Fed weighs language on rates guidance - When the Federal Reserve cut interest rates to virtually zero in December last year, it told the market it expected to keep them there for quite a while.The message was in a key line in the Fed statement that said “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time”.
Fed Weighs Shift to Market Signals - WSJ - As the Federal Reserve's next meeting approaches in early November, an internal debate is brewing about how and when to signal the possibility of interest-rate increases. The Fed has said since March that it will keep rates very low for an "extended period." Long before it raises rates, however, it will need to change that public signal to financial markets.
The Economic Outlook - SF Fed - Five key questions are often asked about current economic and financial conditions: Has the financial crisis ended? Is the recession over? Will the economy return to full employment and normal conditions anytime soon? Is inflation going to jump too high? Does the Federal Reserve have an "exit strategy" to undo its extraordinary policy actions of the past two years? The answers, respectively, are: Mostly, Almost certainly, No, No, and Yes. (see chart)
Who’s Looking at the Fed’s Books? - NYTimes - while the Fed needs to be audited substantially, creating an independent data institute to monitor the Fed’s monetary and financial data would be better than expanding a Government Accountability Office audit. An independent institute would have the highest specialized expertise to produce economic data for the Fed.Down but not out - FT - When finance ministers and central bank governors met in Istanbul this month amid angst about the declining dollar, Tim Geithner was anxious to impart a basic message. “We recognise the dollar’s important role in the system conveys special burdens and responsibilities on the US,” the Treasury secretary said. “And we’re going to do everything necessary to sustain confidence.” Since then the greenback has continued to slide – falling to a 14-month low last week – provoking cries of pain from policymakers in the eurozone and elsewhere.
The Myth of The Strong Dollar Policy - Here are five great myths and/or lies of the modern financial system:1) "The check is in the mail" 2) "I'll call you right back" 3) "We are long-term investors" 4) There is a secret cabal of gnome-like creatures that manipulate the gold price 5) "The United States believes in a strong dollar"
Cognitive Dissonance and Global Macroeconomics - There has been a lot of talk about global imbalances, with most opinions varying from somewhat important (us) to very important (many global policymakers)...People agree what the biggest imbalance is: it’s over-consumption in the United States and over-saving in China, thanks to an artificially low renminbi/yuan, which creates an artificially high dollar. Yet in the same statement, “Trichet said U.S. policy makers’ commitment to a strong dollar was important in keeping currency markets and the global economy stable, repeating a long-held position.” Separately, Tim Geithner, like every senior government official for decades, has been repeating that we have a “strong dollar policy,” whatever that means.
Treasuries Show No Lost Appetite With Dollar Declines (Bloomberg) -- Investors can’t get enough Treasuries even as the U.S. budget deficit climbs beyond $1 trillion, the government sells a record amount of debt and the dollar declines to the weakest level since August 2008. Foreign buyers increased their holdings for a fourth consecutive month in August, to an all-time high of $3.45 trillion, according to Treasury Department data. U.S. demand is being spurred by a rising savings rate and concern the economic recovery may falter.
US Treasuries: "Risk free" for How Long? - At least since the end of World War II, sovereign debt risk has been a very real problem, but one confined mostly to the developing world. Sure, there was the risk that the government might decide to inflate away the value of your loan, that risk abated in most places. Places where it didn't abate were increasingly forced to borrow in other currencies, leaving default as their main option--inflating away domestic denominated debt tended to make your dollar denominated debt problems worse. But the financial crisis is making developed-world sovereign debt risk a more worrisome problem. As this article in the New York Times points out, Japan's massive debt is finally starting to become a really worrying problem, especially as they need to borrow more money to stimulate their sodden economy.
Dollar to Extend Slide as Global Economy Recovers, Pimco Says (Bloomberg) -- The U.S. dollar will extend declines as the global economy’s recovery prompts investors to shift away from U.S. assets, according to Pacific Investment Management Co., which runs the world’s biggest bond fund. Fundamental forces are set to put downward pressure on the dollar as the recovery gathers momentum, Those forces include massive budget deficits, bets the Federal Reserve will keep borrowing costs near zero for an extended period, and prospects for a double-dip recession in the U.S.
Dollar Demise and Double Dip: Latest Forecasts I thought it of interest to see what surveys of forecasters indicate about two questions being asked: Is a dollar collapse imminent -- Martin Wolf is skeptical, while others  are convinced the end is nigh -- and is a double dip recession likely? I take a look at the messages conveyed by FX4casts.com and the WSJ October survey of forecasters.
CHART OF THE DAY - Google Searchers Are Obsessed With The Dollar Collapse - if you believe in the wisdom of crowds, then rising google searches for 'dollar collapse' are a bad sign.
While Google data is choppy, search queries have basically doubled since the start of 2008.
'Buy gold' searches have also doubled since the start of 2008. Searches for this have tracked those for 'dollar collapse' relatively well as shown by the two shared spikes in 2008, plus the shared bottom in 2009.
How To Save The Dollar - Atlantic - On one hand, it would benefit greatly if policymakers moved to close the deficit, increase interest rates and eliminate much of the U.S.'s national debt. On the other hand, the U.S. economy is in no position to stomach any of that in the near future. In the meantime, it looks as though the dollar is going to suffer from an inevitable decline. But what if there was some way to ease the market's fears about its future? I began thinking about such a possibility after reading this article from the Wall Street Journal yesterday. It explains that, if you think the federal deficit looks bad now, then the next decade won't make you feel much better...
THERE THEY GO AGAIN.... The lead overnight story on Mark Halperin's "The Page" features a photo of President Obama alongside U.S. currency. The text reads, "Red Ink Nation: Obama presides over $1.4 trillion deficit." The front page of the Washington Post tells readers, "Record-High Deficit May Dash Big Plans; $1.4 Trillion in Red Ink Means Less to Spend On Obama's Ambitious Jobs, Stimulus Policies." The New York Times' front page says, "$1.4 Trillion Deficit Complicates Stimulus Plans." Let's set the record straight here.... Halperin's report makes it seem as if the Obama administration deserves blame for the huge budget shortfall. That's demonstrable nonsense...
Embrace the dollar's downfall - Banks might suffer if China stopped buying US debt, but the US economy as a whole would be much better off The basic logic is simple. China's central bank has been buying up huge amounts of dollar-based assets for the last decade. The Chinese central bank's purchases have two effects. First, they help to keep interest rates low. The other effect of China's purchase of dollar-based assets is that it keeps down the value of its currency against the dollar.
Dollar depreciation: Denial or acceptance - The Economist - IN ONE sense, a weak dollar is good news for the world. Behind the global economy’s current revival is a returning appetite for risky investments, such as equities and corporate bonds. At their most panicky investors shunned all but the safest and most liquid assets: American Treasuries were a favoured comfort blanket. Now that stockmarkets and economies have bounced back, dollar weakness has returned, causing a headache for countries with floating exchange rates $see chart$. That has prompted three responses: direct measures to stop currencies rising; attempts to talk them down; or acceptance of a weak dollar as a fact of life.
A different way of discussing global imbalances - If the saving Chinese workers are dealing with the correct price (implicit price), that means their worries are real and rates in the T-Bill market have to spike. Ouch. If the auction market for T-Bills is showing the correct price, that means the worries are false and at some point Chinese workers won't save nearly so much. Again, rates in the T-Bill market have to spike. Ouch. Either way it ends in ouch. There's a reason why, rhetoric aside, no one wants to end these imbalances.
Dollar’s Decline Brings Troubles, but an Upside for Exports - NYTimes -The weakness of the dollar, if sustained, could force American consumers to get used to paying more for many imported goods as well as trips to their favorite vacation spots. But there is also an upside: a weak dollar could prove beneficial to the American economy by aiding long-suffering manufacturers, rebuilding a stronger industrial base and lifting exports even if it makes life harder for trading partners around the world, especially in Europe.
Time for the ECB to get serious about the overvalued euro - The euro has become a currency on steroids. Its relentless nominal and real appreciation since the end of 2000 was briefly interrupted in the second half of 2008, but resumed with a vengeance during 2009. The strength of the currency is hurting the exporting and import-competing sectors of the Euro Area. Unemployment and excess capacity continue to rise. The euro’s excessive strength is also contributing to a significant and persistent undershooting of the rate of inflation the ECB deems to be consistent with price stability
Weak dollar woes send euro leaders to China - The men who run the euro single currency are so 'worried' by the weakness of the dollar that they are seeking an alliance with China to rein in Washington, their top man has said. 'We spent quite a long time discussing exchange rates, it's a problem which has us worried,' Luxembourg Prime Minister and Eurogroup chief Jean-Claude Juncker said after a meeting of finance ministers last night.
The Dollar Is Finished And The Chinese Are Dumping It - The idea they don't have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency reassures many people in Washington ‘we can relax'... An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own, most notably the commodity assets they have been buying all over the world. China's current strategy is to diversify out of dollars and into commodities
Russia ready to abandon dollar in oil, gas trade with China - (RIA Novosti) - Russia is ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings, Prime Minister Vladimir Putin said on Wednesday. The premier, currently on a visit to Beijing, said a final decision on the issue can only be made after a thorough expert analysis. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans," Putin said.
Russia Prepares To Short $18 Billion USD - Russia is planning to issue $18 billion of dllar-denominated government bonds early next year. This will be the first government debt issue aimed at international investors since 2000. It will also be, conveniently, a huge $18 billion short-dollar position. The inherent short-dollar exposure gained from selling dollar bonds will effectively be a hedge against an equivalent amount of dollar reserves held by the country's central bank.
Disinflation continues, and the case for intervening in the forex markets gets stronger - The September CPI report was published last Friday, and the disinflationary trend of the last few months hasn't yet stopped: (chart) As I noted at the last interest rate announcement, up until the crash in commodity prices, Canada ran a current account surplus, so an appreciating currency made sense. But now that we're running a current account deficit, it doesn't...
French official says U.S. trying to inflate away debt - The United States is pumping out liquidity to try to inflate away its debt, leading to the depreciation of the U.S. dollar, Henri Guaino, a top advisor to French President Nicolas Sarkozy said on Tuesday. He told reporters that the United States was 'flooding the world with liquidity'. Guaino worried about a risk of an inflationary cycle. 'Historically, we have only ever got out of such situations with inflation. We can also get out with deflation, but it's much more painful politically, socially,' he said.
Now Europe's Freaking Out About The Weakening Dollar - With the U.S. dollar at a 14-month low against the Euro, the pressure is on for the European Union to join Brazil and certain Asian economies in helping prop up the dollar.Concerns were voiced today as the Euro continues its climb: European Central Bank President Trichet said “excessive volatility” in currency rates is “bad for economic development.” What you're seeing now is a sharp reversal from the tone from just a few weeks ago, when central bankers were stoking rumors about a new reserve currency to replace the dollar.
Global Systemic Crisis – The European Union at a crossroads in 2010: an accomplice or a victim of the collapse of the dollar? - Everyone has now realized that the United States is being swept into an uncontrollable spiral involving widespread insolvency of the country and gross incompetence of the U.S. elite in implementing the necessary solutions. The foretold US default is well underway as exemplified by the falling dollar and the flight of capital from the country: only the name of the liquidator and the recognition of the bankruptcy are still missing, but it shouldn’t be long now. Following the example of its leader, the Western bloc is in total decay
There's an awful lot of capital in Brazil - the Economist - The dollar may only be back, on a trade-weighted basis, where it was before the collapse of Lehman. It then rose sharply as risk-averse investors moved into the US currency; since March, the rally in risky assets has been accompanied by a greenback decline. But we are already seeing mutterings from the French about the problems caused by the euro trading at $1.50. And today Brazil has imposed a 2% tax on portfolio capital flows (direct investments such as factories are excluded) designed to stop the real from rising. Brazil is one of the emerging market hotspots at the moment having the commodity exposure of Russia without the dubious corporate governance.
FT Alphaville - Brazil - more taxing issues - Brazil may well be, as Lex puts it, a “victim of its own economic success”. But its surprise move to impose a 2 per cent flat one-way tax on all new capital inflows this week has also drawn howls from portfolio investors - and some more warnings about the broader implications...
BOK mulling reserve diversification - The weakness of the U.S. dollar has many policymakers in Asia's reserve-rich countries studying ways to reduce the portion of dollar assets in their funds, central bank officials and analysts said yesterday. They said Korea, whose foreign exchange reserves stand at $254.2 billion, was no exception. They said the Bank of Korea is mulling reducing the proportion of dollar-denominated assets in reserves, which currently stands at 64.5 percent of the total fund.
ASEAN Plus Three strive to prepare regional reserve pool - Leaders at the ongoing summits of east and southeast Asian leaders urged their finance ministers to speed up preparation work on the region's foreign exchange reserve pool so that it can be launched by the year end. The landmark reserve pool, known as the Chiang Mai Initiative Multilateralization (CMIM), will help the member countries of the Association of Southeast Asian Nations (ASEAN) as well as China, Japan and South Korea address short-term liquidity difficulties amid potential crises in the future, analysts said. Officials said they also expected to the multilateral financial aid mechanism to help spur cooperation and integration in the region.
Qatar says dollar-oil debate is still on Reuters/Dubai - Qatar’s oil minister said the debate was ongoing on using the US dollar for oil trade or shifting to a basket of currencies, the official Qatar News Agency reported yesterday.A long-running debate over the currency used for commodity dealings was raised again by an article that said China, Japan, Russia and France were in secret talks with Gulf Arab states to stop using the dollar for oil trading. Big oil producers denied it at the time, but dollar weakness has has kept the question of whether it can remain the world’s reserve currency.
tehran times : Iran to drop dollar from forex reserves - TEHRAN -- The Trade Promotion Organization of Iran (TPOI) announced this week that it plans to exclude the U.S. dollar from Iran’s foreign exchange reserves. In line with this plan, Iran has informed Japan that it should use the yen instead of dollars to pay for the oil it buys from the Islamic Republic. In addition, Iran has decided to open a bourse for oil and gas transactions in currencies other than the U.S. dollar, especially the euro.
