EconoMonitor

Nouriel Roubini's Global EconoMonitor

Green Shoots or Yellow Weeds?

Many commentators are suggesting that the recent data from the manufacturing, housing market, labor markets suggest that the ‘green shoots’ of an economic recovery are blossoming. While there do seem to be some signs of improvement, ie that the pace of contraction has slowed, the most recent data may still suggest that the global economic contraction is still in full swing with a very severe, a deep and protracted U-shaped recession.

Although the outlook for global manufacturing and service sectors is still consistent with a significant fall in global GDP, the pace of contraction began to slow towards the end of Q1, even in Europe and Japan which have lagged the U.S. and China.  Globally, surveys suggest that the manufacturing outlook has improved from the freefall of the end of Q4 2008 and early 2009.  Some emerging economies like China may now be experiencing expansion based on government investment, but those of most advanced economies remain well in contraction territory.  In part, inventory adjustment following the sharp destocking could contribute to a revival in demand, but a real increase in end user demand needed for a sustainable fast-paced recovery could be far off.

Another necessary condition for a global recovery is a bottoming in not only the U.S. but also global housing markets. So far in most markets, housing prices seem far from their bottom and the outstanding inventory continues to be very high.

Moreover there is a risk that the increase in commodity prices might choke off a sustainable recovery if it weighs on industrial production and consumption.  The recent increase in commodity prices, driven in part by an increase in Chinese demand for crude oil and other commodities, has contributed to an increase in the Baltic Dry shipping index.  Yet, given the significant inventory in commodities like oil, prices might suffer renewed declines. Moreover although trade finance is no longer quite as impaired as at the turn of the year, global trade continues to be quite weak as evidenced from recent data from China, the U.S. and other countries.

Accompanied by the rally in stocks starting in March, the wide variety of central banks’ liquidity facilities have finally started to show clear effects in the interbank lending and money markets.  Stress indicators such as the 3 month LIBOR-OIS spreads have narrowed significantly as well as the TED spread.  The stock market rally extended also to the bond market with spreads receding significantly and junk bonds outperforming all other asset classes in the month of April.  Is the worst over or have markets overextended themselves?

United States

Some green shoots emerged in the U.S. starting January and February 2009 providing relief to rest of the world that the global engine of growth, the U.S. economy, might be on the path to recovery.

Government transfer payments, public sector wages and holiday discounts boosted personal disposable income, consumer spending and retail sales in January/February.  However, spending and retail sales are set to drop again in March. Optimism about recovery and tax cuts via fiscal stimulus have boosted consumer sentiment recently.  But the rise in consumer spending witnessed in Q1 2009 might be unsustainable in the coming months amid hiring freezes (indicated by record high continued claims), slower compensation growth, stringent borrowing conditions, fading impact of lower energy prices and the need to increase savings to de-leverage and offset wealth erosion.

Auto plant closures and removal of temporary workers hired for government census might cause another spike in jobless claims and job losses in spite of some optimism in the April data.  The ISM manufacturing index, industrial production and imports are also contracting at a slower pace since January/February as firms have been aggressively slashing inventories and conditions for trade finance have improved.  But if sales continue to plunge, the currently high inventory levels will have to continue to fall sharply in the coming months, which will be a negative for U.S. trade partners.

Similarly, some stabilization in starts and rise in construction spending starting February/March signal that the supply side of the housing sector might be close to a bottom and will continue to move sideways for some time.  The persistent high level of inventories though, implies that the adjustment in terms of home prices in the U.S. housing sector might continue until mid-2010, possibly at a somewhat slower pace.

Canada

With its fortunes tied to the U.S. which absorbs about 75% of its exports, Canada would seem a strange candidate for early green shoots, but there are some signs of improved sentiment.

Canada actually added jobs in April 2009 – albeit all in self-employment – but a breather from the sharp declines experienced from November 2008 to March 2009. Moreover, the descent of the Canadian housing market also seems to have slowed, at least temporarily due to seasonal factors.

Canada’s shift back from trade deficit to surplus in February and March though reflects a weak loonie’s dampening effect on imports rather than any revival of demand in Canada’s exports.

The relative soundness of Canada’s banks, which are still extending credit to households and businesses, does protect Canada from some of the woes facing other G7 economies but a recovery could be far off.

Europe

Just as the European Commission, the IMF, and the OECD revised down their 2009 forecasts to at least -4% after a dismal Q1 performance, Eurozone economic indicators are starting to paint a brighter picture starting in April.

In particular, German manufacturing orders rose again on a monthly basis thus corroborating the recovery signaled by business sentiment indicators. Similarly, both manufacturing and services PMI indicators recorded an increase although hovering firmly in contractionary territory.

The most upbeat indicator so far has come from the OECD’s 6 month leading indicator signaling that both France and Italy might have reached a possible trough in Q1. Already commentators are speculating about the shape of the recovery but important structural headwinds remain. See Green Shoots In the Eurozone? OECD Leading Indicators Turn For France and Italy

United Kingdom

 

In the UK, more and more analysts have suggested that the housing sector is bottoming  despite the mixed signs shown by different pricing and lending measures. April Nationwide data showed that prices registered a m/m decline of 0.4%, bringing the y/y rate to -15% even as Halifax house prices fell by a bigger than expected 1.7% in April, returning the average house price to 2004 levels. The fall in house prices was still the smallest monthly decline since December, though.

On the economic activity side, April CIPS/Markit manufacturing PMI rose to a reading of 42.9, up from 39.5 in March. The index has now recovered substantially from the record weakness of November to February but remains firmly in contraction territory. Moreover, the services PMI for March, a survey of businesses ranging from banks to restaurants also increased. This increase, the fourth monthly rise again, continues to reflect contraction even if a less steep one. Even though the survey is bringing a slowing pace of decline in new business and business expectations, companies are still shedding staff at the fastest rate since records began in 1996.  Retail sales for February were also on the downside while unemployment is at the highest rate since 1997.

Russia

Despite the recovery in commodity prices, there are few green shoots in Russia where the EBRD suggested that the economy might contract by -7% in 2009. Although Russia’s PMI  has now risen to 43 in April, the contraction is already longer and more severe than during the 1998 financial crisis.

Moreover, the unemployment rate neared 10% already in March, and wage arrears suggest further job losses are to come, despite government support.  The increase in commodity prices may alleviate the worst of the revenue deterioration but even at an oil price of $50-55 a barrel, Russia would draw heavily on its past savings (as it has already been doing) and in any case hydrocarbon output is falling. Meanwhile despite some reductions in external debts in H2 2008, vulnerabilities in the financial sector will weigh on growth even once the recovery at last begins.

MENA

As for the Middle East and North Africa, a region relatively less hit by the global financial crisis but vulnerable to tighter global and regional liquidity conditions as well as lower demand for its exports, some nascent green shoots appeared in the real estate and property sector as early as Q1 2009.

Continued price corrections in 2009 contributed to an increase in residential sales in Dubai as early as February 2009. Mortgage lending started to pick up slightly from a virtual standstill between September 2008 and March 2009. However overcapacities and a shrinking population suggest prices have further to fall.

More generally, MENA bank recapitalizations and increased government expenditure – together with a return of global risk appetite – are improving the liquidity situation.

The outlook for the MENA region in general and the GCC in particular, remains quite tied to oil prices, meaning that the recent correction in commodity prices have reduced the revenue and macroeconomic deterioration somewhat but economic output and credit growth will be much weaker in 2009.

In Israel, inflation started to pick up, bringing forward the possibility that the Bank of Israel might even begin tightening before the end of 2009. Consumer confidence also increased in April 2009 which may imply an improved outlook fro the Israeli economy. It is important to note that despite a contraction in Israel, overall MENA growth will likely be positive- a rarity globally.

Asia

Exports plunged between 20% to 40% y/y in ASEAN and Asian Tigers in December 2008 and January 2009 due to large inventory buildup in Asia and G-3 and the crunch in trade finance. But exports are now contracting at a somewhat slower pace across most countries starting in February 2009. In fact on a monthly basis, Asian exports improved in February and March.

Asian exports to China, a large share of which are re-exported to the G-3, are also recovering while Chinese fiscal stimulus might also be boosting domestic demand for Asian exports. This is clearly reflected in the industrial production data which has recovered in most of Asia starting February as their export destinations themselves had slower contraction in industrial production and goods orders.  While exports and industrial output corrected again in a few countries in March, the trend going forward will be determined by the pace of inventory adjustment and demand stabilization in the G-3 and therefore in China.  Also, as deleveraging by firms and consumers in the West continues and global recovery remains sluggish, Asian exports will continue to contract though most of 2009 and much more than during 2001 or 1997-98.

