits, and are still short $731 billion.

One possible clue to the origins of these shortfalls may be found in the changing nature of unionization. According to the Fresno Bee, the number of union members in the public sector exceeded their private-sector counterparts for the first time last year, while unions nationwide lost 10 percent of their private-sector members, the largest drop in more than 25 years.

Given the disparities in hiring, benefits and pay, it's becoming increasingly hard to see why workers would choose the private sector over the public, a trend that does not bode well for private industry in the United States.

Monday, March 1, 2010

Larry Summers: February Job Losses Are Going to Be Really Bad!

WASHINGTON, March 1 (Reuters) - White House economic adviser Larry Summers said on Monday winter blizzards were likely to distort U.S. February jobless figures, which are due to be released on Friday.
"The blizzards that affected much of the country during the last month are likely to distort the statistics. So it's going to be very important ... to look past whatever the next figures are to gauge the underlying trends," Summers said in an interview with CNBC, according to a transcript.
Construction activity was hit particularly hard by the storms, but many restaurants and stores also had to close, putting the brakes on hiring plans and temporarily throwing some employees out of work.

Comments from the same story:
Mr. Summers I have only one thing to say….WHAT A LOAD OF CRAP!

Another false claim…I bet there were no government jobs lost. Does the adminstration really think we are stupid?

Also….people please take a nice long look at what is happening in Greece, Spain, Portugal, and possibly Italy. This is the future of the USA unless this spending madness is stopped.

Temporary job loss of a few days allows unemployment claims? When did this start?
Must have to have some reason for expected bad news?

LOL, surprised they didn’t also use the blame Bush card. Watch, this Summer will be too hot for employment…

More People Taking... Than Making... Money

The so-called "Great Recession" has left Americans depending on the government dole like never before.
Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion — more than four times the record $167 billion drop reported last month by the Commerce Department.
Moreover, for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes.

California Is the Debt Threat

Mr Dimon told investors at the Wall Street bank's annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr Dimon. "We don't really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state's $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Nothing to worry about. The stock market is higher, back to ignore-the-risk mode.

Chris Wood at CLSA Sees U.S. Monetary Collapse As the End Game

My view is that there is an inevitable endgame as a result of all this massive spending of taxpayer money in the West and Japan to bail out bankrupt banking systems, so in my view unfortunately the end game will be systemic government debt crisis in the western world. It will probably happen in Europe and will climax in the US, and I am expecting on a five year view the collapse of the US Dollar paper standard...The key reason why that is the endgame is that this credit crisis we saw in the west in 2008 and 2009 has simply been deferred, because 95% of the so-called government policy solutions to deal with this crisis have simply been to extend government guarantees. So the problem has been transferred from the private sector to the public sector. It is just a matter of time before investors revolt against these sovereign guarantees...The crisis is going to happen first in Europe, the US will be the endgame. -- Chris Wood from CLSA, Asia's Independent Voice