Oil prices in currencies other than the USD - I've received a request to update my irregular series of graphs of movements in oil prices in currencies other than the USD. There's been a certain amount of movement in the oil and forex markets over the past few months, so I'm happy to oblige: (chart)
IMF ponders tool to discourage reserves build-up - The International Monetary Fund is considering creating a new programme to discourage member countries from building up currency reserves, John Lipsky, the IMF’s first deputy managing director, said on Monday.“We are exploring the possibility of improving our existing facilities or adding other insurance-like facilities that would give our members greater confidence that they don’t need to self insure by building up reserves,” Lipsky told reporters at a conference in Mexico.
Senior Australian Politician Warns About U.S. Debt Default Within the Next Few Years - The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years. In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.
The Beginning of a Currency Crisis? - The “race to debase” went into high gear yesterday. First, Brazil imposed a tax on foreign investment to try and stem the real’s climb. Second, the Bank of Canada warned that the strong Loonie could offset the favorable economic developments since July. Third, the EU whined about the strong euro and complained that the US was “flooding the world” with dollars and creating dollar weakness that was “unbearable.”
Currencies: The diminishing dollar - The Economist - ONE of the few calamities that has not befallen the world economy during the past two years is a dollar crash. During the bubble era that preceded it, many (including The Economist) fretted that foreigners, tiring of America’s gaping external deficits, would send the greenback slumping and interest rates soaring. In fact, the opposite occurred. The crisis began within America, and the deeper it became, the more the dollar strengthened as fearful investors sought safety in Treasury bills. Between September 2008 and March 2009 the dollar rose by almost 13% on a trade-weighted basis. That history is worth bearing in mind when assessing the latest bout of fretfulness about the dollar’s future.
Foreign exchange reserves are hot hot hot - Last week I was in New York talking with Emerging Market strategists and economists. Most of them attended the IMF meetings in Istanbul, Turkey - according to them, the monster takeaway from the meetings was that the sky's the limit in terms of FX reserve accumulation (in EM economies). Put this way, the IMF is unlikely to be successful in its aforementioned goal of preventing the "need" of excess reserves, at least over the near term.
Dollar decline draws international protest - This could end up being viewed as the week when dollar weakness became too much for the rest of the world to bear, setting the scene for tense encounters at the upcoming meeting of finance ministers from the world's 20 largest economies. Brazil has now imposed a tax on some foreign-exchange inflows. The Bank of Canada has cranked up its negative tone on the strength of the Canadian dollar. And a whole slew of European officials have practically begged the U.S. to step in and boost the buck.This chorus of pain marks a rise in international pressure on the U.S. to live up to its oft-quoted "strong-dollar policy," after central banks in South Korea, Taiwan, the Philippines, Thailand, Indonesia and Hong Kong all stepped in to weaken their currencies against the greenback earlier this month.
U.S. Faces Second Lost Decade "Because" of Misguided Stimulus - Mish - Japan has gone through two lost decades, in and out of deflation, with nothing to show for it but increasing debt to GDP and a stock market still 70% below its peak. Now, Richard Koo of Nomura Research Institute Ltd. says U.S. Risks Japan-Like ‘Lost Decade’ on Stimulus Exit. Neither Koo nor Krugman have learned a thing about the Real Lesson of Japan's Lost Decades.The real lesson is no matter how much money you throw around, economies cannot recover until noncollectable debts are written off. That is why you have “zero interest rates and still nothing’s happening.”
Japan: Who will Switch the Lights Off? - I wrote several times in 2008 on Japan's secular economic decline, determined by the developed world's worst demographic outlook...the population below the age of 15 has dropped 3.5% to 17.1 million, the population between 15 and 64 has dropped 4% to 81.6 million, while the number of people older than 65 has increased 16% to 28.9 million. This devastating trend is set to accelerate over the next decade, with the working age population declining by 0.9% a year, implying a major drawdown of Japan's savings mountain, with adverse implications for the Yen and JGB yields.
Is Japan on the fiscal brink? - Krugman - This article in today’s Times stresses the rise in government debt: For jittery investors, Japan’s rising sea of debt is the stuff of nightmares: the possibility of an eventual sovereign debt crisis, where the country would be unable to pay some holders of its bonds, or a destabilizing collapse in the value of the yen...it’s worth noticing what that 6-week high yield on 10-year bonds is: namely, 1.36%. If investors fear a default or a destabilizing collapse in the yen, that fear certainly isn’t reflected in Japan’s borrowing costs.
Niall Ferguson U.S. Empire in Decline on Collision Course with China - The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.
"People have predicted the end of America in the past and been wrong," Ferguson concedes. "But let's face it: If you're trying to borrow $9 trillion to save your financial system...and already half your public debt held by foreigners, it's not really the conduct of rising empires, is it?"
Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain's in the 20th, he says. "Excessive debt is usually a predictor of subsequent trouble."
The Death-Defying Dollar Opinion - ...Central banks have reportedly slowed their accumulation of dollars in favour of other currencies. Moreover, disenchantment with the sophisticated instruments that American financial institutions specialise in originating and distributing means more limited foreign capital flows into the United States. Fewer foreign purchases of US assets again imply a weaker dollar...forecasters predict that the dollar will decline further... against what? Not against the euro, which is already expensive and is the currency of an economy with banking and structural problems that are even more serious than those of the US. Not against the yen, which is the currency of an economy that refuses to grow.Thus, for the dollar to depreciate further, it will have to depreciate against the currencies of China and other emerging markets. Their intervention in recent weeks shows a reluctance to let this happen. But their choice boils down to buying US dollars or buying US goods. The first option is a losing proposition....
The Chinese Disconnect - NYTimes - Krugman - China’s bad behavior is posing a growing threat to the rest of the world economy. The only question now is what the world — and, in particular, the United States — will do about it. Some background: The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market — a policy made possible by restrictions on the ability of private investors to move their money either into or out of the country.
"Why can't the Fed just buy yuan?" - The title really says it all. And it's not a rhetorical question; I don't know the answer. But if the US is really concerned (H/T Mark Thoma) about the US dollar being too high against China's yuan, and it believes China is "artificially" preventing the yuan from appreciating against the dollar by foreign exchange market intervention, why can't the Fed just intervene in the opposite direction, by buying yuan?
How Did America Fall So Fast? - In 2000, America was described as the sole remaining superpower – or even the world’s “hyperpower”. Now we’re in real trouble (at the very least, you have to admit that we’re losing power and wealth in comparison with China).
How did it happen so fast? As everyone knows, the war in Iraq – which will end up costing $3-5 trillion dollars – was launched based upon false justifications. Indeed, the government apparently planned both the Afghanistan war (see this and this) and the Iraq war before 9/11.
And the financial system collapsed last year due to looting and fraud.
Shiller: "Look up 'Bubble' in an Economic Textbook and It's Not There. [People] are Living in a 'Pretend-and-Extend' Environment" - Shiller recently confirmed two points that alternative financial writers have been making for years: (1) Mainstream economists don't pay any attention to bubbles - even though bubbles always burst, causing recessions or depressionsand ( 2) People are in an extend-and-pretend environment, trying to paper over the severity of economic problems and kick the can down the road...
Possible Macroeconomic Consequences of Large Future Federal Government Deficits -
Abstract: This paper uses a macroeconometric model of the U.S. economy to analyze possible macroeconomic consequences of large future federal government deficits. The analysis has the advantage of accounting for the endogeneity of the deficit. In the baseline run, which assumes no large tax increases or spending cuts and no bad dollar and stock market shocks, the debt/GDP ratio rises substantially through 2020. The estimates from this run are in line with other estimates. Various experiments off the baseline run are then done. If the dollar depreciates, inflation increases but the effect on the debt/GDP ratio is modest. It does not appear that the United States can inflate its way out of its deficit problem. If in addition U.S. stock prices fall, this makes matters worse by lowering output because of a negative wealth effect. Large personal tax increases or transfer payment decreases solve the deficit problem, but at a cost of considerable lost output over a decade.
Macroeconomics & markets - US government debt - In the minute or so that it will take to read this note the US Treasury will have paid out $1m in gross interest on the federal debt. That sounds like a lot, but it is less of a burden than in past years, at least in relative terms. Net interest as a percentage of federal spending was 9 per cent in fiscal 2008, falling to below 6 per cent in 2009, about the same level as in 1968
US Treasury sets record $123 bln bond auction week - Reuters - The U.S. government announced a record volume of $123 billion worth of bond auctions next week, which came at the high end of some analysts' expectations but caused no major market ructions.The figure beats the previous record of $115 set in July and includes two-, five- and seven-year notes in tandem with an offering of previously issued five-year Treasury Inflation Protected Securities. Investors have kept a close eye on U.S. debt auctions this year in light of the government's burgeoning budget deficit. During a brief period in May some questioned the longevity of the United States' prized AAA rating.
Reducing deficit key to U.S. rating: Moody's (Reuters) - The United States, which posted a record deficit in the last fiscal year, may lose its Aaa-rating if it does not reduce the gap to manageable levels in the next 3-4 years, Moody's Investors Service said on Thursday.
The U.S. government posted a deficit of $1.417 trillion in the year ended September 30 as the deep recession and a series of bank rescues cut a gaping hole in its public finances. The White House has forecast deficits of more than $1 trillion through fiscal 2011
Congress To Itself: Please Stop Me Before I Increase Spending Or Cut Taxes Again - When Congress can't or won't do something about the budget, it typically suggests that something be done about the budget process. That's what's happening here. The letter to Reid says "Congress needs to adopt a special process..." because the senators "do not believe that action...will occur under regular order..." They specifically ask that new process be included in the debt ceiling increase that will be needed by the end of this year.
It's not going to happen or, if it does, it's not going to make any difference...
America's public debt: Tomorrow's burden - The Economist - AS AMERICA’S financial crisis recedes, the rumblings of its next crisis can be heard. The federal government has wrapped its guarantees around banks and the housing market. It has borrowed hundreds of billions of dollars to stimulate the enfeebled economy, while tax revenues crumble. And in the years to come the cost of retirees’ benefits will explode. “There is every reason to worry that the banking crisis has simply morphed into a long-term government-debt crisis...
Has the Government Sowed the Seeds for Green Shoots or Another Depression? - Note: To those who think that keeping quiet about bad news and gloomy forecasts will help the economy recover, or that talking about them is unpatriotic, please read this.
You probably heard that Nicu Harajchi - CEO of N1 Asset Management - told CNBC on Friday that we're heading into a full-blown depression. You may have heard that Paul Krugman said a couple of days ago that the collapse in global trade is worse than during the Great Depression.
But surely the worst is over, and the government has done what is necessary to help our economy recover. Right?
Rutgers University economists say it could take seven years to recover from recession - The worst of the recession may be over, but it could still take the U.S. more than seven years to reach full recovery following what has become the country’s worst employment setback since the Great Depression, according to a Rutgers University report released today.The recession’s staggering job losses, coupled with an ever-growing labor force, means it could be late 2017 before employment returns to the pre-recession levels of 2007, according to the study
Countdown to the next crisis is already under way - Now, I agree there is no prospect of a significant rise in inflation over the next 12 months, but the chances rise significantly after 2010. Once perceptions of rising inflation return, central banks might be forced to switch towards a much more aggressive monetary policy relatively quickly – much quicker than during the previous cycle. A short inflationary boom could be followed by another recession, another banking crisis, and perhaps deflation. We should not see inflation and deflation as opposite scenarios, but as sequential ones. We could be in for a period of extreme price instability, in both directions, as central banks lose control.
U.S. Economy Will Suffer Simultaneous Inflation and Deflation - For the next several years, Americans' net worth will decrease and their food and energy costs will increase as the economy suffers the effects of both inflation and deflation. Keynesianism and Monetarism can not explain this paradox because the money supply can’t simultaneously increase and decrease. However, John Exter’s Inverted Pyramid resolves this economic contradiction.
America the Banana Republic - The ongoing financial meltdown is just the latest example of a disturbing trend that threatens to put the Land of the Free and Home of the Brave on a par with Zimbabwe, Venezuela, and Equatorial Guinea ...a collusion between the overweening state and certain favored monopolistic concerns, whereby the profits can be privatized and the debts conveniently socialized, but another term for the same system would be “banana republic.”
Financial Armageddon: Declining Empire, Banana Republic, or Failed State? - Not long ago, it would have been seen as something of a joke or the product of a warped mind to ponder whether the United States is a declining empire, a banana republic, a failed state -- or all three.But these days, there are plenty of serious and intelligent commentators, including historians, ex-public servants, and journalists, who are not raving lunatics, but who are nonetheless disturbed by what they see taking place in this country.
America's soul is lost, collapse inevitable: Bogle, Faber, Moore - MarketWatch - 20 reasons America has lost its soul and collapse is inevitable - Jack Bogle published "The Battle for the Soul of Capitalism" four years ago. The battle's over. The sequel should be titled: "Capitalism Died a Lost Soul." Worse, we've lost "America's Soul." And, worldwide, the consequences will be catastrophic. That's why Marc Faber warns in his Doom, Boom & Gloom Report: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today."