Japan

Has Spring sprung in Japan?  Some are seeing signs of green shoots.

Industrial production rose 1.6% month-over-month in March (the first gain in six months), while exports were up 2.2%. Japan’s Economy Watchers’ Survey has picked up from its record-low in December 2008. Meanwhile, the government’s roughly $150 billion fiscal stimulus package, announced in April, is expected to provide a big jolt to the economy.

When you scratch the surface, however, these green shoots seem like nothing more than flights of fancy. Industrial production may have risen m/m in March, but production was still in freefall in y/y terms, dropping 35%. And while most analysts agree that the fiscal stimulus package will boost growth, most see this as only a short-term phenomenon.

Exports, production and capital expenditure have collapsed and the seeds of recovery are not yet visible.  Given Japan’s anemic domestic demand, most analysts agree that economic recovery depends upon the future course of Japan’s exports. That means a recovery will depend heavily on an upturn in overseas economies or a restructuring of Japan’s domestic economy.

China

So far, China may have some of the most  persistent green shoots as the government’s investment program and massive credit extension are leading to a q/q acceleration of growth from the near stall of Q4 2008 and Q1 2009.  The most recently released OECD composite leading indicators suggest Chinese output may have reached a trough in March, rising the most of any of the OECD and non-OECD economy the organization tracks.

China’s PMIs have risen above the 50 threshold indicating that the manufacturing sector may now be expanding, job losses seem to have slowed, and credit extension may be financing investment rather than merely plugging balance sheets.  The residential property market is also finally showing signs of improvement at least in transactions volumes and the erosion of the large inventories and property investment rose slightly in April.  Industrial production has improved from the negative growth in January, but could slow from the 8% level attained in March, especially since electricity demand continued to contract in April.

Moreover, it remains uncertain whether China can stimulate sufficient domestic demand to shift away from exports and export-oriented investment particularly at a time of external weakness and still impaired credit conditions. If it does not, the increased production could further contribute to overcapacities and disinflationary pressures at home and abroad. Consumption began to slow towards the end of Q1- albeit only slightly – despite vouchers to boost spending.  Absent increased government spending on health, pensions and other social spending, the structural incentives to save and not to consume will remain.  See Has The Chinese Economy Bottomed Out?

Korea

Korean GDP growth barely missed a technical recession in Q1 2009 by inching up 0.051% q/q (but shedding 4.3% y/y) after plunging in 5.6% q/q in Q4 2008. The Q1 rebound was signaled by the electronics sector, which drove a revival in industrial production and exports. Private consumption rose 0.4% q/q and construction rose 6.1% q/q in Q1 2009 – both with the help of fiscal stimulus packages.  Net exports were positive as imports dropped faster than exports.  Korea’s ‘green shoots’ may just be a technical recovery, with the pace of economic contraction slowing but economic activity stabilizing at low levels. Restructuring has further to go – Korea still needs to whittle down its excess inventory of houses and ships and clean up bank balance sheets.

A true recovery in Korea would require domestic consumption to revive not only on pent-up demand but on a more secure income and employment outlook.  Retail sales got a lift from tourists taking advantage of a weaker won earlier this year but the won’s recent appreciation and a bear market rally in Korean equities has turned the tables in favor of domestic spenders.  According to a Bank of Korea survey, consumer sentiment leaped in April along with asset price expectations.  A key question going forward is whether Korea can sustain the domestic demand rebound when credit continues to contract.

Bank loan growth slowed to 8.4% y/y in March 2009 as banks tightened lending standards in anticipation of asset quality deterioration and the looming suspension of FX derivative contracts, which may weigh on bank earnings. A domestic credit crunch remains a risk even though the Bank of Korea has lowered its Base Rate to a record low 2% because many banks fund themselves through bonds at higher rates and economic concerns have elevated the yield on corporate bonds.

Latin America

 

It is quite fair to say that so far in the Latin American region there is limited evidence of a sustained recovery and in some cases the reality is actually of a still deteriorating outlook either due to the strong inertia of the global economic crisis and the deleveraging process or due to specific events such as the swine flu in Mexico.

In Brazil, the latest data on industrial production definitely showed improvements on the margin. March industrial production was up 0.7% m/m s.a., pushing the y/y rate up from -16.8% to -10%, mainly driven by a sharp increase in the production of automobiles. In fact, the tax cuts given by the government to boost auto sales have been quite successful. But the recovery is not widespread throughout the economy. Retail sales surprised on the upside in January but the downward trend resumed in February and more deterioration is expected in March as the labor market brings signs of continued deterioration.

In Chile, the latest economic activity data showed a -0.7% reading in March, which was above estimates and surprising in light of the poor mining, industrial production and retail sales results.  Copper prices, Chile’s main export is up now by more than 35% YTD, largely because of an increase in exports to China and could be a trigger to further improvements in activity. The central bank of Chile has been the most proactive within the region, slashing rates by 7 percentage points so far in 2009, with more cuts expected. Thus, both monetary and fiscal accommodation should certainly support a quicker and stronger recovery in Chile, despite the fact that so far those signs are still mixed.

In Mexico, analysts recently revised their growth estimates once the own government’s estimates were sharply reduced (from -1.8% to -4.8% for 2009). Furthermore, economists are trying to calculate the impacts of the swine flu on the country’s economy which could subtract of -0.5 to -1.0 percentage points from GDP depending on how long the flu affects the tourism and entertainment sectors. The latest economic activity indicators have failed to bring any signs of recovery so far and the overall sentiment seems to be of a relatively far bottoming of the economy. The economic activity indicator from IGAE declined by 10.8% y/y in February, worse than expected as all components contracted but it did expand on a seasonally adjusted month-on-month basis.

91 Responses to “Green Shoots or Yellow Weeds?”

GuestMay 12th, 2009 at 9:23 pm

From Alan Abelson’s column this week in Barron’s:PERHAPS THE MOST ELOQUENT expression of how delusional Wall Street has become was its response to Friday’s report on what happened to employment — or, more importantly, unemployment — in April. Payrolls shriveled by 539,000, less than the 550,000 to 600,000 guesstimates of the seers as well as March’s initial tally of 633,000. That was enough for the choristers to start humming Happy Days Are Here Again.A slightly more careful look suggests rather emphatically that they’re not. The unemployment rate extended its doleful rise, hitting 8.9%, the highest level since 1983. The jobless ranks have swollen by 5.7 million since the recession got underway in December 2007, and there are now 13.7 million people out of work.Moreover, our favorite measure of unemployment — favorite because we think it a truer gauge — is the Bureau of Labor Statistics’ U-6, which includes the likes of workers laboring part-time because they can’t land full-time jobs, rose to a fresh peak of 15.8%. That means 24.7 million people are effectively unemployed. It’s a figure that doesn’t get too much notice — maybe it’s just too depressing — but it should.For that matter, bad as it is, 539,000 doesn’t do justice to the severity of the payroll shrinkage. For one thing, it was puffed up by the 72,000 federal census takers signed on by Uncle Sam. And for another, it includes 226,000 supposed jobs, or 60,000 properly adjusted, courtesy of what David Rosenberg calls the Alice-in-Wonderland birth/death model. Ex this pair of extraordinary items, he points out, the headline number would approach 670,000.In one of his valedictory scribblings (David’s leaving Merrill Lynch and returning to the glories of his native Canada and money management), he also notes that private-sector employment sank by 611,000 in April, and did so across a wide swath. “The data,” he contends, “just don’t square with the conventional wisdom permeating the investment landscape.”Take the notion that we’re enjoying a commodities boom; If so, it seems more than passing strange that natural resources shed 11,000 jobs last month. Or, how do you reconcile the burst of enthusiasm for leisure/hospitality stocks with 44,000 busboys, bell captains and bartenders being laid off? Or retailers’ giving pink slips to 47,000 workers — atop the 167,000 slots they let go in the first quarter — if they thought anything more than the timing of Easter underpinned their April results?Looking ahead, David scoffs at the idea that the “jobs data are about to get better because the markets have enjoyed a nice two-month rally.” Among the reasons he’s skeptical: the still record-low workweek, at 33.2 hours; the 66,000 downward revision to the back data (which, he avers, tends to feed on itself); the 63,000 slide in temp-agency employment; and the high levels of both initial and continuing jobless claims.All of which, he believes, foreshadow a further 550,000 payroll plunge when the May data roll out early next month.To David, as to us, the present buoyant mood on the Street is obviously more the result of rose-colored glasses than of green shoots.http://online.barrons.com/article/SB124182262250602213.html?page=sp