Greater Depression for U.S. Rebuts 'Recovery' Talk - It has gone from irritating to nauseating listening to media market-pumpers talking about an “U.S. economic recovery” which has supposedly already begun. In the real world, however, all that has occurred is that an U.S. economic collapse, which was in a near-vertical drop, has eased to a more moderate rate of decline. The “double-dip” talked about by some semi-realistic analysts is in fact nothing more than the ongoing collapse regaining downward momentum. There is no “debate” here. It is a matter of simple arithmetic that the U.S. economy cannot recover...
The Greatest Depression Is Coming - We continue to lose jobs month over month. Credit is contracting. Foreclosures continue to mount. Debt defaults keep rising. Small businesses are getting hit hard. The system is moving into extreme peaks and troughs at a much more rapid pace now than anytime in the last 50 or more years. The next stage... will be “like nothing we've ever seen in our lifetime.” Good times will not be returning any time soon.
The Underlying Size of US Economy - Starting with the basics, the US economy for 2009 will produce about $14 trillion of GDP, the federal deficit is expected to be something like 12% of GDP for 2009 overall, and according to the Congressional Budget Office the deficit for the fiscal year (just ended)was $1.4 trillion. In order to isolate the effects of overseas borrowing, it is necessary to find out how much debt has been sold overseas The real concern is the question of what would happen if the overseas lenders were to stop lending. In this event, the US economy would quickly revert to its real size, and that would be significantly smaller than today. The results of any halt in credit provision for the US are extremely worrying, as support for a large percentage of the economy would disappear. The result would be that unemployment would explode upwards, government could not operate at current levels, and the shock would likely precipitate a broader collapse in the economy.
Grand Unified Theory of the American Financial Crisis - The US financial crisis is always and everywhere caused by the triumph of short term greed in support of Ponzi schemes and frauds, perpetrated by a handful of Wall Street bankers and their accomplices in the political process and the media, facilitated by the wholesale weakening of the American mind and character and European and Asian greed and gullibility. Everything else is commentary.
King calls for break-up of banks - FT - Mervyn King, governor of the Bank of England, called on Tuesday night for banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to think tougher regulation would prevent future financial crises. Mr King’s call for a break-up of banks to prevent them becoming “too important to fail” puts him sharply at odds with the direction of domestic and international banking reform.
The break up the banks delusion - Simon Johnson considers a superb speech last night by Mervyn King, Governor of the Bank of England, and a New York Times article today on former Federal Reserve chairman Paul Volcker, and tells us, in a post titled The Consensus on Big Banks Begins to Move, that their "words mark the beginning of a new stage of real reform."
By which he means: The chances are growing that governments will accept that "too big to fail" is a bankrupt strategy, and therefore the time to break up the big banks has arrived.
I wish I could be so sanguine...
Bernanke: Smaller Banks Not Necessarily the Answer for ‘Too Big to Fail’ Dilemma - WSJ - Mr. Bernanke suggested alternatives such as higher capital requirements against bank trading books, higher capital for “systemically important” institutions and a congressionally created process for coping with failing big financial firms in ways other than bankruptcy or bail out.He also expressed interest in what have been dubbed “living wills” — plans that big banks would have to maintain for winding down their operations.
Big Banks Fail - In the Wall Street Journal on Tuesday morning, Charles Calomiris, a leading banking expert, published an op ed entitled “In the World of Banks, Bigger can be Better.” And the article goes on to make the detailed case for keeping intact our largest banks – in contrast to the recently expressed views of two former Federal Reserve chairs (Paul Volcker, Alan Greenspan) and – late Tuesday – the current governor of the Bank of England (Mervyn King), who are calling for these banks to be broken up in some fashion.
Are Bigger Banks Better? - Atlantic Business - Charles Calomiris thinks so. He's a professor of finance at Columbia Business School who penned an op-ed in today's Wall Street Journal arguing that efforts to shrink banks are misguided. I happen to be quite apprehensive about the notion of blindly breaking up banks. So I agree with Calomiris to a point, but I'm not entirely convinced by his arguments...
Why curbing finance is hard to do - FT - How might we bring the performance of finance close to that of other sophisticated businesses? This is, in its essence, the question Mervyn King, governor of the Bank of England, was addressing in his controversial speech this week. His answer: break up the banks into “utilities” and “casinos” The former would be safe. The latter would live and die in the market. Both Alistair Darling, the UK’s chancellor of the exchequer, and Gordon Brown, the prime minister, promptly slapped Mr King down, arguing that this division does not work..
Volcker’s A Guy Who Knows A Thing Or Two - It doesn’t take much for bloggers to start bashing something or someone. But pay close attention when they start dishing out praise, because they’re generally on to something good. Focus has turned to former Fed Chairman Paul Volcker’s recent comments (from NYT) regarding big banks. He believes too-big-to-fail institutions should be broken up and wants the biggest banks to be prohibited from owning and trading risky securities. His views, which are gaining praise among bloggers, certainly contrast opinions of other members on President Obama’s economic team, who favor letting big banks survive, but extensively regulating them...
Volcker Has Obama’s Ear, but Not on Overhaul of Banks - NYTimes - The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children. He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.The US Needs to Get Less Competitive - It should be painfully obvious by now, that despite his recent crocodile tears and phony fist waving, that Larry Summers and crew Obama are being bossed around by the banks, for whatever reasons that charity might prevent one from saying. It is time for a real change, in most cases bringing back what was taken apart over the past twenty years.If you are a bank, and you take deposits and obtain access to the Fed window and FDIC, you should do nothing other than traditional commercial on balance sheet banking. Period. If you are an investment bank, you are a no better than a hedge fund.
How Dirty Are Hedge Funds? - Forbes - How dirty is the hedge fund business? Filthy would be a fair assessment. A 2004 cover story, titled "The Sleaziest Show On Earth," profiled the industry's many transgressions--from bogus performance figures and nonexistent audits to outrageous fees and outright theft.Such views were given further credence last week by an academic paper concluding that 21% of hedge funds lie about past legal and regulatory problems and 28% propagate incorrect or unverifiable information about other topics.What Should be Done About Bank Size? - Although there is a great deal of debate over whether plans to reform the United States' financial regulation system go far enough to curb institutions that become "too big to fail," it is not a good idea to try and limit the size of US banks or other financial institutions, which are in many cases smaller than foreign owned banks. Size limits would encourage the industry to move offshore and would probably encourage institutions to make their portfolios more risky - if they have to cut out some of their assets they will cut out the ones making lower returns.
Why is the Chamber of Commerce Defending Big Banks? - On Warren Olney’s radio show To The Point yesterday, I had a chance to talk with US Chamber of Commerce management directly regarding the issue posed here last week: Why would an organization representing 3 million small businesses come out in support of our largest banks? My question was picked up and focused by the host...
Geithner says core TARP programs ending - Reuters - The Obama administration will shutter programs at the heart of a $700 billion financial bailout but remains focused on supporting a fledgling economic recovery, Treasury Secretary Timothy Geithner said on Tuesday."We are now at the point where we can begin to wind down the programs that really defined TARP in its initial stages," Geithner told Reuters in an interview.
Record-High Deficit May Dash Big Plans - The federal budget deficit soared to a record $1.4 trillion in the fiscal year that ended in September, a chasm of red ink unequaled in the postwar era that threatens to complicate the most ambitious goals of the Obama administration, including plans for fresh spending to create jobs and spur economic recovery.The White House Readies a Stealth Stimulus - White House senior adviser Valerie Jarrett was adamant on Sunday, when asked if President Obama was considering a so-called second stimulus to deal with the rising unemployment rate. "I think it's too soon. It's premature to say...But a moment later she said the White House was already looking at tax credits and other measures to further stimulate the economy. "There are a range of suggestions that are being considered right now by his economic team, and we'll see what we come forward with," she added.
"Tarp cop" threatens Treasury with subpoena - FT reports Neil Barofsky, the special inspector general or "Tarp cop" for the $700B government bail-out fund, has taken an increasingly tough line on the administration’s handling of the troubled asset relief program even as the Treasury pledges transparency. Barofsky stepped up his criticism of the US Treasury on Wednesday, threatening to subpoena documents from the administration, the Financial Times reports. Barofsky says the Treasury is refusing to provide access to the records of the affiliates that are “critical” to identifying conflicts of interest. The special inspector general’s office said it would not hesitate to obtain these records using all of its tools, including its subpoena authority.
Neil Barofsky Says It's Possible Govt. Could Spend $23.7 Trillion to Fix Financial System - ABC News - The total potential federal government support could reach up to $23.7 trillion," says Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, in a report released today on the government's efforts to fix the financial system. Yes, $23.7 trillion. "The potential financial commitment the American taxpayers could be responsible for is of a size and scope that isn't even imaginable,"
Compromise Bill Could Block States on Bank Rules - NYTimes - Reaching a compromise on an issue that threatened to derail financial regulatory legislation, the House Financial Services Committee voted on Wednesday to give the federal government the power to block the states from regulating large national banks in some circumstances. A group of Democrats with close ties to the banking industry had sought a complete federal pre-emption, which would have the effect of sharply limiting any state regulation of banks.
How to manage the gigantic financial cuckoo in our nest - This recovery has been no accident. Yet few wish to take credit for this success. Policymakers hardly want to declare that, thanks to their efforts, the surviving bankers will be buying palaces, while humbler folk worry about their jobs and homes, and face decades of fiscal austerity. Watching financiers – beneficiaries of the most generous public rescue in history – returning to their old ways is the cause not so much of envy as sullen resentment. Why, many wonder, should the rigours of the market apply most brutally to those innocent of causing the catastrophe?
At rescued banks, perks keep rolling -- Even as the nation's biggest financial firms were struggling and the federal government was spending hundreds of billions of dollars to save many of them, the companies as a group were boosting the perks and benefits they pay their chief executives. The firms, accounting for more $350 billion in federal bailout funds, increased these perks and benefits 4 percent on average last year, according to an analysis of corporate disclosures filed in recent months.
Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops - (Bloomberg) -- A 40 percent jump in Wall Street bonuses this year may bring relief to New York City and Albany as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next. New York investment houses will dole out $26 billion in bonus checks by the end of March, said Alan Johnson, president of compensation consultant Johnson Associates Inc. The money will probably boost sales of multimillion-dollar co-op apartments and generate extra income-tax revenue for state and city governments.
Alan Blinder Gives Obama an “A-” for Making the Bankers Richer Than Ever - In his monthly column, Princeton economist Alan Blinder gave President Obama an "A-" for financial rescue plan, commending him for "wisely resisted the siren songs coming from both the left (“nationalize the banks”)." Of course, Professor Blinder does not have a clue about what would have happened if we tried some path of nationalization. (This guy couldn't even see an $8 trillion housing bubble.) We do know what has happened in the absence of nationalization. The banks share of corporate profits now exceeds even the peaks reached in the bubble years...
Buffett Says Wall Street Pay Must Have ‘Downside’ (Bloomberg) -- Billionaire Warren Buffett, who collects a $100,000-a-year salary for running Berkshire Hathaway Inc., said Wall Street pay needs a “downside” when profits deteriorate because of reckless bets. “You have to put in something where there is downside to people who really mess up large institutions,” Buffett said in an interview. “Too many people have walked away from the troubles they have created for society, not just for their own institution, and they have walked away rich.”
Safety Nets for the Rich - NYTimes - We’ve spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government — while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they’ve wanted. And we still don’t seem to have learned the proper lessons. We’ve allowed so many people to fall into the terrible abyss of unemployment that no one has a clue about how to put them back to work.
Wall Street Steps Up Political Donations, Lobbying - Some of the biggest Wall Street firms are back in the political-spending game after hunkering down while they were getting government bailout funds. Goldman Sachs Group Inc., Bank of America Corp., Morgan Stanley and other large financial-services firms stepped up their political donations in September to members of Congress, for many the first time this year they have joined the fray.
Dylan Ratigan on Goldman Sachs - How did Goldman, Sachs & Co. -- saved a year ago by the US taxpayer -- magically make $3 billion in 3 months a year later? This as the US dollar collapses, unemployment soars and foreclosures hit a record? Here is the Goldman, Sachs & Co. revenue break down for the past 3 months: Financial Advisory-M/A: 325 million. Equity Underwriting: 363 million. Debt Underwriting: 211 million. Trading-Principal Investments: 10 billion.
Goldman Can Spare You a Dime - NYTimes - there is one significant way that our 21st-century vampire squid differs from Rockefeller’s 20th-century octopus. Americans knew what oil was, and they understood how Standard Oil’s manipulations directly affected their pocketbooks. Even now many Americans don’t know what Goldman’s products are or how it makes its money. The less we know, the easier it is for reckless gambling to return to capitalism’s casino, and for Washington to look the other way as a new financial bubble inflates.
Goldman Sachs Is Too Big to Tell It Straight - Bloomberg - Let’s begin with the obvious: Of course Goldman is too big to fail, and of course the government would intervene to prevent Goldman from collapsing if it ever came to that. It’s the very embodiment of what’s known in government parlance as a “systemically significant” financial institution. It was against this backdrop that Goldman’s chief financial officer, David Viniar, got on a conference call with reporters last week and said Goldman enjoys no government guarantee. Not even an implicit one, he said.
Dark Pool Trade Limit Said to Be Cut 95% in SEC Plan (Bloomberg) - The U.S. Securities and Exchange Commission will propose toughening its limits on the amount of anonymous trading carried out on stock platforms called dark pools, according to two people familiar with the deliberations. The commission will propose lowering the amount of daily volume in a company’s shares that can be executed on the networks before prices must be made public to 0.25 percent from 5 percent tomorrow...
Computational Complexity and Information Asymmetry in Financial Products - Traditional economics argues that financial derivatives, like CDOs and CDSs, ameliorate the negative costs imposed by asymmetric information. Using methods from theoretical computer science this paper shows that derivatives can actually amplify the costs of asymmetric information instead of reducing them.
The Problem is Not TBTF, but TDTR - Yves Smith - He submitted testimony to a House Financial Services Committee hearing on OTC derivatives. While his remarks are worth reading in their entirety, one bit that caught my attention was his discussion of TDTR, or “Too Difficult to Resolve.” I expressed concerns about dealing with the difficulties of Too Big Too Fail institutions yesterday, saying (in effect) that many of the appealing-sounding ideas (including some I had favored, like putting credit default swaps on an exchange) were not workable or would not solve the problem (for instance, as Satyajit Das explained at some length, the amount of initial margin it would take to deal with “jump to default” risk would make credit default swaps uneconomical.
Goldman Sachs’s Griffiths Says Inequality Helps All (Bloomberg) -- A Goldman Sachs International adviser defended compensation in the finance industry as his company plans a near-record year for pay, saying the spending will help boost the economy. “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” said Brian Griffiths, who once was a special adviser to former British Prime Minister Margaret Thatcher. The panel’s discussion topic was, “What is the place of morality in the marketplace?”
Dear Middle Class: Thanks To You, Hamptons Sales Surge 32% To Five Year High On Upcoming Record Bonuses - CNBC has been trying hard to make everyone forget last year ever happened, and that the global financial system is one big ponzi scheme. And by the look of luxury home sales in the Hamptons they have finally succeeded. Bloomberg reports that "home sales in the Hamptons, the Long Island beach retreats favored by Hollywood celebrities and Wall Street financiers, surged 32 percent in the third quarter as deal seekers landed discounted properties."
If you don't agree that wealth is both deserved and earned...you must be insane or delusional (according to Paul Sullivan at the New York Times). Oh my. This guy is an absolute idiot. He definitely drank the kook-aid. Torrential greed without any hint of moral constraint or responsibility is not a future worth believing in, fighting for, or participating in.
Worst New York Times Article Ever - A couple of weeks ago, The New York Times published Paul Sullivan's pity-the-plutocrats article "Too Rich to Worry? Not in This Downturn" ("It turns out the other half -- or at least the tiny slice who live at the top of the wealth pyramid -- are not sleeping any better than the rest of America"). It was, for obvious reasons, widely criticized and mocked (by me, among others). Sullivan received many angry letters and e-mails. He can't understand why. So he's written a repugnant little follow-up titled "All This Anger Against the Rich May Be Unhealthy." BEATING up on the wealthy seems to be the order of day. I suspected that. Actually, handing certain wealthy people huge chunks of money with essentially no strings attached seems to be the order of the day. If that's a beating, then kick my ass, please. But never mind. Let's move on.
Soros says taxpayers right to resent bank bonuses (Reuters) - Billionaire investor George Soros said U.S. taxpayers were entitled to resent bankers' bonuses because their profits were funded by government bailouts, according to an interview published in the Financial Times."Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government, so I don't think that those monies should be used to pay bonuses," the paper quoted him as saying in its Saturday edition. "There's a resentment which I think is justified."
SEIU - The American Bankers Association (ABA) Exposed: As Congress prepares to create new safeguards for our financial system, the American Bankers Association (ABA) is leading the campaign to oppose reforms that would hold banks accountable and protect consumers. Since helping to create the economic crisis and taking trillions of dollars in bailouts and backstops from taxpayers, big banks have been on a lobbying spree--using taxpayer money to fight sensible policies that would protect Americans from future economic crises.
American banks: The pyramid principle - The Economist - as a policymaker or a taxpayer, it is hard to view the banking system with anything other than mild nausea. Most of the queasiness stems from the continued accumulation of bumper compensation packages. The Treasury’s pay tsar is thought to be considering imposing deep pay cuts on the 25 most senior executives at firms it still owns shares in, including Citigroup and BofA. But since the bigwigs probably account for under 1% of the total compensation at those banks this would be a largely symbolic move.
Fed sets pay limits for banks - FT - The Federal Reserve on Thursday unveiled sweeping draft rules for bankers’ pay but, unlike the proposal adopted by many European nations, did not support a standard benchmark for the proportion of bonuses to be deferred - raising fears over an uneven playing field between US and European banks. The Fed plan would force the top 28 US financial institutions to prove that their pay schemes do not encourage excessive risk-taking
Fed to widen stress tests for banks: Bernanke - The Federal Reserve will expand its so-called stress tests of the banking system to ensure they have enough capital during difficult periods, Fed chairman Ben Bernanke said Friday.Bernanke highlighted the positive impact of stress tests conducted earlier this year on major banks, a move aimed at ensuring their financial health and building confidence."Building on the success of this initiative, we will conduct more frequent, broader, and more comprehensive horizontal examinations, evaluating both the overall risk profiles of institutions as well as specific risks and risk-management issues"
Financial Regulation and Supervision after the Crisis: The Role of the Federal Reserve - Bernanke - transcript of speech announcing the regulations at the Boston Fed
Behind the Fed's move to regulate Wall St pay (Reuters) - Before the financial crisis erupted a little over a year ago, executive pay was hardly on the Fed's front-burner.Former U.S. Federal reserve Chairman Alan Greenspan, who ran the institution from 1987 to 2006 and was regarded during much of that period as a financial deity, didn't consider it the central bank's business.Neither did his successor, Ben Bernanke. What accounts for this newfound interest? PAY POLITICS...
Pay czar seen pushing for big cuts - The Obama administration will soon order the nation's biggest bailed-out companies to drastically cut the pay packages of 175 top executives, a senior administration official confirmed to CNN Wednesday. Kenneth Feinberg, who was named the White House's pay czar in June, will demand that each of the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.
Pay Czar Doubts Cuts Will Make Bankers Leave - NYTimes - Pay experts said the plan, which emerged Wednesday, could lead to the departure of the very executives needed to return the firms to health, a prerequisite to repaying taxpayer support. Bankers regaled Mr. Feinberg with similar concerns in the months it took to prepare his order, but he said he thought they would be left with enough pay to persuade them to remain in their jobs.
CNBC: Paymaster Must Make Pay Comparable ‘Across The Industry’ Or Bankers Will Go Work At The DMV - Today, Kenneth Feinberg, the administration’s special master for compensation, plans to announce that the seven companies under his office’s watch must cut pay packages for their top 25 executives by about 50 percent. An executive at one of the seven companies told the Wall Street Journal that “the terms came as a shock,” and that the restrictions “were clearly much worse than what had been anticipated.” And of course, CNBC, which never hesitates to defend bailed-out bankers and their sky-high bonuses, went to bat for the banks once again, arguing that Feinberg should make pay comparable “across the industry,” lest some bankers take such exception to their pay cuts that they go work at the DMV. Watch it...
Who cares if Wall Street 'talent' leaves? - Fortune - If lower pay lures some of Wall Street's finest away, so be it. It's not as if the best and brightest were doing a good job to begin with.
The Fallout From Big Pay Cuts - NYTimes Forum - Five analysts answer the questions: Will this order have consequences beyond its effect on the seven companies and executives involved? Is this largely a symbolic move, and does symbolism matter?
Annals of regulatory emasculation: ratings agency edition. - Reuters is reporting today that Congress has “watered down” the bill regulating the ratings agencies. What’s unclear is whether there’s anything left at all. In terms of regulatory reform, what is clear which way the wind is blowing, it’s clear that we’ve wasted our crisis, and it’s clear that lawmakers have lost any and all fire in the belly when it comes to trying to ensure we never have another one like it. Meanwhile, the ratings agencies are giggling, and the industry is so profitable that new entrants are trying to muscle in. Nice work if you can get it, I suppose.
The Banks Are Not Alright - NYTimes - The lucky few garnered most of the headlines, as many reacted with fury to the spectacle of Goldman Sachs making record profits and paying huge bonuses even as the rest of America, the victim of a slump made on Wall Street, continues to bleed jobs. But it’s not a simple case of flourishing banks versus ailing workers: banks that are actually in the business of lending, as opposed to trading, are still in trouble.
Challenging the Banks - Where are the activists blocking foreclosures or rallying at unemployment offices for extended benefits. Where are the concerned folks assembled at bank key bank branches during the noon hour? Where is the push back against the health insurers? Why are you asleep? The Banksters are terrified of what they call “economic populism.” I prefer to call it economic democracy. Nothing will change without making them uncomfortable. If you don’t stand up, you might as well lay down.
On the Power of Peaceful Protests (Please Join One Against Banks in Chicago Oct. 25-27) - Yves Smith - The elites hate to acknowledge it, but when large numbers of ordinary people are moved to action, it changes the narrow political world where the elites call the shots. Inside accounts reveal the extent to which Johnson and Nixon’s conduct of the Vietnam War was constrained by the huge anti-war movement. It was the civil rights movement, not compelling arguments, that convinced members of Congress to end legal racial discrimination. More recently, the townhall meetings, dominated by people opposed to health care reform, have been a serious roadblock for those pushing reform….
Showdown in Chicago: Creating a "Which Side Are You On" Moment - The same financial institutions that drove a record foreclosure crisis, sent our economy into a deep recession, and needed billions upon billions in taxpayer bailouts are spending money like never before to defeat financial reform that would prevent a future meltdown.The big banks and their convention are the focus of this Showdown in Chicago -- but a message of "Which Side Are You On?" should be aimed directly at members of Congress and the administration.
Good News on Wall Street Means.... What Exactly? - It’s literally amazing to me that our press corps hasn’t yet managed to draw a distinction between good news on Wall Street for companies like Goldman, and good news in reality. I watched carefully the reporting of the Dow breaking 10,000 the other day and not anywhere did I see a major news organization include a paragraph of the “On the other hand, so fucking what?” sort, one that might point out that unemployment is still at a staggering high, foreclosures are racing along at a terrifying clip, and real people are struggling more than ever.
Hooverville 2009: Where's the Anger, America? -- The signs that we are slowly sinking into an economic depression are becoming rapidly evident. Lets get real for a second: Most of the middle class in this country live paycheck to paycheck. Perhaps some have a few thousand squirreled away in the bank. This might buy them a month or so...nothing more.The video below is a sobering reminder of what happens to many of these people when they lose their jobs. How many millions will have to go on a permanent camping trip before Washington puts an end to the fraud on Wall St?
Uncle Sam's gift to the prudent saver: Less money - This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers? Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being cheated by the government's bailout of the imprudent. Here's the deal. The government is spending trillions to keep interest rates down to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers' incomes. "It's a direct wealth transfer from savers and retirees to overly indebted borrowers,"
Pensions: the Next Casualty of Wall Street - Nobody wants to admit it, but the next casualty of the Wall Street meltdown will probably be your golden years. For years corporations have been trying to choke the life out of traditional pensions, working hard to get out from under the risk—and the cost—of providing for their retirees. Between last year’s credit crunch and changes to federal pension laws, they may get their wish.
Is The American Dream A Myth? - One tenet that separates the United States from other countries is our belief in upward mobility. A study of attitudes in 27 countries found that Americans, more than people elsewhere, tend to believe that intelligence, skill, and effort will be rewarded with success. This faith is vibrant even among groups to which opportunity has often been denied: African-Americans and Hispanics were more likely than whites to believe that children of all races had adequate chances to succeed in America. But as Brookings Institution scholars Ron Haskins and Isabel Sawhill demonstrate in a compelling new book, America's record doesn't entirely justify this optimism.
Repeal The Minimum Wage - Forbes ...these laws actually eliminate opportunities for low-skill workers and waste resources. They also couldn't have come at a worse time: The last thing people on the margins of the labor market need are laws that will make them more difficult to employ. With unemployment hovering near 10%, perhaps now is a good time to consider repealing the minimum wage.
One in six Americans in poverty, new study finds - The level of poverty in America is even worse than first believed. A revised formula for calculating medical costs and geographic variations show that approximately 47.4 million Americans last year lived in poverty, 7 million more than the government's official figure. The disparity occurs because of differing formulas the Census Bureau and the National Academy of Science use for calculating the poverty rate. The NAS formula shows the poverty rate to be at 15.8 percent, or nearly 1 in 6 Americans, according to calculations released this week. That's higher than the 13.2 percent, or 39.8 million, figure made available recently under the original government formula. That measure, created in 1955, does not factor in rising medical care, transportation, child care or geographical variations in living costs.
Q&A: What the ‘Middle-Class’ Recession Means for Bankruptcies - WSJ- Those with higher education levels definitely were impacted. Those at higher income levels were impacted. Those who were self-employed seemed to have been impacted. So we started to see, you know, draw the picture that this is a middle-class recession and those in the middle class were most affected and in 2008, definitely…Those with higher education levels definitely were impacted. Those at higher income levels were impacted. Those who were self-employed seemed to have been impacted. So we started to see, you know, draw the picture that this is a middle-class recession and those in the middle class were most affected and in 2008, definitely…
Stumbo: School funds could reduce state deficit - Kentucky lawmakers might consider dipping into local school districts' contingency funds to help balance the 2010-12 state budget, according to House Speaker Greg Stumbo. Stumbo, a Prestonsburg Democrat, told The Courier-Journal in an interview that he has discussed the issue with Gov. Steve Beshear, who did not indicate his position. "We do have a bunch of money that the schools have saved in their budgets, their 'Rainy Day' funds," Stumbo said. "And there's a pretty good sum of money there which will help us get through."
CSU officials ponder privatization to boost revenue - As state funding cuts loom in 2011, leaders of the Colorado State University system have started considering an option unheard of in all but a handful of states: converting to a part-public, part-private structure in which students pay more for costlier degrees. If implemented, the change could mean CSU's $4,800 annual in-state tuition jumps to about $13,500 for liberal-arts programs and as much as $20,000 for engineering degrees at the Fort Collins campus.