GuestMay 12th, 2009 at 9:25 pm

From “When big-box stores go bust, little shops suffer” | San Francisco Chronicle May 11The retail area in Dublin [California] near the 580 and 680 freeways looks like it’s halfway to becoming a ghost town.A slumping economy has transformed part of this city, where Mervyns, Circuit City and Expo Design Center have all closed recently, into an extreme example of the malaise affecting shopping centers across the Bay Area.The retail exodus is forcing some cities to scramble in the face of lost sales tax revenue at a time when money is already tight. Meanwhile, they’re grappling with how to resurrect the zombie neighborhoods, where many of the remaining merchants complain about declining foot traffic and the eyesores of buildings plastered with “for lease” signs…Dublin, a relatively prosperous East Bay community of 47,000, has long been a retail hub… As the economy soured, [the] older core, along Dublin Boulevard and San Ramon Boulevard, started to empty out.The victims are a who’s who of failed and struggling retailers. Mervyns closed around the holidays, followed by Circuit City and Home Depot’s Expo Design Center. Anderson’s TV, Don Sherwood Golf & Tennis World and a couple of mom-and-pop retailers have also pulled out. A Good Guys store that shut down a few years ago is still vacant…Similarly, Antioch’s Somersville Towne Center mall is suffering after the departure of an array of retailers, with one anchor, Mervyns, gone and another, Gottschalks department store, planning an exit. In Tracy [a Bay area commute town], the West Valley Mall –owned by bankrupt parent General Growth Properties—has a number of closed shops, and the Gottschalks there also plans to close soon…

MM CAMay 13th, 2009 at 12:01 am

Ah another local… I’m from contra Costa county also… its a disaster out here- retail vacancies are rising at break neck speed the past 2 months…

MM CAMay 13th, 2009 at 9:35 am

LOL one could say that, especially when 95% of the jobs are at minimum wages… i actually thought it was the Gov’t…

hazletonMay 13th, 2009 at 2:14 pm

I’m a local also. What I can’t understand, though, is why all the restaurants in Danville and Walnut Creek are still packed !

GuestMay 12th, 2009 at 9:30 pm

Airlines Test Strategies: Baggage Fees Vs. Volume on NPRMorning Edition, May 12, 2009 · The past two years have been a tough time in the airline industry. After 71 consecutive quarters of profitability, Southwest Airlines has lost money for three straight quarters. Nationally, airline passenger loads are down 13 percent for the industry, compared with last year.Southwest Chief Executive Officer Gary Kelly says even with the big drop in the price of jet fuel, the airline is having trouble making it work.”The big problem is that for every dollar that we’ve seen reduced in fuel expense, we’ve also lost, ironically, a similar amount in revenue,” he says.Like Wal-Mart, the Dallas-based airline built an empire on low cost. In an effort to stay true to its roots, Southwest is one of the last major carriers to include free checked luggage in the price of the ticket.It’s estimated that competitors like US Airways might generate as much as $400 million a year in revenue by unbundling services previously included in an airline ticket. But Kelly is betting that over the long term, the decision not to do the same will play out to Southwest’s benefit.”Find me one example of somebody who likes paying a baggage fee,” Kelly says. “If you look at our customer traffic for 2008, as we were forced to raise prices last year, our numbers fell off.”After the financial collapse, airfare competition has gotten even fiercer. Southwest is banking on market share, filling its planes with hopefully loyal passengers who are happy to have their suitcase and golf clubs flying along for free.But Southwest’s competitors are quietly satisfied with their strategies too. Without baggage fees, losses would almost certainly be worse. Richard Aboulafia, an analyst with the Teal Group, says carriers have stanched the bleeding.Travel has never been so cheap, he says. As CEOs watch ticket prices fall, they’re responding by unbundling the services traditionally included in an airline ticket, like the costs for transporting bags.Round-trip ticket prices are routinely below $300, even cross-country. But if a family of four checks two bags each, that’s up to $320 extra. Originally, these fees were a reaction to fuel prices. Aboulafia says now they are aimed at offsetting collapsing demand.”If it weren’t for falling fuel prices, the airlines would just be hemorrhaging cash,” he says. “You’ve got traffic dropping at record levels because of the recession. And of course you’ve got yields — the prices paid for a ticket — also still falling. It’s like winning the lottery except that if you didn’t win the lottery, you’d be in the poorhouse.”http://www.npr.org/templates/story/story.php?storyId=104037873

Pecos BankerMay 13th, 2009 at 8:53 am

Hopefully the baggage fees are going directly into the pockets of the CEO’s. That’s got to be a major, major expense that has to be dealt with first.

GuestMay 12th, 2009 at 9:49 pm

Speaking of green shoots and yellow weeds…from Alan Abelson (May 4, 2009) on:THE INCOMPARABLE STEPHANIE POMBOY, no stranger to this space, week in week out spices her intriguing insights with sprightly irreverence. But she was really in top form in the latest edition of her worthy MacroMavens commentary. So we thought we might pass along some of her bon thoughts and bon mots that enlightened and tickled us.Under the elegant title “Burping Out Loud,” Stephanie stands the conventional wisdom on its head on corporate profits and the stock market. We should warn you that recovery isn’t currently a prominent part of her lexicon.For openers, she doesn’t buy the growing conviction that what we’ve been witnessing is more than a bear-market rally.And her Exhibit A is the amount of financial pain being priced into the credit markets. She readily grants that spreads have narrowed, but notes that they remain “far, far wider than they were at the 2003 cycle lows.”The complacent reaction among the investment cognoscenti is that the credit markets are wildly oversold. More likely, she sniffs, it has something to do with the fact that “AN OVERWHELMING PORTION OF SOME $8 TRILLION IN MORTGAGE DEBT (OR 80% OF THE TOTAL) IS TEETERING ON THE EDGE OF, OR IN SOME STATE OF, NEGATIVE EQUITY.” [caps mine]As to the Fed’s claim that the equity of homeowners as a group stands at 43%, she points out that what the Fed neglects to tell you is that roughly a third of them have their houses free and clear. Lo and behold, some basic arithmetic reveals that 67% of homeowners with mortgages have equity of less than 15%. That, Stephanie comments drily, suggests the “destruction priced into the credit markets hardly seems out of whack with potential reality.”And while, thanks to “the transfer of toxic assets to taxpayers” and the magic of accounting legerdemain, the scarred financials to some significant extent may be spared further pain, the same, alas, can’t be said for the nonfinancial sector. Little recognized, she insists, is how much the extraordinary gains in domestic nonfinancial profits from the low in 2001 to the peak in 2006 — a stunning rise of 388% — owed to the housing bubble.”Who in his right mind,” she asks, “would believe that explosion in profits during the housing-bubble stretch a mere coincidence and, therefore, in no way subject to the same inexorable decline?” Since we delight in answering rhetorical questions, we’d reckon not more than 95% of the folks who contend we’re in a new bull market.Absent the powerful stimulus provided by the unprecedented boom in housing, she sees a huge hit still in the offing for nonfinancial corporate profits. A worst-case analysis is that such profits would sink to 2003 levels, a further decline of $450 billion, or 54%. Under a less exacting (and frightening) estimate, using their relationship to GDP, they would return to their pre-bubble percentage of 3.5%, which translates into a drop from here of $340 billion, or 41%.At the end of the day, earnings, to state the obvious, are what make the stock market go up — and down. The prospect that they are in for a fresh drubbing is all the more ominous because it’s unexpected. As Stephanie reflects, “bear-market rallies come and go, but what makes this one so noteworthy is just how far removed perception is from reality.”http://online.barrons.com/article/SB124121846529378831.html

RealistMay 13th, 2009 at 7:44 pm

Why would 2003 be the benchmark for the worst case when this housing bubble started in the late 90’s?

GuestMay 12th, 2009 at 10:04 pm

Question: Who said:“It is long past time we look at the implications of…the privatization of money created by the 1913 Federal Reserve Act, the bank fractional reserve system and our debt-based economic system. Unless we have dramatic reform of monetary policy, the entire economic system will continue to accelerate wealth upwards. I am currently working on drafting legislation for an ‘American Monetary Act’ to address these and other issues in order to protect the economic well being of America”?Answer: Rep. Dennis J. Kucinich (D-Ohio) to the American Monetary Institute, an organization for monetary reform in America, April 23, 2009.