The Skyrocketing Costs of Attending College - - NYTimes - The report found that the the average published (sticker price) annual cost of tuition and fees at four-year public colleges rose 6.5 percent from last year, to $7,020. Tuition rose across the board at other education institutions, too. To put this in perspective, we’ve (surprise!) whipped up some charts using these new numbers.
Interest on loans rankles college grads - Like many recent college grads, Steven Lee finds himself unemployed in one of the roughest job markets in decades and saddled with a big pile of debt. He owes about $84,000 in student loans for undergrad and grad-school costs. But what Lee's angry about isn't the slings and arrows of an outrageous economy, and it isn't the idea that he owes a ton of money for all the learning he's received. It's the interest rates on his government-backed student loans, which range from 6.8 percent to 8.5 percent.Education Last Century, and Economic Growth Today - NYTimes - Two weeks ago, I wondered why Argentina’s economy had fared so poorly during the 20th century. Argentina’s current income is indeed quite low relative to its income one century ago, but the country’s low income today is less surprising given its education level in 1900. I ended my post with this graph showing the strong correlation between education in 1900 and income in 2000. Argentina in 2000 was doing just about as well as one might expect based on its education level in 1900
Getting ahead of ourselves - - LAST MONTH, after Barack Obama invoked the American Dream at Wakefield High School in Virginia, Inside Story looked at what the statistics show about social mobility in western countries. Although a family’s socioeconomic status invariably influences children’s prospects, the data revealed the influence to be large and inequitable in some countries. This data puts the United States among a group of countries that are regarded as class-bound and stifling of individual initiative...
States Losing Battle of the Budgets Amid Swelling 2010 Deficits (Bloomberg) -- Budget deficits totaling $16 billion have opened in 26 states since their fiscal years began on July 1, forcing governments that began the year in the hole to confront record funding gaps, a study finds.
“An increasing number of states are struggling to keep their 2010 budgets in balance as the mid-point of the fiscal year approaches,” the Center on Budget and Policy Priorities, a Washington, D.C.-based researcher, said today.
State Revenue Falls Most Since 1963 on Incomes, Sales (Bloomberg) -- U.S. state tax collections tumbled the most in almost half a century in the second quarter as the economic recession curbed levies on incomes and sales. The 16.6 percent plunge was the biggest since at least 1963, the Nelson A. Rockefeller Institute of Government said today. For the 12 months to June 30, the fiscal year for most states, revenue declined 8.2 percent, or $63 billion, about twice what states got from the $787 billion U.S. economic stimulus package, the institute said
Could a Land Tax Support the Operations of Government? - "Land," first of all, can apply to any natural resource. "The biggest thing is water," Gaffney says. "In an arid state, water is worth more than land, or at least as much. But it's totally exempt from taxation. It's an enormous source of revenue that's not being taxed at all. In fact, it wouldn't even have to be a tax because, legally speaking, the state [of California] owns all the water. ... So the state should simply charge a rental for the use of its water. But not only does it not charge for people taking water out — it subsidizes them by paying for the works that are necessary to store and distribute the water."
I think the relevant term is "ass-backwards."
Consumer Expenditure Survey Results on the 2008 Economic Stimulus Payments (Tax Rebates) - BLS survey - Nearly half (49 percent) of recipients reported using the rebate mostly to pay off debt. Most other recipients reported either mostly spending the rebate (30 percent), or mostly saving the rebate (18 percent). The small remainder of those asked (3 percent) did not report this information.
Women as Breadwinners - NYTimes - The Center for American Progress, a liberal research organization in Washington, today released a report on the changing role of women in the United States. The report is not entirely economic in nature — it’s a collaboration with Maria Shriver, and contributors include Oprah Winfrey. But it generally focuses on the fact that women now hold nearly half of American payroll jobs. I’ve pulled a few interesting charts from the report, for my fellow chart-oholics out there.
Tracking Cuts in Worker Salaries - NYTimes - There has been a lot of interesting response to my article in Tuesday’s paper about income cuts. No one doubts that a number of working people are earning less today than they did a year or two ago while doing substantially the same job. The question is the extent of the phenomenon, which has become painfully noticeable in this recession. The Bureau of Labor Statistics does not count the workers who have taken a pay cut, who have had their hours reduced or who have been assigned to a lower-paying job
Massive Unemployment: Mass Layoffs - September - Today, the Bureau of Labor Statistics (BLS) released thier latest installment of the Mass Layoff Report showing continued weakness in nation’s job market with 2561 mass layoff events resulting in 248,006 initial unemployment claimants on a seasonally adjusted basis.On a seasonally un-adjusted basis, the mass layoff events totaled 1371 with 123,177 initial claimants.The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.
Obama Adviser Expects Jobless Rate to Top 10% - NYTimes - One of President Obama’s top economic advisers warned on Thursday that the nation’s unemployment was likely to climb above 10 percent by the middle of next year and that job growth would remain anemic through the end of 2010.“Unemployment is likely to remain at its severely elevated level” through the end of next year, predicted Christina Romer, chairwoman of the White House Council of Economic Advisers, at a hearing of the Joint Economic Committee of Congress.
Volcker: Unemployment Will Remain High For Years - Former Federal Reserve Chairman Paul Volcker says any economic recovery will be too slow to make a quick dent in high unemployment rates. At a roundtable meeting of corporate and government leaders in Kentucky on Thursday, Volcker said the hard-hit financial sector faces "a considerable slog" in recovering from the worst economic downturn since the Great Depression. Volcker said that the factors that caused the downturn took years to form and that the recovery will take years as well.
The Mess That Greenspan Made: Scary labor market chart of the day - Via this item at David Altig's MacroBlog comes one of the scarier labor market charts to have crossed my computer screen in recent months. Current record highs for "permanent" job loss are right up there with other similar long-term unemployment indicators bringing into question just what kind of economic recovery might be possible from here.
The free market is not up to the job of creating work - Today there is no evidence of job creation. Quite the opposite: unemployment is rising and millions of jobs have disappeared. In place of thrift we have become a nation of debtors, staggering beneath mortgages that exceed the value of our homes, and credit lines that exceed our ability to repay. But the “Great Recession” has also changed the nature of unemployment, making it harder for those out of work to find a job. Only by investing in infrastructure and innovation can we mend the system.
What to do about job creation - What can government do to crank up America's creaky job machine? We'll be arguing ferociously about that in coming months, and the answer, frankly, isn't clear. Die-hard Keynesians insist that only more government spending and tax cuts will accelerate job growth. But many other economists fear that exploding federal debt -- incurred partly to pay for more spending and tax cuts -- could trigger a new crisis that would destroy jobs.
The Time Has Come for Direct Job Creation - what I am advocating is something both broader and permanent: a universal jobs program available through the thick and thin of the business cycle. The federal government would ensure a job offer to anyone ready and willing to work, at the established program compensation level, including wages and benefits package. To make matters simple, the program wage could be set at the current minimum wage level, and then adjusted periodically as the minimum wage is raised. The usual benefits would be provided, including vacation and sick leave, and contributions to Social Security.
7,000 unemployed Americans lose their lifeline every day (CNN) Another day, another 7,000 people run out of unemployment benefits. One month after the House passed a bill extending unemployment benefits, the issue is still being debated in the Senate...1.3 million people set to lose their benefits before year's end if Congress doesn't act, according to the National Employment Law Project, an advocacy group. In October alone, more than 200,000 people will fall off the rolls.
GOP Delays Unemployment Extensions - While new unemployment claims rise again and Americans are losing their homes because they can’t find work – work that doesn’t exist, Republicans obstruct the passage of extended unemployment benefits by adding “poison pill” amendments aimed at ACORN and at providing yet another tax cut. We won’t forget. And we won’t let you forget.
Share of Unemployed Described as Permament Job Loss - 40 year BLS chart
How Being The Slightest Bit Overqualified Can Cost You A Job - To say the job market is extremely difficult is quite an understatement. As unemployment rises, the pool of qualified and overqualified applicants for any listed job rises as well. Making things more difficult, is being even slightly overqualified can cost you the job. To see how and why being overqualified can cost you, please consider $13 an Hour? 500 Sign Up, 1 Wins a Job.
Felix Salmon: Unemployment datapoint of the day - The length of time the average unemployed person has been without a job has been hitting new record highs for a while; it’s now managed to pass the 6-month mark. That’s much higher than any previous peak in this data series. And I fear that the only way it’s likely to come down any time soon is as these people become so demoralized that they take themselves out of the labor force altogether. The overwhelming majority of the working population will never be able to prepare themselves for a period of unemployment lasting more than six months...tens of millions of Americans are finding themselves in a very real personal financial crisis to which there is no visible solution.
"The Growing Case for a Jobless Recovery" - From the Oregon Economic Forum; a series of posts by David Altig of the Atlanta Fed & the Wall Street Journal repeats the unhappy news...
How the Recession is Killing Private Social Insurance - The Wall Street Journal has a terrific piece today about how the recession is accelerating the fraying the post-World War II compact between workers and employers. Key nugget: Two-thirds of big companies that cut health-care benefits don't plan to restore them to pre-recession levels, they recently told consulting firm Watson Wyatt. When the firm asked companies that have trimmed retirement benefits when they expect to restore them, fewer than half said they would do so within a year...
Playing politics with Social Security - The White House’s knee-jerk reaction to the news that inflation was so low that Social Security beneficiaries won’t get a cost-of-living increase next year was a seriously bad omen for long-term control of federal spending. The problem wasn’t the $13 billion cost of another one-time $250 payment to each retiree proposed by President Barack Obama. No, it was the utter disregard of the discipline inherent in indexing payments to changes in consumer prices.
Paul Krugman: How the other 75 percent lives - Digby catches some of the talking heads saying that we’re all dependent on the stock market for our retirement. Which leads to the question, what do you mean “we”, rich man? From here, sources of income among the second quartile of older Americans, that is, from the 50th to the 75th percentile: Even in this group — which is above median, although not at the top — Social Security accounts for more than half of income. (It’s the great bulk of income among poorer retirees). Asset income is, by comparison, trivial.
Economy to Impact Two-Thirds of Families this Holiday Season, According to National Retail Federation Survey - Retailers are about to embark on the holiday season of the serious bargain hunter. According to NRF’s 2009 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, a 3.2 percent drop from last year’s $705.01.*. Two-thirds of Americans (65.3%) say the economy will affect their holiday plans this year, with the majority of these consumers saying they’re adjusting by simply spending less (84.2%).**
Credit Card Companies Gone Wild and Other Economic Happenings - I really have no real explanation for the lengths credit card companies are going to try and go to alienate their customers. The immediate blow up of credit card rates (depending on lour start point, maybe 50-100% higher!) is a puzzling move (via Clusterstock): Why Citibank Is Going Crazy Cutting Customer Credit Cards ...That's not too helpful, and it doesn't address the thousands of people who have had their interest rates jacked up to 29.99%.
5 evil things credit card companies can (still) do - CNN - Credit card companies are socking it to consumers left and right.They're hiking interest rates to as much as 36% and doubling minimum monthly payments, frustrating customers who are already cash-strapped and credit-crunched.In an effort to curb these abusive practices, President Obama signed into law a credit card reform act in May that's rolling out in three parts over 12 months. At the same time, credit card companies have been hard at work coming up with new ways to boost profits while sidestepping the reforms.
Elizabeth Warren Speaks With Michael Moore (VIDEO): Exclusive Footage - on consumer credit
Credit Card companies up to more tricks - Citi to cardholders: Your new interest rate is 29.99%.
Is there no end to the new fees, new rates and other credit card company shenanigans before new federal rules kick in and put a stop to some of their antics? Apparently not.
Citi is getting most of the focus here, but it's not alone in altering terms of agreements with customers, which is perfectly legal now. (A Credit.com survey indicates just how widespread this is.) The news just keeps on coming'.
Editorial - Credit Card Chicanery - NYTimes - Congress blundered badly when it gave the credit card industry as long as 15 months to phase out the deceptive and predatory practices that were outlawed in a new law enacted in May.Instead of backing away from exploitation, credit card companies have intensified it. For starters, they have driven up already outrageous interest rates by an industrywide average of about 20 percent.
Bernanke Says There's No Rush On Regulating Credit Cards - Despite the fact that some banks are charging as much as 79% yearly interest rates, Federal Reserve Chairman Ben Bernanke insists that Congress must use caution when the it comes to future credit card regulation: Boston Herald: Federal Reserve Chairman Ben S. Bernanke warned Congress this week about efforts to move up the effective date of tough new rules for credit card companies, saying such action could hurt consumers as much or more than help them.
The “Financial Autopsy” CFPA Amendment - I’ve just been informed that there is a newly proposed amendment to the Consumer Financial Protection Agency, an amendment that I find promising. Here is a first draft: Today we will offer the “Financial Autopsy” amendment. The Grayson/Clay/Miller amendment is essential to attacking the root problem of consumer bankruptcy and foreclosure because it requires the CFPA to do a financial audit of products that have caused the highest rates of bankruptcy and foreclosure annually. Not later than March 31st of each calendar year, the CFPA will list these anti-consumer products, submit their conclusions on why these products “fail” consumers, the companies and employees that underwrote these products, and authorizes the CFPA to take action to restrict these products
Consumers Falling Behind In Paying Off Debt - U.S. consumers are increasingly late paying off loans on their primary home, as the highest unemployment in a quarter of a century pushes up delinquency rates on home loans and most other types of loans, according to a monthly report by the Equifax credit bureau.“Every major consumer product line, in terms of delinquency, is up again, except for (credit) cards,” said Dann Adams, president of U.S. Information Systems.
Securitized Loans Are 5X More Likely to Be Delinquent - Here is an interesting data point you may have missed: A study found that securitized mortgages were five times as likely to be delinquent as mortgages that were not resold to securitizers.Kinda makes you think that the banks that planned on keeping their mortgages had different lending standards than those that knew the paper would be off their hands soon.
Freddie Mac: Delinquency Rate Rises to 3.33 Percent - This graph shows the Freddie Mac single family delinquency rate since January 2005. Here is the Freddie Mac portfolio data.From Reuters: Freddie Mac Sept portfolio up, delinquencies jump - Delinquencies ... jumped to 3.33 percent of its book of business in September from 3.13 percent in August and 1.22 percent in September 2008. The multifamily delinquency rate accelerated slightly in September to 0.11 percent from 0.10 percent in August. A year earlier it was 0.01 percent..
More help for housing: U.S. to boost local lending agencies - (CNNMoney) -- Just as federal officials seek to wind down many bailout programs, the Obama administration announced Monday yet another initiative to prop up the housing market. Administration officials unveiled a plan to aid state and local housing finance agencies, which provide mortgages to first-time and lower-income homebuyers and enable the development or rehabilitation of rental properties. Officials declined to put a pricetag on the program...
Home-Buyer Credit Is Focus of Inquiry - WSJ - The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program.The measure, adopted in February as part of the economic-stimulus bill, gives first-time buyers an $8,000 tax credit in an effort to boost sales and stimulate the moribund housing market. The program is set to end Nov. 30, but housing-industry leaders are lobbying Congress to extend it. More than a million claims for the credit have been received so far, and housing-industry experts estimated that the credit has helped generate about 350,000 home sales that wouldn't otherwise have occurred. But some lawmakers and tax experts now say there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.
$15,000 Home Buyers Credit Costs $292,000/home - Now comes the latest attempt by politicians to intervene in the housing market: Expanding the about to expire, $8,000, first time home buyers tax credit to a $15,000 credit for everyone. This is counter productive. (Won’t that just make prices more expensive?) The lobbyists want to goose the housing market by any means possible — even if it is an expensive and unhealthy method. A recent Brookings Institute analysis (found via Barrons) demonstrates persuasively that the $8,000 subsidy actually costs $43,000 per extra house sold; worse yet, the new $15k tax credit will ultimately cost $292,000 per home.
The FHA failed a recent audit - Reckless lending practices are part of what got us into the current financial crisis, and the government's response has been... The Federal Housing Administration may be under-equipped to manage its exploding market share, according to an internal audit released last week. The report gave the FHA poor marks for its steps to screen lenders that are allowed to sell loans backed by the federal agency.
20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down - Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.
Homes: About to get much cheaper - If you thought home prices were bottoming out, you may be wrong. They're expected to head a lot lower. Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices. Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years -- though it underestimated the scope.
Foreclosures Force Ex-Homeowners to Turn to Shelters - NYTimes - Growing numbers of Americans who have lost houses to foreclosure are landing in homeless shelters, according to social service groups and a recent report by a coalition of housing advocates.
Only three years ago, foreclosure was rarely a factor in how people became homeless. But among the homeless people that social service agencies have helped over the last year, an average of 10 percent lost homes to foreclosure, according to “Foreclosure to Homelessness 2009,” a survey produced by the National Coalition for the Homeless and six other advocacy groups.
Warren: Housing Market Getting Worse: There's been a lot of talk lately about a recovery in the housing market – even reports of bubbles re-inflating in certain markets. Elizabeth Warren, chair of the Congressional Oversight Panel, isn't buying it. "We see things getting worse in the housing market," Warren says, citing the pernicious effects of foreclosures, which rose 5% in the third quarter to a total of 937,840, according to RealtyTrac.
Real Estate Collapse Entering New Phase: Banks Refusing to Repossess Abandoned Homes, or Even File Foreclosures Not only are there no bids in some markets, the accumulation of property taxes means that some properties have negative valuations, like a derivative trade that’s gone bad.Nobody is sure exactly how many bank walkaways are occurring. For various reasons, they can’t be identified in searches of public real estate and court data without individually pulling case files, experts say.
Drop in foreclosures called ‘very scary’ - Lenders’ actions show they think properties are not worth pursuing. Nobody is sure exactly how many bank walkaways are occurring. For various reasons, they can’t be identified in searches of public real estate and court data without individually pulling case files, experts say. But nobody questions that they are on the increase.
The Next Financial Crisis Hits Wall Street, as Judges Start Nixing Foreclosures - Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves. Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.
Developers' bust proves a boon for land trusts - It seems like a rare opportunity, but all over California, tough economic times are forcing investors and developers to abandon housing projects and real estate deals that would have made them a fortune just a few years ago. Conservation organizations and trusts are moving in to buy the land, often at bargain basement prices.
Beige Book Highlights Concerns About Real Estate - WSJ - Fed officials and bank regulators have become increasingly concerned about commercial real estate. In the minutes to their September meeting Fed officials noted their concerns, while FDIC Chairman Sheila Bair has expressed worries that commercial loans could topple more financial institutions.
“Commercial real estate was reported to be one of the weakest sectors” across all districts, the beige book reported. “An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions.”
Southern California's vast desolation indoors - Almost 51 million square feet of office space in Los Angeles County, Orange County and the Inland Empire is now empty -- more than 17% of the total. ... "These vacancies are a direct reflection on unemployment," said Joe Vargas, an executive vice president at Cushman & Wakefield. "Companies continue to reduce their workforce, or they are not hiring.
U.S. Commercial Property Values Fall 3% in August (Bloomberg) -- Commercial property values in the U.S. declined in August as job losses and the recession cut demand for offices, retail space and rental apartments. The Moody’s/REAL Commercial Property Price Indices fell 3 percent in August from July, bringing the market’s decline to almost 41 percent since its peak in October 2007
CRE Refinance Pressure to Continue for Months - The commercial real estate (CRE) market will not likely post signs of recovery until mid-2010 and faces key challenges ahead, according to RBS Securities.Commercial real estate is faced with deteriorating fundamentals, the RBS analysts say, as well as high vacancy rates and upcoming refinancing needs, RBS Securities said in market commentary Thursday...a wave of post- holiday retail bankruptcies may arrive after stressed retailers put off bankruptcy in hopes of catching a spike in sales before closing.
FDIC Failed to Limit Commercial Real-Estate Loans, Reports Show (Bloomberg) -- The Federal Deposit Insurance Corp. failed to enforce its own guidelines to rein in excessive commercial real estate lending by at least 20 banks that later collapsed, reports by the agency’s watchdog show. The FDIC’s Office of Inspector General analyzed 23 lenders taken over by regulators from August 2008 to March and found that for 20, the agency’s examiners didn’t identify the issue early enough or should have taken stronger supervisory action after recognizing the banks had dangerously high levels of the loans before they failed. The findings are in separate reports posted this year on the inspector general’s Web site.
Small firms face credit squeeze as crisis drags - (Reuters) - Small companies create more than half of America's jobs, but the entrepreneurs who drive this part of the economy continue to complain that access to credit two years into the recession remains scarce. Small business owners say their home equity lines of credit have been cut, business credit lines withdrawn and credit card limits slashed. Still profitable firms complain of a major pullback by banks, which many warn will leave a U.S. economic recovery stillborn
Report finds new wrinkle in U.S. bankruptcies (Reuters) - Recent bankruptcy filings by small U.S. businesses show a trend that could complicate lenders' efforts to identify at-risk borrowers, a new study reveals. PayNet Inc, which provides analytic tools to the commercial credit industry, looked at 750 small business bankruptcy filers and found 50 percent were current with one or more of their lenders when they threw in the towel and sought protection from their creditors.
Poof! Government Has Already Lost $20 Billion On GM Investment - WSJ - At a speech sponsored by the Brookings Institution, Rattner estimated the government’s $50 billion investment in General Motors is now worth only about $30 billion, the Washington Post reported today. Rattner said there’s “a good chance” the United States can recover the $30 billion invested in GM by the Obama administration earlier this year. But of the other roughly $20 billion previously lent to GM in the wanning days of the Bush Administration in 2008, he said, “I don’t think we are going to see [it] again.”
Why companies do stupid things, credit rating edition - You often hear critics of government talk about how much better the private sector is at . . . well, just about everything. One common claim is that private corporations are better managed because of some combination of internal meritocracy, shareholder pressure and the profit imperative. However, this tenet of anti-government rhetoric suffers from a big problem: Many private corporations aren't very well managed, either.
Will lower health-care costs mean higher wages? - As we went over yesterday, the theory of the excise tax is that employers will buy less costly health-care plans and put the money they save into wages. Most of you had one question in response to that, which was well expressed in the first comment to the post: "I'm confused," wrote Reader44. "Instead of increasing wages, why won't employers just take that dollar not spent on health care and increase dividends?"
Paying for health - the principle that says "to each according to his/her earning capacity" doesn't seem very convincing in circumstances where it leads to malnutrition or starvation. In other words, if the normal workings of a market economy left a significant segment of the population without the ability to purchase enough food for subsistence, we would surely judge that this isn't a fair or socially just way of distributing income and food. It is obvious as well that one's future ability to live and work productively and to enjoy a satisfying life is conditioned by one's ability to gain access to health care when it is needed. It is also clear that uncertainty about the availability of health care is a major source of anxiety for many in U.S. society today. So it is self-evident that decent health care is one of our most basic and unavoidable needs.
Accidents Of History Created U.S. Health System : NPR - If you want to understand how to fix today's health insurance system, you'd be smart to look first at how it was born. How did Americans end up with a system in which employers pay for our health insurance? After all, they don't pay for our groceries or our gas.It turns out there never was any central logic at work. The evolution of the American health care system began in the 1920s, when choices boiled down to which crazy cure you preferred.In 1900, the average American spent $5 a year on health care ($100 in today's money). No one had health insurance, because you don't need insurance for something that costs $5 a year.
The Case for Mandating Health Insurance -- A major issue in health reform, hitherto overshadowed by the battle over a public health insurance plan, is the idea that every individual in this country should be mandated to have insurance coverage for at least a minimally acceptable benefit package. Such a mandate would not be necessary, and not even desirable, if two conditions were met. First, Americans were willing to deny care to uninsured or underinsured people who are critically ill, but who cannot pay for that care with their own resources – even if that meant those people would die for want of care. Second, Americans were content to let health insurers set their premiums on “actuarially sound and fair” principles.
Health Insurance Worries Keep Rising - NYTimes (AP) - The number of Americans worried about losing their current health care coverage keeps rising, even as President Barack Obama and a Democrat-led Congress strive to extend society's safety net to cover the uninsured, a new poll has found.The growing levels of insurance insecurity are reflected in the latest monthly snapshot from the nonpartisan Robert Wood Johnson Foundation. Americans have conflicting views on whether a health care overhaul will help matters, make them worse or leave things about the same.The foundation's September poll found that about one-third of Americans said they were worried about losing current coverage, a slight increase from 29 percent who reported such concerns the previous month.
Clear majority now back public option: poll - A "clear majority" of Americans now support a government-run public insurance plan as a competitor to private insurance companies, according to a Washington Post/ABC News poll published Tuesday.The findings show that public support for a public option is growing. Over the last two months, the public option's support has risen from 52 to 57 percent, the poll says.
The Case Against Including An Opt-Out Public Plan In The Senate Bill - Most news outlets are reporting that Majority Leader Harry Reid (D-NV) may include an opt-out public option in the merged Senate legislation. “Mr. Reid met with President Obama at the White House Thursday to inform him of his inclination to add the public option to the bill, but did not specifically ask the president to endorse that approach, a Democratic aide said.”
Here the reports diverge. The NYT is reporting that Obama “asked questions” about the opt-out, “but did not express a preference at the meeting.” POLITICO quotes a ‘Democratic source’ as saying that Obama “appeared” to prefer a trigger option. And The Plum Line’s Greg Sargent clarifies, via a White House response, that “Reid was specifically raising the possibility of a public option with an opt-out clause as one potential route.” “Reid has not made a final decision to take this route,”
The Light Dawns - From Bill Sher's Progressive Breakfast - Roger Hickey notes moderates Dems are beginning to reassess the politics of opposing the public option: "Concentrating their minds is the realization that they are about to vote to force every American over the age of twenty five to purchase health insurance. Moderate Democrats are the ones most receptive to the demands of the insurance industry, and the price the insurance industry is demanding in exchange for insurance reform (like preventing companies from discriminating against people with pre-existing conditions) is the 'individual mandate' – which means voters are forced to buy insurance, whether they can afford it or not.I think you will see a terrible backlash if they don't get a grip on the political realities here. I hope that Hickey is correct and that they are, or this could be a monumental debacle.
GOP'S PUBLIC STANDING DETERIORATES.... We talked earlier about the new Washington Post/ABC News poll and the support for the public option as part of health care reform. The news wasn't good for Republicans: Americans not only support a public plan, but they consider it significantly more important than bipartisanship. But for the GOP, that's just the beginning. Karl Rove boasted the other day that Republicans are "winning the health-care debate." It's hard to overstate how wrong this is. The Post/ABC poll points to a party moving quickly in the wrong direction.
CHART OF THE DAY: Wall Street CEOs Don't Make Jack Compared To Healthcare CEOs - When it comes to CEO pay, financial CEOs aren't the highest paid leaders at all, according to consulting firm Hay Group.In fact, the CEOs of Oil & Gas, Consumer Goods, Tech, and Healthcare tend to make more money than their financial peers. Healthcare compensation in particular seems head and shoulders above the rest.