Guest oMay 12th, 2009 at 10:16 pm

The Financial Sector: “A House Burning Down”Ben Bernanke’s False AnalogyBy Prof. Michael Hudson©ISLETGlobal Research,March 16, 2009On the March 15 CBS show “60 Minutes”, Federal Reserve Chairman Ben Bernanke used a false analogy already popularized by President Obama in his quasi-State of the Union Speech. He likened the financial sector to a house burning down – fair enough, as it is destroying property values, leading to foreclosures, abandonments, stripping (for copper wire and anything else recoverable) and certainly a devastation of value. The problem with this analogy was just where this building was situated, and its relationship to “other houses” (e.g., the rest of the economy).Mr. Bernanke asked what people should do if an irresponsible smoker let his bed catch fire so that the house burned down. Should the neighbor say, “it’s his fault, let the house burn”? That would threaten the whole neighborhood with fire, Mr. Bernanke explained. The implication, he spelled out, was that economic recovery required a strong banking and financial system. And this is just what he said: The economy cannot recover without yet more credit and debt. And that in turn requires trillions and trillions of dollars given by “the neighbors” to the bad irresponsible man who burned down his own house. This is where the analogy goes seriously off track.But watching “60 Minutes,” my wife said to me, “That’s just what Mr. Obama said the other night. What do they do – have a meeting and agree on what metaphor to popularize?” They seem to have an image that will lock Americans into supporting a policy even though they don’t like it and many feel like letting the financial house (A.I.G., Citibank, and Bank of America/Countrywide) burn down.What’s false about this analogy? For starters, banking houses are not in the same neighborhood where most people live. They’re the castle on the hill, lording it over the town below. They can burn down and leave the hilltop revert “back to nature” rather than having the whole down gaze up at a temple of money that keeps them in debt………..http://www.michael-hudson.com/

GuestMay 12th, 2009 at 10:43 pm

This is the man who is in control of Everyman’s finances? I don’t think it’s a good idea to have the house that burned down never to be rebuilt and to take all that the neighbors possess so that the whole community suffers. That’s not very smart.I have a better suggestion. The man who was smoking and caused the house to burn down should be taken out and shot and the whole thing would be solved.

Guest oMay 13th, 2009 at 9:24 am

g,frank lloyd wright said “never build on topof the hill.” when asked why? he said” because you lose the top of the hill. “i think about that.

GuestMay 12th, 2009 at 10:20 pm

Roubini’s the #1 feature at this moment on Bloomberg Editors’ Video Picks: “Roubini Says Bank Stress Tests ‘Not Stressful Enough’”http://www.bloomberg.com/index.html?Intro=intro3

GuestMay 13th, 2009 at 8:04 pm

The Professor mentions inflation in this video. That is a switch from his call for deflation.

GuestMay 12th, 2009 at 11:04 pm

the unchecked power of Goldman Sachs over the American people continues unabated…AIG Trustees Should Answer to Taxpayers, Not Fed, Towns SaysMay 12 (Bloomberg) — A House panel plans to ask trustees assigned to safeguard the U.S. government’s $182.5 billion investment in American International Group Inc. whether their supervision by the Federal Reserve Bank of New York serves taxpayers’ interests.The trustees — Jill Considine, Chester Feldberg and Douglas Foshee — were appointed in January by the New York Fed, a private institution owned by member banks, which has the power to overturn some of their decisions and to remove them. Edolphus Towns, a New York Democrat who chairs the House Committee on Oversight and Reform that will hold hearings tomorrow, said he’s concerned that the interests of AIG’s customers and trading partners may outweigh those of taxpayers.“As a $182.5 billion recipient of taxpayer dollars, AIG should no longer be able to operate in the dark,” said Towns in an e-mail. “The American people, who now own a major portion of this company, deserve clarification on core issues of the AIG bailout — who exactly is in charge at AIG and who is protecting the taxpayer’s multibillion-dollar investment?”AIG is the biggest recipient of government rescue funds. Whether it can repay the money may depend on actions by the trustees, some of which must be approved by the New York Fed. The New York-based insurer has received four bailouts valued at $182.5 billion since agreeing in September to turn over about an 80 percent stake in the company to the government.AIG CounterpartiesPeter Bakstansky, a spokesman for the trustees and a former spokesman for the New York Fed, said the three are “prepared to talk about” what they have been doing since their appointment when they testify. He said the trustees speak weekly with AIG management by telephone and meet monthly in person. He declined to give further details.Deborah Kilroe, a spokeswoman for the New York Fed, declined to comment.The insurer’s counterparties include firms connected to the New York Fed, such as Goldman Sachs Group Inc., which has received more than $8 billion of AIG’s bailout funds to settle credit-default swaps it had with the firm. Towns’s committee plans to ask the trustees and AIG Chief Executive Officer Edward Liddy, who is also scheduled to testify, why the company didn’t try to negotiate for payments of less than the full amount.New York Fed President William Dudley worked until 2007 as Goldman Sachs’s chief economist. Stephen Friedman, who resigned as New York Fed chairman May 7, was once CEO of Goldman Sachs and supervised the search for Dudley.Friedman resigned from his New York Fed post after the Wall Street Journal reported that he bought 37,300 shares of Goldman Sachs last year while seeking a waiver of Fed policy that would have precluded him from sitting on the Goldman Sachs board and being New York Fed chairman at the same time. The shares have since gained $3 million in value.‘Widening Morass’“These programs are drawing the Federal Reserve into a widening political morass and compromising Fed independence,” said William Poole, former president of the St. Louis Fed. The Fed lending programs “ought to have legislative authorization and ought to be run out of the Treasury or some other agency of the federal government.”Goldman Sachs CEO Lloyd Blankfein rejected calls to remove Friedman. “He is a credit to our board,” Blankfein said last week at the firm’s annual meeting in New York. Friedman said he bought the shares “because I thought Goldman Sachs stock, under tangible net worth, was at a very attractive price.”The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.‘Right to Disclosure’JPMorgan Chase & Co. CEO Jamie Dimon and Richard Carrion, chairman and CEO of Banco Popular de Puerto Rico, are also on the New York Fed board, along with General Electric Co. CEO Jeffrey Immelt.“Fed resources are public resources, and taxpayers have a right to disclosure,” Poole said.The congressional hearing will be the first public appearance for the trustees, who are under pressure from lawmakers to show they are helping to turn around the insurer. Towns said he will ask Liddy and the trustees “what they are planning to do with the company and how this plan, whether it is to liquidate or rehabilitate the company, will ensure that American taxpayers are repaid.”Representative Darrell Issa of California, the ranking Republican on the oversight committee, said he wanted greater accountability from the trustees.$100,000 a Year“There is a significant and troubling lack of transparency and accountability in Treasury’s delegation of authority to an ‘independent’ trust that manages the government’s and taxpayers’ interest in AIG,” Issa said in an e-mailed statement. “The American people have a right to know how these trusts are going to be designed, how they will operate and how the trustees can be held accountable.”The trustees were hired by the New York Fed, which pays each of them $100,000 a year, under a contract completed on Jan. 16 in the final days of the Bush administration.They wield the government’s 77.9 percent stake in AIG through a trust and control votes on asset sales, mergers and the selection of board members and top executives, according to a company filing.The contract says the trust was created “to avoid any possible conflict” with the Fed’s supervisory and monetary- policy functions. Dudley, the New York Fed president, said in a Jan. 16 statement that the trustees “have a legally binding obligation to exercise all of their rights as majority owner of AIG in the best interests of the U.S. taxpayers.”Approval of FedWhile the contract says the New York Fed “wishes the trustees to have absolute control over the trust stock” and that developing a divestiture plan for selling AIG shares is a key goal, it states that the trustees cannot sell the shares without the approval of the New York Fed after consultation with the Treasury Department.Under the contract terms, the New York Fed will control any litigation. If a trustee is indicted or found “to have demonstrated untrustworthiness or to be derelict in the performance of his or her duties,” the New York Fed has the right to remove the trustee.The agreement doesn’t define untrustworthiness or dereliction of duty.Considine, 64, is a former chairman of the Depository Trust & Clearing Corp. and served a six-year term on the New York Fed’s board, where she was chairman of the audit and operational risk committee. She was the New York State superintendent of banks from 1985 to 1991 and is lead director of Ambac Financial Group Inc., the New York-based bond insurer whose shares have dropped 98 percent from a 2007 peak.Feldberg, 69, a former chairman of Barclays Americas, was an executive vice president in charge of the New York Fed’s Bank Supervision Group for nine years through 2000.Foshee, 49, was chief operating officer at oilfield- services provider Halliburton Co. before joining El Paso Corp. in 2003 as president and CEO.http://www.bloomberg.com/apps/news?pid=20601109&sid=avjlPu.bRVmk&refer=home

AnonymousMay 12th, 2009 at 11:15 pm

This is what happens when a private cartel controls a government, and picks the president. I am not surprised at the breadth and power of its control, as further substantiated here. The story simply fills in more of the details.