Why Obama Has to Refuse to Pay Hush Money - Robert Reich - Last January, as I understand it, the White House promised Big Pharma, big insurance, and the American Medical Association the moral equivalent of what Joel Halderman allegedly demanded of David Letterman: hush money. The groups agreed to stay silent or even be supportive of healthcare reform, as long as they were paid off.
US business lobby spent $35m fighting Obama - Friction between the business community and the Obama administration was on display in the third quarter, as the US Chamber of Commerce spent a record $34.7m (£20.9m) lobbying against a raft of legislation that it said will be bad for business. The breakdown of spending, revealed in a quarterly filing, shows that the debate on health insurance reform occupied the largest chunk of the organisation's time and money, but the group has also been battling Barack Obama's plans to create a new regulatory agency to cover consumer financial products and to introduce a carbon cap-and-trade scheme to tackle global warming.
Report: Burning Coal And Oil Kills 20,000 Americans A Year - The burning of coal and oil is killing 20,000 Americans each year, a new Congressional report has found. After the Senate completes its work on health insurance reform, it will have the chance to pass major legislation to further improve our nation’s health, with the Kerry-Boxer Clean Energy Jobs Act. The National Research Council (NRC), an arm of the National Academy of Sciences, recently found that the United States is paying a heavy price in health and lives lost for its dependence on fossil fuels.
Fossil Fuels’ Hidden Cost Is in Billions, Study Says - NYTimes - Burning fossil fuels costs the United States about $120 billion a year in health costs, mostly because of thousands of premature deaths from air pollution, the National Academy of Sciences reported in a study issued Monday.The damages are caused almost equally by coal and oil, according to the study, which was ordered by Congress. The study set out to measure the costs not incorporated into the price of a kilowatt-hour or a gallon of gasoline or diesel fuel.
If the Grass Looks Greener its Important to Understand the Nature of the Fence - One of the things about politics is that solutions always seem easier to implement and more promising before they stand a real chance of being implemented. People who have for one reason or another fallen in love with the idea of a carbon tax watch the difficulty Congress is having negotiating a passable climate bill and ask why we don’t just pass a carbon tax. It would be so easy! It’s just a tax! Pass it, price carbon, and bada bing, you’re done.
Does Economics Violate the Laws of Physics?: Scientific American - The financial crisis and subsequent global recession have led to much soul-searching among economists, the vast majority of whom never saw it coming. But were their assumptions and models wrong only because of minor errors or because today's dominant economic thinking violates the laws of physics?A small but growing group of academics believe the latter is true, and they are out to prove it. These thinkers say that the neoclassical mantra of constant economic growth is ignoring the world's diminishing supply of energy at humanity's peril, failing to take account of the principle of net energy return on investment. They hope that a set of theories they call "biophysical economics" will improve upon neoclassical theory, or even replace it altogether.
The Speech Obama needs to give - We, as a species, are now bumping up against -- slamming into, really -- some very immutable biophysical limits on a global scale. These limits and the mounting consequences for their continued violation have been predicted and well documented by our best scientists for many decades -- complete with dire warnings for the consequences of failing to change our course. We have not heeded these warnings and we are now suffering the predicted consequences.
Climate Policies Won’t Limit Warming to 2 Degrees, U.S. Says - (Bloomberg) -- Current policies to fight climate change in China, India, the U.S. and other major carbon-dioxide emitters aren’t enough to limit global temperature increases to 2 degrees Celsius (3.6 degrees Fahrenheit), a U.S. envoy said. Major developing countries are moving in the right direction to contain global warming, Todd Stern, the U.S. delegate to a 17-nation conference on limiting climate change, told reporters today in London. Even so, the trend in greenhouse gas emissions is still too high, Stern said. “Where they are right now is almost certainly not enough, if you’re talking about getting toward a place that’s in the vicinity of holding the temperature increase to 2 degrees,”
World carbon "emissions intensity" is dropping. - These declines are not fast enough to avert the major climate-change scenarios -- rapid economic growth, especially in large developing countries, means a 3.5 percent annual increase in total emissions in this decade -- but they do imply that we should view laws and international agreements to reduce emissions as efforts to accelerate existing trends, rather than ambitious reorderings of rich-country economic life or blockage of poor-country development prospects.
Climate Experts Warn that Short-Term Snapshots of Temperature Data Can Be Misleading: Focus Instead on the Bigger Picture - In the hotly debated arena of global climate change, using short-term trends that show little temperature change or even slight cooling to refute global warming is misleading, write two climate experts in a paper recently published by the American Geophysical Union — especially as the long-term pattern clearly shows human activities are causing the earth’s climate to heat up.
Ken Caldeira Contradicts SuperFreaks Steve Levitt and Steve Dubner: ‘Carbon Dioxide Is The Right Villain’ - The “SuperFreaks” claimed that Ken Caldeira’s “research tells him that carbon dioxide is not the right villain in this fight” Caldeira has responded on his professional website: “Carbon dioxide is the right villain, insofar as inanimate objects can be villains”
Contrarianism's end? - The Economist - The widespread debunking of the contrarian global-warming chapter in Steven Levitt and Steven Dubner's new book "Superfreakonomics" (by Joe Romm, by Brad Plumer, by Matthew Yglesias, by the Union of Concerned Scientists, by Paul Krugman, and by others too numerous to mention except that they include the main climate scientist cited by Messrs Levitt and Dubner themselves, Ken Caldeira) leads John Quiggin to wonder whether this might be the end of the line for contrarian journalism as such.
Carnegie Department of Global Ecology - Caldeira Lab Research - The Caldeira Lab conducts research to try to improve the science base needed to allow human civilization to develop while protecting our environmental endowment. The Caldeira Lab investigates:
Energy and Emissions
Climate Intervention ('Geoengineering')
Climate, Carbon and Geochemistry in Earth History
Modern Climate and Carbon-Cycle Changes
Land Processes, Carbon and Climate
Oceans, Carbon and Climate
When Books Collide: Sloppy ‘Superfreakonomics’ Meets its Match in Lucid ‘Climate for Change’ - This is a tale of serendipity. About two brand-new books on climate, written independently, that mysteriously collide. One of them, Superfreakonomics, manages – despite the fame and brilliance of its authors – to enthusiastically endorse two notorious misconceptions about climate science. But here’s the serendipitous part. Even though the authors of the second book, A Climate for Change, had never seen Superfreakonomics, they managed to write spot-on rebuttals on both points...
The Global Warming Consensus Has Been Shattered - Just a few years ago, Americans reached a consensus that the earth had warmed over the past few decades. These days, however, far fewer Americans believe in global warming.A Pew poll shows that belief in global warming dropped to 57 percent from 77 percent.Of course, this will drive the Warmers absolutely crazy. They claim that the scientific evidence for warming has increased over this period. So an increase in dissent from the expert's position on warming is bound to birth anguish.
Arguments from Global Warming Skeptics and what the science really says - point-counterpoints on 71 topics with links to further information for each...
A little more on Geoengineering - I’m somewhat confused by the wave of excitement among right-leaning folks and libertarians for having three bureaucrats sit down and come up with the optimal level of sulfur to be pumped into the stratosphere at the north and south poles. I want to point out a comment from Will Wilkinson, in his “For More Responsible Climate Politics”: Just suppose that some form of climate engineering could (1) do as much or more to slow or halt warming than could regulatory approaches (2) at a much lower cost while (3) posing no special problem of international coordination.
Last on Geoengineering - The thing that has scared everyone I know working in geoengineering, and the thing that has caused a lot of very good scientists to say we shouldn’t have it is the worry that if it was announced that geoengineering was to be thoroughly examined, there would be a temptation on behalf of the oil companies to say, “Oh well, they’re going to solve the problem, we can keep burning fossil fuels”. Which is the last thing anyone wants. But then to not examine it would be irresponsible. If we reach that tipping point, we want to be in the position to be able to help out.”
September Global Surface Temperature Second Warmest Since 1880 - A new analysis of global temperatures show that the combined global land and ocean surface temperature was the second warmest September on record, according to NOAA’s National Climatic Data Center in Asheville, N.C. Based on records going back to 1880, the monthly National Climatic Data Center analysis is part of the suite of climate services NOAA provides.
Environmental concerns delay solar projects in California desert - Across the desert flatlands of southeastern California, dozens of companies have flooded federal offices with applications to place solar mirrors on more than a million acres of public land. But just as some of those projects appear headed toward fruition, environmental hurdles threaten to jeopardize efforts to further tap the region's renewable energy potential.
Melting Permafrost May Help Explain Why Many Denali National Park Wetlands Are Drying Up - Scientists working in Denali National Park suspect that permafrost melting that’s caused by climate warming might be an important reason why many of Alaska’s shallow lakes and wetlands have shrunk or disappeared. If the trend continues, wetland-dependent wildlife might be severely impacted. Recall that almost half of the state, roughly a Texas-sized share, is covered by wetlands. Think of the vital ecological role of these wetlands, which provide habitat for vast numbers of aquatic animals, fish, and waterfowl.
Peter Wadhams: Arctic to be ice-free in summer in 20 years - Global warming will leave the Arctic Ocean ice-free during the summer within 20 years, raising sea levels and harming wildlife such as seals and polar bears, a leading British polar scientist said on Thursday. Peter Wadhams, professor of ocean physics at the University of Cambridge, said much of the melting will take place within a decade, although the winter ice will stay for hundreds of years. The changes will mean the top of the Earth will appear blue rather than white when photographed from space and ships will have a new sea route north of Russia.
US aims for bilateral climate change deals with China and India - The Obama administration is hoping to win new commitments to fight global warming from China and India in back-to-back summits next month, the Guardian has learned, including the first Indian emissions trading scheme. The US hopes the new commitments will breathe life into the moribund negotiations to seal a global treaty on climate change in Copenhagen in December, by setting out what action each country will take. But many observers say such bilateral deals also risk seriously weakening any Copenhagen agreement by allowing the idea of a global limit on greenhouse gas emissions to be abandoned.
The Economic Case for Slashing Carbon Emissions - Yale Environment 360 - Much of the policy discussion so far has been aimed at keeping the atmospheric concentration of CO2 below 450 parts per million (ppm) — which was until recently thought to be low enough to prevent dangerous levels of warming. But last year, James Hansen, NASA’s top climate scientist, argued that paleoclimatic evidence shows 450 ppm is the threshold for transition to an ice-free earth. This would imply a catastrophic rise in sea levels, eventually flooding all coastal cities and regions.
Illusions on the edge of a precipice - CAN we expect decent climate policy when most of the decision-making elite are ignorant of the real scientific imperatives, or believe they can negotiate with the laws of physics and chemistry? The answer is bleak, judging by the lead-up talks to the climate summit in Copenhagen in December. The conference is slated to sign a new global deal on greenhouse gas reductions, but key players expect failure. European Commission president Jose Manuel Barroso warns: ''If we don't sort this out, it risks becoming the longest and most global suicide note in history...
Letting a thousand flowers wither - The Economist - The world will not halt the rate of reduction of biodiversity by 2010 - SEEKING to alleviate poverty, reduce world hunger and protect biodiversity sounds like something a Miss World hopeful might have pledged in the 1980s. In fact, it was what a professor of soil quality at a lesser-known university in the Netherlands promised to a scientific conference that concluded on October 16th.
Green spaces ‘improve health’ - BBC - There is more evidence that living near a 'green space' has health benefits. Research in the Journal of Epidemiology and Community Health says the impact is particularly noticeable in reducing rates of mental ill health. The annual rates of 15 out of 24 major physical diseases were also significantly lower among those living closer to green spaces.
Swedes divided over bunny biofuel - BBC - The bodies of thousands of rabbits are fuelling a heating plant in central Sweden, local newspapers say. The city of Stockholm has an annual cull of thousands of rabbits to protect the capital's parks and green spaces. The rabbits, not native to Sweden, are mainly the offspring of pets released by owners, and are said to be destroying parks in the capital. Since they have no natural predators, the city administration of Stockholm employs hunters to kill the rabbits. Once culled, the rabbits are frozen and when we have enough, a contractor comes and takes them away. The frozen rabbits are then taken to a heating plant in Karlskoga which incinerates them to heat homes.
Epoch Times - 'Four Saudi Arabias' Needed to Maintain Oil-Guzzling Ways - The world will have to find four Saudi Arabias by 2030 if it wants to maintain its oil dependency, the International Energy Agency says.The reality of peak oil is fast approaching, and more must be done to develop and encourage the use of alternatives including solar and nuclear, the agency's chief economist has warned."My main motto never changes, the era of low oil prices is over," Dr Fatih Birol told AAP. "When the economy recovers, oil prices will recover accordingly. Mid to long term, we will be experiencing high prices."
Oil prices hit high but report warns of supply crunch - World oil prices hit their highest point for a year yesterday, as a major new report urged governments around the world to take drastic action to head off an approaching oil supply crunch. Two years in the preparation, Global Witness's report, Heads in the Sand, accused governments of ignoring the fact that the world could soon start to run short of oil. This would lead to huge consequences in terms of price shocks and much higher levels of violence around the world than last year's food riots.
Oil soars despite fundamentals; gasoline prices might follow - Now Rozell says all bets are off in spite of several fundamentals, such as the facts that oil supplies are plentiful, demand remains weak and refiners have slashed production because motorists aren't driving enough to allow gasoline makers much of a profit. "You would think that this would drive the price of crude down, but what we have here is more of a financial play than market fundamentals. There is no reason for oil to be this high," said Rozell, retail pricing director of Oil Price Information Service in New Jersey. He added that the 10-week price slide that finally drove California gasoline back below $3 a gallon was probably over.