GuestMay 12th, 2009 at 11:22 pm

the fact is: no universal collapse is going to come from this situation. U.S. currency may weaken a bit but will unlikely go above the $1.40=1 euro line during the coming years.Changes will come from this but who knows how much – the longer the situation continues at about the same, the less ability for the government to pass any major law changes because of this. And it looks like the economy will not get much worse – it just may take a rather long while until it gets much better. In the meantime the US economy will be running on government handouts and Eurozone+China will readjust.

MM CAMay 13th, 2009 at 12:11 am

Define your view of no collapse? seems to me their are 35-40 million on food stamps, State and local budgets are totally under water, approx 25 million U6 unemployed as of today, 50-60 million without health care, 2 trillion dollar deficits minimum for the next 10 years…Housing in continued free fall3-4 Trillion more in unrecognized/toxic assests…i think rather the affects of all the damage have yet to be realized. I agree it will be many many years before things are better, but in the meantime we have at least 2-3 more years of increasing damage to our economy to still wade through and if we step on one of the land mines, all bets are off on how bad things could become..it is surprising how the dollar has been able to hold on, but it has been in decline for abotu 6 weeks now and sooner a later it will take a seriuos nose dive… its up against the massive FED printing job…but that has to end as it is not sustainabel and the FED and Tres know it.

Jason BMay 13th, 2009 at 5:02 am

If interest rates continue to go up, and the dollar index continues to fall, I’d expect we will have some seriousproblems by Autum.

REDMay 13th, 2009 at 6:39 am

the US has already collapsed, the world just don’t fully appreciate it, and I’ll give a couple of examples- 50% budget deficit, no reasonable expectation of improvement- debt monetisation / money printing- the size if the bailouts are completely out of the realm of understanding to your average citizen. What is it now $8t of bailouts, thats $25,000 for every man woman and child in America. Ridiculous

MM CAMay 13th, 2009 at 9:47 am

I agree that most people cannot comprehend what a billion $$ is what 100 Billion is, and what a trillion is… We were not raised to understand those numbers…the Iraq war has “only” cost us approx. 600B in the last 8 years…. so when one considers we have spent/injected 20 times that amount in the 12 months or so fixing this current economic collapse.. its in the numbers

MM CAMay 13th, 2009 at 12:17 am

Projections for summer unemployment are filtering in and the auto industry shut down/bankruptcies and loss of asscoaited jobs is indicating we stay in the 550-700k range… The april unemployment number has been ripped to shreds and the loss is really closer to 675k real jobs….Summer vacation estimates indicate 46% less people this year are planning one…

Little SaverMay 13th, 2009 at 12:39 am

yellow weeds:JPMorgan, Citigroup Paid in Junk Bonds for Harrah’s Debt Swap (Bloomberg)”The caveat is JPMorgan and Citigroup took notes, due to mature in 2014, that are trading at about 50 percent of face value. If the banks sell them before maturity or before the price recovers, the cash value of their fees declines.”And if they carry them on their books at 100%, they will appear as as 100% profit green shoots until 2014, when they turn dark yellow-brown, after having spread their seeds and sickened investors.Business as usual?

GuestMay 13th, 2009 at 9:33 am

Dollar Rally Will End, Rogers Says; May Short StocksMay 12 (Bloomberg) — The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, the investor added.“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”The dollar has climbed against all of the so-called Group of 10 currencies except the yen over the past 12 months, according to data compiled by Bloomberg. The U.S. currency was at $1.3592 per euro today from $1.3582.Rogers joins “Black Swan” author Nassim Nicholas Taleb in avoiding the U.S. currency. Taleb told a May 7 conference in Singapore he preferred gold and copper to the dollar and the euro as the global economy faces a “big deflation.”Gains in U.S. stocks also signal a “correction,” Rogers said. He’s avoiding equities for the next two to three years because prospects haven’t changed, he added…Meredith Whitney, the former Oppenheimer & Co. analyst who predicted a slide in U.S. bank shares, said yesterday she wouldn’t advise investors to short-sell the stocks because of the government’s influence. Still, she wouldn’t own these companies because many banks are sitting on “rotting assets,” Whitney added. She advised short-selling retail and consumer discretionary companies as more jobs are cut and consumer spending declines…http://www.bloomberg.com/apps/news?pid=20601100&sid=a3YnR0N8LgpQ&refer=germany

GuestMay 13th, 2009 at 9:49 am

Car dealers fight rapid closures; 180,000 workers could lose jobshttp://www.usatoday.com/money/autos/2009-05-12-car-dealerships-closures-chrysler-gm_N.htm

MM CAMay 13th, 2009 at 9:56 am

Why would anyone think the number of forclosures ocurring is surprising? Wake up… When people lose jobs at the rate that is happening, what do they expect… This is one time when rising unemployment cannot be considered a lagging indicator… this crisis is far different than other “normal” recessions… There are NO JOBS and very little prospect for any sustained job growth on the horizonRealtyTrac: April foreclosures rise 32 percentMIAMI – The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, according to data released Wednesday.More than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005.April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate.The April number, however, was less than one percent above that posted in March, when more than 340,000 properties were affected. The March data was up 17 percent from February and 46 percent from a year earlier.”We’ve never seen two consecutive months like this,” said Rick Sharga, RealtyTrac’s senior vice president for marketing. “It’s the volume that’s surprising.”While total foreclosure activity was up, the number of repossessions by banks was down on a monthly and annual basis to their lowest level since March of last year, RealtyTrac said.But that’s far from positive news. Because much of the foreclosure activity in April was in the default and auction stages — the first parts of the foreclosure process — it’s likely that repossessions will increase in coming months, RealtyTrac said.About 63,900 homes were repossessed in April, down 11 percent from about 71,700 in March, RealtyTrac said. But the mortgage industry has resumed cracking down on delinquent borrowers after foreclosures were temporarily halted by mortgage finance companies Fannie Mae and Freddie Mac, together with many other lenders.”All of these loans are now being processed pretty rapidly by the servers,” Sharga said.Help might be on the way. The Obama administration announced a plan in March to provide $75 billion in incentive payments for the mortgage industry to modify loans to help up to 9 million borrowers avoid foreclosure. But the extent of the relief remains unclear, with questions lingering about how much the lending industry will cooperate in modifying loans.After banks take over foreclosed homes, they usually put them up for sale at deep discounts. Nationwide, sales of foreclosures and other distressed properties made up about half of the market in the first quarter, the National Association of Realtors reported.First-quarter home sales fell in all but six states — Nevada, California, Arizona, Florida, Virginia and Minnesota — where buyers have been able to grab foreclosed homes at discounts, the realtors group said Tuesday.On a state-by-state basis, Nevada had one in every 68 households receive a foreclosure filing, down 18 percent from March but still the nation’s highest rate. In Florida, one in every 135 households received a filing in April. For California, the rate was one in every 138 households.Rounding out the top 10 were Arizona, Idaho, Utah, Georgia, Illinois, Colorado and Ohio.Among large cities, Las Vegas led the way with one in every 56 households receiving a filing. That was a slightly higher rate than the southwest Florida metro area of Cape Coral-Fort Myers, which saw one in 57 housing units receive a filing.Cities in California took the next six spots: Merced, Modesto, Riverside-San Bernardino, Bakersfield, Vallejo-Fairfield and Stockton. The Florida cities of Miami and Orlando were ninth and 10th, respectively.

GuestMay 13th, 2009 at 12:33 pm

Four of the California six spots that are imploding are in the one-to-two hour commute area to the San Francisco/San Jose Bay area, and two of the six, Riverside and Bakersfield, in the commute area to the LA basin. When the housing bubble burst and gas prices shot through the house roof, it was these developments of bare fields into housing developments that were cheaper than in the close-in suburbs that took the bullet.

MM CAMay 13th, 2009 at 10:14 am

Very good article with easy to understand explanations of the current MESS!http://www.moneyandmarkets.com/five-economic-storms-raging-now-2-33662Five Economic Storms Raging NOW!Any economist fixated on so-called “signs of a recovery” needs to have his head examined.As I’ll prove to you in a moment, the hard-nosed reality is that five major economic cyclones are in progress at this very moment.The storms are not abating. Nor are they changing direction. Quite the contrary, what you see today is, at best, merely a deceptive calm before the next, even larger tempests.For investors who follow Wall Street, it could be fatal.For contrarian investors, however, this insanity opens up some of the greatest opportunities in many years: Precisely when we see plunging barometers all around us, we also have a new surge of hype on Wall Street, driving stock prices higher.Result: The rally has lowered the cost of contrary investments precisely when their prospects are best. Consider the five storms, and you’ll see exactly what I mean …

PeteCAMay 13th, 2009 at 10:25 am

My thoughts are that the USA is already in a “slow motion” financial collapse.Regardless of the juggled numbers from the BLS (the infamous birth/death model), we are still losing anywhere from 650,000-750,000 jobs every month in the USA. There seems little doubt that we will hit 10% unemployment figure (official numbers, real unemployment is much higher) later this year. There is also no doubt that the Obama administration’s forward projections for budgets in 2010 and 2011 are wildly optimistic. I fully expect the administration to go into panic mode at some stage, as they realize that tax incomes are dwindling, unemployment is still going up, and further big bailouts of the banks and insurance companies will be required. They are drowning in debt at this stage – but just not telling anybody.A couple of points. Right now there is a battle in unemployment levels between the USA and China. By maintain its currency peg on the US dollar, China is in effect lowering the cost of its exported goods to the USA – even as the dollar sinks (yes … the US dollar is sinking again). Effectively, the Chinese are saying that they are willing to lower the cost of goods they produce to maintain export volume into the USA. This is causing a dilemma for the US economy. If our economy was completely isolated, then rising unemployment would cause less money to be spent and falling demand for goods. The resulting problem with lower aggregate demand and excess capacity would eventually correct itself through a (serious) recession. Workers would change jobs, economic activity would shift, inefficient processes would be eliminated, and the system would become productive again. But as it is now, when demand falls in the USA then the Chinese simply lower the cost of their goods (i.e. prices of items do not go up at WallMart). The feedback loop within the US economy has been severed, because China does most of the manufacturing. Problems of excess capacity and unemployment do happen in China, but at levels they can cope with within their own country (investment is still pouring into China). So the normal recovery mechanisms within the USA are undermined.Which means what? Basically, as I see it, the financial collapse of the USA is really about a collapse in real wages for US workers. Data recently published by the Contrary Investor clearly show that real wages for US workers have hardly risen over the last 5-6 years (as opposed to better recoveries in wages after previous downturns). Eventually, real wages in America will actually sink (if measured in inflation-adjusted terms). There are several possibilities:1) US unemployment remains stubbornly high, and does NOT recover for years. In that case, average wages are dragged down because a much higher number of jobs have been shed, and these do not return to the US economy.2) US workers do get new jobs, but the new jobs pay less money on average. i.e. most of the good jobs are lost or migrate overseas. This is the likely result of a Gov’t jobs assistance program – where workers are given some type of job program, but it does not effectively generate much new economic activity. In effect, there would be a shift in the wage curve so that most Americans can only get low-paying jobs.3) There is a vast collapse in service sector jobs in the USA (esp. real estate, health care etc.) accompanied by a significant drop in the standard of living. Americans eventually find employment, but only because foreign companies come in and buy existing production facilities – so that US workers go back to manufacturing, but with much lower wages and health care packages. i.e. a shift from service sector back to manufacturing, but with low wages and foreign bosses.All these changes represent a massive restructuring of the US economy. Most of this change is still ahead of us. And further friction with China (trade wars, currency pegs) appears inevitable.PeteCA

GuestMay 13th, 2009 at 11:02 am

Good analysis PeteCA. America’s reserve currency status combined with government market interventions has stalled the financial collapse scenarios. As well, it’s China’s best policy to continue it’s “deadly embrace” of the USA. So the next weakest link in the economic chain are USA wages.

FEDupMay 13th, 2009 at 11:06 am

“Basically, as I see it, the financial collapse of the USA is really about a collapse in real wages for US workers.” ABsolutely agree! Between illegals, new graduates, people switching careers, etc, there exists an oversupply of workers which will drive down wages for many years and lower the cost of living for most Americans; it’s simply another big step closer to 3rd world status and we haven’t even mentioned the effects of devaluation of the dollar. Whether the boyz in Washington realize it or not, the other shoe has yet to drop!

PeteCAMay 13th, 2009 at 11:30 am

So practically speaking … we’re probably looking at a situation over the next decade where “the best jobs are overseas”. Hence we may see a brain drain operating in reverse from the USA, and a lot of our talented professionals pulling up stakes and moving to other countries.PeteCA

GuestMay 13th, 2009 at 12:11 pm

The changes are much more profound than people realize we are witnessing the collapse of capitalism as we know it. With modern day technology and greater efficiencies human labor is becoming more and more obsolete. China is fooling itself if it thinks it can find work for all its 1 billion people, simply put industry doesn’t need people and consumers can’t possibly keep up with productive capacity-so now what do we do? We’re going to have to start paying the useless people and sacrifice the gains of the productive(or so called productive), it’s not political it’s mathematics.

HubbsMay 13th, 2009 at 1:43 pm

I think this is one of the most important, yet glossed over, issues of economies and human social welfare. If humanity is becoming “obsolete” due to efficiencies of mechanization and technology, the masses will have to go back to a more ecological existance….i.e agarian life style.

devils advocateMay 13th, 2009 at 2:17 pm

terrific post!my Chinese take-out has been doing more business because people were saving on going out (more expensive + leaving a tip)but today, I saw their lunch time staff was way reduced and was toldthat their lunch business has slowed…..what will happen when the Administration goes into panic mode?Hank Paulson ran to Congress so the President will send Teddy runningto Congress…Congress will pass emergency legislationwhat happened in Argentina a couple of years ago?

devils advocateMay 14th, 2009 at 7:29 am

my accountant is a business specialist and tells me that1 in 4 public traded companies will go belly-up within 3 years

ptmMay 13th, 2009 at 10:42 am

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS – FLASH UPDATE – May 13, 2009New Accounting Fraud for Monthly Federal Deficit ReportingObama Administration Changes Rules in Order to Reduce Reported Deficit Level. …Federal Credit Reform Act and EESA, TARP purchases are now being accounted for on a net present value basis, taking into account market risk. Accordingly, budget outlays have been reduced and direct loan financing activity correspondingly increased by $175 billion….Then, of course, there is the surging net present value of unfunded liabilities for Social Security and Medicare, but the government is not about to alter its supposedly otherwise cash-based accounting in a manner that would show a larger (by more than $4 trillion), rather than a smaller, reported annual federal deficit….Rolling 12-Month Federal Deficit Hits $1.3 Trillion or $1.1 Trillion (New Accounting); Federal Debt Up by $1.9 Trillion Year-to-Year.Annual Retail Sales Plunge a Depression-Like 10.1% for April 2009…April 2009 retail sales was the worst seen in post-World II history, other than for a 10.6% decline in December 2008….pending this week are the Industrial Production, PPI, & CPI reports.

GuestMay 13th, 2009 at 2:13 pm

Blogger wethepeople reported recently that President Barack Obama at a May 9 White House Correspondents’ Association Dinner in Washington DC, said that “a government without newspapers, a government without a tough and vibrant media is not an option for the United States of America.”Wethepeople went on to say there is something “alarming” by the use of the term “government” here…that by “wrongly using the word ‘government’, Obama philosophically endorses the media and the state as partners, both dependent on the other for survival…” that “his statement infers government control over speech, or limiting freedom of the press…”Well, why not? And here we have the reason – deliberate government “accounting fraud” for monthly federal deficit reporting and for any other statistical fraud the government engages in to misinform the public and its ability to make informed decisions. It all started in earnest when the Clinton Administration redefined, according to Robert Reich in his memoirs, unemployment to eliminate five million discouraged workers and to lower the unemployment rate. Says John Williams in his article, “Government Economic Reports: Things You’ve Suspected but were Afraid to Ask!”, methodologies also were changed to reduce poverty reporting, to reduce reported CPI inflation, and to inflate reported GDP growth, among others.It’s really Pravda, all over again isn’t it? Translated as “Truth” in Russia, Prada remains the historical state-controlled poster newspaper, state-owned and published by the Communist USSR Government as a propaganda machine to spread pro-communist views.Why not for America, too? It brings contentment and docility to the sheeple–and keeps them off the streets. Well, it did, anyway…until the internet.

GuestMay 13th, 2009 at 10:47 am

This is a repost, because I don’t think anyone saw it last time:Roubini never seems to talk about the VIX. It’s just under 33 right now, and it seems to be trending lower and lower. Surely this is a good sign for the stock market… but does it say anything about the actual economy? What do you guys think?

GuestMay 13th, 2009 at 11:17 am

I read it differently. Low VIX signals complacency, allowing a spectacular crash if the market decides to decline. I don’t think VIX can go down much from here.