Conditions are in place for oil to pass $100 a barrel once more - Telegraph - The pattern is sadly familiar. When the oil price sped to well over $100 as the financial crisis was coming, analysts rationalised it with theories of an imminent supply squeeze caused by fast-growing Asian economies. In reality, a huge supply of ready money – from commodity funds and industrial buyers – ruled the market. Something similar is happening now. If the liquidity keeps flowing, one result is likely to be triple-digit oil.
U.S. companies 'entitled' to some of Iraq's crude oil, Pickens tells Congress - Oil tycoon T. Boone Pickens told the U.S. Congress in Washington yesterday that U.S. energy companies are "entitled" to some of Iraq's crude oil because of the large number of U.S. troops that lost their lives fighting in the country and the U.S. taxpayer money spent in Iraq. Mr. Pickens complained that the Iraqi government has awarded contracts to foreign companies, particularly Chinese firms, to develop Iraq's vast reserves while U.S. companies have mostly been shut out.
Ask a Nineteenth-Century Whaling Expert - I’m baffled at the economics of nineteenth-century whaling. In Moby-Dick, Herman Melville says that a whaling expedition would be a success if a crew of 40 men captured the oil from 40 whales in 48 months. Each whale produced about 40-50 barrels of oil. Presumably this oil had to be cover the approximate costs of four years’ labor, plus the costs of operating the ship, plus a sizeable profit for the investors in these risky ventures. How could whale-oil have been so valuable? I understand that it was scarce, that illumination is highly desirable, and apparently it smelled nice. But there were substitutes, weren’t there?
CNPC and Gazprom agree to peg gas price to Asian oil basket - Mr Putin - Interfax cited Mr Vladimir Putin Prime Minister of Russia as saying that China National Petroleum Corp and Gazprom have agreed to peg the price of the gas that Russia plans to supply China in the future to the price of the Asian oil basket.Mr Putin said gas price issue had been a stumbling block in Russian-Chinese talks. He said that Gazprom has enough resources to supply China even though the organization of exports along an eastern pipeline would need serious financial support and take considerable time. He added that "There are no problems with the resource base, we don't even have to do any work for this."
Now China's Buying Oil In The Gulf Of Mexico - China's world tour of oil acquisition is coming soon to a region near you! CNOOC is looking to purchase a stake in a project in the Gulf of Mexico. WSJ: Cnooc Ltd. is in talks with Norway's StatoilHydro ASA over a deal for a few leases in the U.S. Gulf of Mexico, a deal that would open the U.S. Gulf to China's oil companies for the first time, a person familiar with the matter said.
A special report on China and America: : A wary respect The Economist - America and China need each other, but they are a long way from trusting each other, says James Miles (interviewed here)
China’s Economy Grows 8.9%, Fastest Pace in a Year (Bloomberg) -- China’s economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession. Gross domestic product rose 8.9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing today. The median of 34 estimates in a Bloomberg News survey was for a 9 percent gain. Separate reports showed industrial production and retail sales accelerated in September.
China Financial Markets - China’s September data suggest that the long-term overcapacity problem is only intensifying I read the data differently – not so much as evidence that demand is stronger then we thought but rather that real imports are weaker than we thought. According to the October 14 research report by Mark Williams, of Capital Economics, “We do not expect the trend to last. China’s recovery is being driven by investment, but the recent pace of commodity import growth has been much faster than justified by the rise in current demand. Inventories of many metals have more than doubled since the start of the year (copper inventories are up 500%).”
Hold the Champagne on China’s Economy — Those who witnessed Japan's spectacular rise and fall in the 1980s should be getting a familiar feeling watching China these days. In the eyes of the media and much of the world, China's decades of double-digit growth, military modernization, and 2008 Olympics hosting have raised the People's Republic of China to the top rank of global powers. Yet unsettling questions about the social effects of this stunning climb are also abundant. Of particular concern is an emerging asset bubble, noted by The Economist and Bloomberg, among others. Fueled by an undervalued yuan and disguised by non-transparent accounting practices, its growth highlights the unequal distribution of economic gains in China and raises doubts about the sustainability of current consumption patterns among the newly wealthy.
Top China banker warns on asset bubbles - - From the Financial Times: Top China banker warns on asset bubbles - The FT quotes Qin Xiao, chairman of China Merchants Bank, arguing that "it is urgent" for China to shift to a neutral monetary policy because of asset price increases. The stimulus package in China is huge: .. China’s stimulus measures could amount to 15-17 per cent of GDP this year if government-induced bank lending is taken into account – by far the largest among major economies.
Worried Words About a New Asset Bubble in Asia - WSJ - It seems unimaginable that financial markets could produce another bubble so soon after the devastating credit crash of 2008, but officials and economists gathering at a conference on Asia sponsored by the Federal Reserve Bank of San Francisco this week were worried about just that. In this case, the worry was a bubble in Asian stock and housing markets. Stock markets in China, Hong Kong, India, Indonesia, Singapore, South Korea, Taiwan and Thailand are all up by well over 40% this year. Housing prices are rising too. (Russia and Latin America mirror the move.) Thanks to their appreciating currencies, these markets are up even more in dollar terms, doubling in some cases.
East Asian Production Networks: Beggar Thy Neighbor? - Crisis Talk - The World Bank Group - There is an interesting article in Econbrowser by Willem Thorbecke of the Asian Development Bank, which looks at East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination. Thorbecke highlights the important relationship between exchange rates and production chains in East Asia, arguing for increased policy coordination between the two. The paper presents both good news and bad news regarding East Asia's crisis recovery...
South-South Trade Tensions - World Bank Crisis Talk- Many, if not most, hopes for global recovery are pinned on China buying goods from countries such as Brazil. Commodity prices, a key driver of equities and forex rates, also move in response to the new orders received by China's manufacturers. This currency regime makes it far harder for such countries to sell to China. China's currency is 15 percent cheaper against the dollar than it was in 1993. Meanwhile, many emerging market currencies are returning to their pre-crisis exchange rates. China has been building stronger trade relations with the Global South for quite some time. It is now South Africa's top export destination. But many of these partnerships are built around China purchasing commodities, and selling manufactured goods. With a weakening currency, China is likely to purchase fewer non-commidty goods from its trading partners. This may lead to growing trade tensions, particluarly with countries who are not endowed with commodities.
Eurozone exports tumble sharply - FT - Eurozone exports tumbled unexpectedly sharply in August, raising fresh doubts about the strength of the 16-country region’s economic recovery.Exports to countries outside the eurozone fell 5.8 per cent compared with July, reversing a 4.7 per cent increase seen in the previous month, according to Eurostat, the European Union’s statistical office. The latest decline is a blow to the eurozone’s economic prospects because a pick-up in global demand for its exports had appeared likely to drive a rebound in the second half of this year. But even before the latest data, economists had worried that a strengthening euro would act as a significant brake on growth.
BBC - Argentina launches new debt deal - Argentina plans to launch a new debt swap, which it hopes will end a long-running saga that started from a massive default eight years ago.Latin America's third-largest economy is trying to rebuild its reputation with international investors and sell bonds to raise money. It wants to buy $20bn in outstanding defaulted bonds held by investors who refused a previous offer in 2005. Argentina defaulted on $95bn of bonds in 2001, a record amount at the time.
The global crisis and central banks in Latin America: Breaking with the past - VoxEU - Latin American central banks seem to have weathered the global crisis quite well. This column describes their policy responses and says they succeeded in lowering inflation, averting banking crises, and shortening the recession. It attributes their success to past reforms that created strong institutional foundations and effective policy frameworks.
Ethiopia appeals for food aid for 6.2 million - (Reuters) – Ethiopia appealed on Thursday for 159,410 tons of emergency aid to feed 6.2 million people, 25 years after more than a million perished in the country's notorious famine.Aid workers say a five-year drought is afflicting more than 23 million people in seven east African nations.Mitiku Kassa, Ethiopia's State Minister for Agriculture and Rural Development, said this year's rains were especially poor."As a result, the number of people needing emergency assistance during the period October-December 2009 has increased to 6.2 million from 4.9 million at beginning of the year," he said
What must we do to end world poverty? At last, an answer - It seems like whoever “we” are, “we” must have unconstrained power to implement “the answer”, so “we” sounds like authoritarian leaders (national autocrats or World Bank officials dictating conditions). Second, are “we” going to allow poor people to choose their own paths? Of course not, because “we” already know the “right answer” for them. So this question only makes sense in approach to development that is authoritarian and paternalistic, using Top Down Planning, which in fact has been the prevailing – but unsuccessful – approach to development for six decades.
Earthquake at Caijing: a litmus test for China’s media freedom - It was the Hong Kong based South China Morning Post that first dropped the bomb that tectonic change had just occurred in the upper echelons of the influential Chinese business magazine, Caijing. The general business manager, Daphne Wu, tendered her resignation along with eight of her nine senior colleagues. This was only the first crack in the dyke, with a mass exodus of editors and investigative journalists occurring shortly thereafter. The inevitable Götterdämmerung will be when the charismatic and influential managing editor Hu Shuli leaves the magazine that she founded more than a decade ago.
Herding the Sheep - Financial insider and commentator Yves Smith wrote an essay last week entitled "MSM Reporting as Propaganda" arguing that the government has been using propaganda to make people think that things are getting better, no one is angry, and - therefore - no one should get upset: The message, quite overtly, is: if you are pissed, you are in a minority. The country has moved on. Things are getting better, get with the program...
Satirical attacks on capitalism - "Capitalism: A love story", the latest documentary by Michael Moore - demagogue or truth-seeking crusader, depending on your viewpoint has been well-received at the Venice Film Festival. The subject lends itself perfectly to film according to Mr Moore because "it's got it all - lust, passion, romance and 14,000 jobs being eliminated every day". He believes the financial crisis is making people more receptive to his brand of political activism. .
Mark Thoma asks if there is a solution to the Pundit's Delimma - Here's Mark Thoma: Mark Liberman at Language Log says the game theory can explain why pundits "best move always seems to be to take the low road":...Overall, the promotion of interesting stories in preference to accurate ones is always in the immediate economic self-interest of the promoter. It's interesting stories, not accurate ones, that pump up ratings for Beck and Limbaugh. But it's also interesting stories that bring readers to The Huffington Post... We might call this the Pundit's Dilemma — a game, like the Prisoner's Dilemma, in which the player's best move always seems to be to take the low road, ....
"Russians Looked Only for the Agenda" - I once heard from a Russian reporter about her early days on the job. “Whenever we read an article about the health dangers of butter, we would immediately run out and buy as much butter as we could find,” she told me. “We knew it meant there was about to be a butter shortage.” In other words, Russians looked only for the agenda, the motivation behind the assertion. The actual truth was irrelevant. It seems that more and more I am also looking for the agenda behind what people write.
"Too Big to Fail" Policy (Warning: Long) - One thing I've been noticing is that many commentators on "too big to fail" (TBTF) policy have clearly never read the Obama administration's financial reform proposals, or at least have an extremely poor understanding of what the administration is proposing to do. This is unfortunate, because TBTF policy is an important, albeit complex, topic. It can't be addressed in a snappy op-ed, or by simply saying "make them smaller" (as if size alone is the problem). It requires serious thought on a number of related issues.
Covering the Great Recession - a study by Pew Research Center’s Project for Excellence in Journalism, on how well the Media did in covering the financial collapse.
Among the key findings: Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. In general, the stories that got heavier coverage were those that involved institutions, happened in New York or Washington, and involved deep-seated ideological passions.
Let's consider the monumental externalities in journalism and what we might do about them – Please. ...surprised to see a piece in the economics/politics blogosphere/media dealing with the monumental externalities of the media. And it was by academic economists, no less: "Regulating for an independent media: The problems of political and commercial bias"...
This is something I've been banging my head against the wall about in the economics/politics blogosphere for over a year, leaving more than a dozen comments, with no traction (until just today!).
Let's consider the magnitude of the costs of externalities in journalism – Please. Part 2 - The media's gross dereliction in informing the public about the truth in response to extreme Republican misleading, outright lies, and just incompetence was a major factor causing the recent generation of Republican dominance. The costs to America and the world have been monumental. Simple-minded, anti-thinking Republican economics leads to gross societal underinvestment (especially in projects of great social return, like basic science and medicine, infrastructure, alternative energy, education, etc., things that due to well established in economics market problems will be provided by the free market at a level far below that which maximizes social utility). What we get instead is over consumption – predominantly for the rich, i.e. yachts, mansions, and $20,000 watches instead of cancer research, alternative energy, and college student aid so that students can study more and flip burgers less.
Ideologically Loaded Rhetoric of Mainstream Economics - “Marx’s reference to the “capitalist crisis” gave the word an ominous sound. The word panic, which was a partial synonym a half century ago, was no more reassuring. As a result, the word depression was gradually brought into use. This had a softer tone; it implied a yielding of the fabric of business activity and not a crashing fall. During the great depression, the word depression acquired from the event described an even more unsatisfactory connotation. Therefore, the word recession was substituted to connote an unfearsome fall in business activity. But this term eventually acquired a foreboding quality and a recession in 1953-1954 was widely characterized as a rolling readjustment. By the time of the Nixon administration, the innovative phrase “growth recession” was brought into use.”
TAKING THE FOX PROBLEM SERIOUSLY.... Tensions between the White House and the Republican cable news network have been evident since Inauguration Day, but it wasn't obvious that the president's team intended to do something about it until a month ago, when Obama appeared on five networks' Sunday morning shows, and decided to exclude Fox News. The strategy became clearer two weeks ago with an interesting piece from Time's Michael Scherer, which quoted Communications Director Anita Dunn describing Fox News as "opinion journalism masquerading as news." Pressed to defend her remarks last week on CNN, Dunn didn't hesitate, accurately characterizing Fox News as "a wing of the Republican Party."