蓋特納May 13th, 2009 at 12:54 pm

道瓊工業指數自3月9日低點 (6547點)迄今反彈30%,令投資人又驚又喜。遂使得近來的華爾街,不斷傳出所謂「多頭復活」或「黎明已至」等說法。但曾擔任對沖基金操盤手的知名評論者Andy Kessler認為,這波漲勢沒有持續性的基本面支撐,充其量只是「傻佬反彈」(sucker’s rally)。根據Kessler的看法,股市短線上漲的理由有三項: ■世界末日的可能性已消滅 顯而易見的情況是,美財政部7000億美元的TARP基金已不足填補美國銀行界的破洞。因此財長Timothy Geithner(蓋特納)2月10日宣布要提出新的紓困方案,但被外界批評沒有實質內容,道瓊當天大跌382點。 直到3月9日當天,Geithner才又宣布將主導美國19大金融機構接受「壓力測試」,並暗示不會接管銀行、且不會放任其倒閉,才又將金融股給救了回來。 有專家預測,美國金融界損失將高達2兆美元(悲觀者喊出3.6兆美元),但這些都不是重點,投資人鎖定的是Geithner「不會再有銀行倒閉」的宣示。政府持有銀行股權多寡也不重要,反正不會被國有化。 ■聯準會利率近零 美國聯準會將短期利率砍至近乎於零的做法,已經擾亂了資產配置的方程式。資金總會因應風險產生合理的獲利回饋,因此在正常的情況下,債券殖利率上揚意味其投資吸引力優於股市,促使資金轉移。 但現在,所有存款、商業本票的利率都低到不像話,資金只能往股市探路 (債券殖利率與股市報酬相比偏低)。 此外,錯過起漲點的共同基金與對沖基金也開始搶進,使股價大幅墊高。 ■柏南克大印鈔票 3月 18日,美國聯準會宣布將買回最高3000億美元的長期公債與7500億美元的抵押貸款擔保證券。這種所謂「量化寬鬆」措施,等同為經濟體系大印鈔票。但從房市、車市持續萎靡的狀況來看,這些資金顯然沒有流入實體經濟,而是輾轉進入股市。 股市上漲,意味銀行業者有能力從民間增資,而不用再向政府求援。上周四( 7日)壓力測試公佈後,業者也相繼提出了相關的增資計畫。 Kessler 認為,除上述利多因素外,美股最主要的障蔽仍在於經濟好轉與否。他強調:「經濟可以在失業率上升的情境中復甦,但缺少企業獲利則不能。」 實際上,種種跡象均顯示經濟衰退尚未見底,政府的財政赤字也高得嚇人。在股市上漲之際聽聞這些消息,不免令人感到虛浮。或許,唯有企業獲利展望好轉、生產力足以創造財富時,才能感到踏實吧。

GuestMay 13th, 2009 at 7:10 pm

Tip o’ the mouse to Babel Fish…In EnglishThe Dow Jones average the low point (6547 spots) bounced 30% until now from March 9, makes the investor to be pleasantly surprised. Then causes recent Wall Street, spreads so-called “multi-thread reactivating” unceasingly or “the daybreak already to” and so on views. But once held the post to flushes the fund to hold plate’s well-known commentator Andy Kessler to believe that this wave rising trend does not have the long-enduring fundamental plane support, at best is only “the dullard bounce” (sucker’ s rally). According to the Kessler view, the stock market short line rise’s reason has three items: ■ judgment day’s possibility eliminated the obvious situation is, the US Ministry of Finance 700,000,000,000 US dollar TARP funds have filled the American Banking circles’ crack insufficient. Therefore Treasury Secretary Timothy Geithner (Gaertner) on February 10 announced that must propose the new relief plan, but does not have by the outside criticism the substantive content, Dow Jones drops sharply at the same day 382 spots. Until March 9 the same day, Geithner only then also announced that will lead the US 19 big financial organs to accept “the pressure test”, and suggested that cannot take over control the bank, and laissez faire it will not go out of business, only then for has rescued the financial stock. Some experts forecast that the American Financial circles will lose will reach as high as 2,000,000,000,000 US dollars (pessimist to shout 3,600,000,000,000 US dollars), but these will not be key, what the investor will lock will be Geithner “will not have bank failure again” declaring. How much does the government have the bank stockholder’s rights not to be unimportant, in any case not by the nationalization. ■ the Federal Reserve interest rate near zero US Federal Reserve chops the short-term rate of interest to approaches in zero procedure, had already harassed the property disposition equation. The fund general meeting has the reasonable profit back coupling in accordance to the risk, therefore in the normal situation, the bond trade for profit rate rises meant that its investment attraction surpasses the stock market, urges the fund shift. But now, all deposits, commercial paper’s interest rate lowers arrives unreasonably, the fund can only explore the way (bond trade for profit toward the stock market rate and stock market reward compares somewhat low). In addition, misses rises a mutual fund with to flush the fund also to start to rush forward, to cause the stock price large barrier height. ■ the cypress Yugoslavia and great seal bill on March 18, the American Federal Reserve announced that will buy back the highest 300,000,000,000 US dollar long-term loans and 750,000,000,000 US dollar mortgage loan guarantee negotiable securities. This kind of so-called “the quantification is loose” the measure, equates for the economic system great seal bill. But looking from the housing market, the auto market continues the dispirited the condition, these funds have not flowed in the entity economy obviously, but goes through many places enters the stock market. The stock market rises, meant that the bank entrepreneur has ability to increase funding from the folk, but does not need to request reinforcements again to the government. After last Thursday (on 7th) pressure test announcement, the entrepreneur also one after another proposed related increases funding the plan. Kessler believed that besides the above advantage multi-factors, the US stock market most main envelope still lay in the economical change for the better or not. He emphasized: “the economy may recover in the unemployment rate rise situation, but lacks the enterprise profit not to be able.”In fact, all sorts of signs demonstrated that the economic recession not yet sees the bottom, government’s financial deficit is also much higher. When the stock market rises hears these news, makes one feel unavoidably impractical. Perhaps, only has the enterprise to make a profit the forecast to change for the better, the productive forces to create time sufficiently the wealth, can feel steadfast.

GuestMay 14th, 2009 at 12:21 am

Thank you for that–very, very interesting and very informative reading. But how did you find all that in all those little boxes?

devils advocateMay 14th, 2009 at 7:26 am

how bad things are-my accountant is throwing his hands up!saying that the accounting rules for public companiesare made for “cooking the books” by the IRS in their spare time

GuestMay 13th, 2009 at 1:04 pm

One story above – “AIG Trustees Should Answer to Taxpayers, Not Fed”—connects all the dots that need connecting to understand the secrets of the money magicians who control America’s economy. Here, in one story, are the pulleys, cogs and wheels that create the grand illusion called money, the lifeblood of America’s economy.It is more than a story of the people who control the taxpayers’ 77.9% stake in AIG, the “trustees” who supposedly safeguard the people’s $182.5 billion “investment.” It is the story of the most blatant scam of all history. It is a glimpse behind the smoke and mirrors of the NYFed, the Federal Reserve System, and Goldman Sachs. To reiterate points from above:The NYFed—a cartel of plunder — supervises the trustees it hired to safeguard the U.S. government’s $182.5 billion in AIG — Jill Considine, Chester Feldberg and Douglas Foshee—and pays each of them $100,000 a year. The NYFed-hirees, supposedly in the interests of the people, vote on AIG asset sales, on mergers and on the selection of board members and top executives.Yet, their boss, the NYFed, is a private institution owned by banks. The NYFed must approve the trustees’ actions that determine whether AIG can repay any of its government rescue money. And the NYFed has the power to overturn trustees’ decisions and the power to remove the trustees. And the NYFed controls all litigation.Nor can the trustees sell shares without the approval of the NYFed after consultation with the USTreasury DepartmentPeter Bakstansky, spokesman for the trustees, is a former spokesman for the NYFed.Deborah Kilroe, a spokeswoman for the NYFed, refuses comment.AIG’s counterparties include firms connected to the NYFed, such as Goldman Sachs Group Inc., recipient of more than $8 billion of AIG’s bailout funds. AIG CEO Edward Liddy did not negotiate for payments of less than the full amount.Liddy was on the board of Goldman Sachs when he became CEO of AIG. He was selected for both roles by former Goldman Sachs CEO Henry Paulson who was U.S. Treasury Secretary at the time.Timothy Geithner, formerly of Goldman Sachs, was president of the NYFed when selected to be current Secretary of the Treasury. He was Under Secretary of the Treasury for International Affairs under Treasury Secretaries Robert Rubin (26 years at Goldman Sachs) and Lawrence Summers, consultant to Goldman Sachs.Current NYFed President William Dudley worked until 2007 as Goldman Sachs’s chief economist.Former Goldman Sachs CEO Stephen Friedman, who sat on the Goldman Sachs Board while NYFed chairman, resigned his Fed chair May 7 after discovery by the WSJ that he bought 37,300 shares of Goldman Sachs last year while sitting on both boards. At the time of his lucrative purchase, he was seeking to waive a Fed policy that could have stopped him from calling the shots on both boards. The policy didn’t stop him, of course: it was the WSJ.NYFed/Goldman Sachs Friedman supervised the search for current NYFed President Dudley after Geithner left the NYFed for the USTreasury.Goldman Sachs CEO Lloyd Blankfein rejected calls to remove Friedman from Goldman Sachs board.The NYFed money trust, that controls the people’s trust in AIG, controls the Federal Reserve System. The NYFed monitors the nation’s capital markets. The NYFed carries out all the Fed’s open market operations. The NYFed is managing $1.7 trillion of the Fed’s emergency lending programs. The NYFed and all other Fed regional banks, all owned by their member banks; are not subject to federal restrictions.The NYFed’s board includes JPMorgan Chase & Co. CEO Jamie Dimon and Richard Carrion, chairman and CEO of Banco Popular de Puerto Rico, and General Electric Co. CEO Jeffrey Immelt.Congress, the people’s representative body that abdicated its Constitutional mandate to coin the nation’s money and regulate the value thereof in 1913, in its first public appearance with the trustees, will ask the trustees “what they are planning to do with the company…”Taxpayer trustee Considine served a six-year term on the NYFed board. She is lead director of Ambac Financial, a New York-based bond insurer whose shares are down 98 percent.Taxpayer trustee Feldberg, former chairman of Barclays Americas, for nine years was a NYFed executive vice president.Taxpayer trustee Foshee, former CEO of Halliburton Co., is president and CEO of El Paso Corp.

FEDupMay 13th, 2009 at 1:43 pm

this should be taught in High School Government classes along with the rest of the dark realities of our “democratic, capitalistic system”!

GuestMay 13th, 2009 at 3:35 pm

ooph. I had to catch my breath after reading that. I’m going to cut and paste and print it out, because one day, that web of relationships is going to be infamous…

PeterJBMay 13th, 2009 at 4:59 pm

Incest is the game the whole family can play where,it was this delightful play of this game by European gangsters that brought to Europe and the UK their royal families, or ruling classes, er, not that long ago.It is the preferred game of those that would be king.Ho hum

CaponeMay 13th, 2009 at 2:18 pm

“Geithner to Urge Electronic OTC Derivatives TradingBy Matthew LeisingMay 13 (Bloomberg) — The U.S. Treasury will tell banks to increase transparency in the over-the-counter derivatives market by making prices available on centralized computer platforms, according to people familiar with the plan. “Eureka! I can not believe my eyes… You mean trade the instruments in a visible market place? Crazy idea! Wow, this could have averted MUCH of this crisis had it been required since day 1. This along with compensating players in shares instead of cashing their chips out every year in cash ARE the solution…Unfortunately, now we will get this AND the government essentially taking over many of the freedoms “capitalism” used to provide.That is ok though – because the loot has already been extracted from the system in the form of bonuses… All we ever needed was this crap to be transparent, but they had to blow the whole thing up squeezing their last billions out of the system.Now, we will get hyperinflation and a semi-benevolent dictatorship (OR not).

PhilTMay 13th, 2009 at 8:47 pm

The first time I heard Geithner advocating for this Electronic OTC derivatives trading was when he was still President/CEO of the NY FedRB last March(2008) around the time of the Bear Stearns collapse. I am sure that the origins of his advocacy in this direction go even further back than that.Here is an excerpt from the March 6, 2008 speech: Geithner: The Current Financial Challenges: Policy and Regulatory Implications: Remarks at the Council on Foreign Relations Corporate Conference 2008, New York City

Market infrastructure. We are in the midst of a dramatic period of financial innovation and growth in derivative instruments, but the pace of change the growth in volume has brought a lot of challenges. Substantial progress has been made to strengthen this infrastructure over the past two and a half years, and the resilience of the broader financial infrastructure has been a source of strength for the financial system during this crisis. However, the systems and practices that support the over-the-counter (OTC) derivatives market significantly lags that of securities markets and other mature markets. We need to move quickly to put in place a more integrated operational infrastructure that supports all major OTC derivatives products, is highly automated, has robust operational resilience and risk management, and is capable of handling very substantial growth in volumes.

GuestMay 13th, 2009 at 10:46 pm

No wonder I never know what is going on. Take “derivative instruments” of which Geithner speaks in just the first sentence, of which I had really never heard of until 2005 when I first learned there was a phantom economy—20 times the size of the U.S. economy—that was about to blow—a giant and lethal economic bubble that had quietly been forming in the Over-The-Counter Derivatives market about which nobody knew except those behind the closed doors at banks and major brokerage houses and leading corporations and then finding out that derivatives have been at the core of almost every major economic disaster since 1987 and were responsible for Black Monday, the Asian crisis, the LTCM hedge fund disaster, the fall of Barings Bank, the bankruptcy of Orange County and the collapse of Enron and Argentina and then I looked up “derivative instrument” to find out that it is a financial instrument whose value depends on some underlying financial asset, commodity index or predefined variable, which, taken in context means that “some of the main uses of derivative instruments are to fix future prices in the present (forwards and futures), to exchange cash flows or modify asset characteristics (swaps) and to endow the holder with the right but not the obligation to engage in a transaction (options),” and then I find out at its very simplest a derivative is merely a bet on absolutely anything: interest rates, exchange rates, stocks, commodities—even the weather–which can be very dangerous because derivatives are mostly used to hedge against risk but are used to make highly leveraged and highly dangerous bets which is a risky game played by Long-Term Capital Management in 1998 that almost collapsed the global financial system if the Fed had not organized an emergency bailout—which brings me to Geithner’s second sentence and the “resilience of the broader financial infrastructure” which is the “strength for the financial system,” with its “integrated operational infrastructure” supporting “major OTC derivatives products” that is highly “automated,” and has “robust operational resilience” and “risk management,” and if this is “transparency,” which according to someone “is not definable as it is self-evident projection,” in that transparency is both a strategy and a condition where clearly there is a need to understand what it means (not what critics say it means), in order to integrate the concepts and lessons into our communication efforts because inaccurate definitions that have been applied to it in various corners have been denounced in strategic organization communications…then AS FAR AS DERIVATIVES ARE CONCERNED THIS IS ABOUT ALL THE TRANSPARENCY I CAN STAND!

wethepeopleMay 13th, 2009 at 2:34 pm

I have summarized my interpretation of ‘A Century of Self’ and overlayed the current debt contagion. I borrow from that source to arrive at my conclusion.”The consumer may have basic needs, which the consumer himself/herself doesn’t fully understand. You have to know what those needs are in order to fully exploit the consumer.” (Think homeownership, autos, credit cards, student loans.)”The masses are fundamentally irrational, and in order to make a market democracy like America work, pyscho-analysis had to be used to contral mass irrationality.” The ‘Strategy of Desire’ was formulated by Dichter to create a stable society. It also was designed to manipulate the vulnerabilities of individuals to engineer their consent in creating consumption and consumerism. The individual and national egos were strenthened by being a consumer in a consumer nation.In managing the unconscious mind of the consumer Dichter asks, “Is it wrong to give people what they want by taking away their defenses and inhibitions?”Now, today, in the context of our ‘debt’, or ‘credit is money’ society, we have allowed ourselves to be manipulated by powerful corporate and politcal pursuaders using psycho-analytical tools to perversely stimulate a new mass irrational behavior. That being willingly taking on more debt than we as individuals, businesses, local, state, and federal governments can afford to repay. The mass irrationality that psycho-analysis was designed to prevent, in fact has come to fruition and been used against us by business and government to pursuade us to go into debt beyond all rational measures. Understanding Bernays and Dichter will help explain the actions and denials of the perpetrators (banks) of this mess.

GuestMay 13th, 2009 at 2:52 pm

Oooooow. TV is the tool. Look at the sponsers of ads trying to sell their products as “necssities”. Go deeper… CEOs of these companies trying to increase their sales/balance sheets/stock prices to get bigger compensation packages. Why? So they can buy more stuff for themselves (houses / cars / vacations). At what point is it all too much? At what point are economic class disparities too much? Theoretically, in our society there is never “too much”. Unbridled greed given a fertile playground lacking regulatory oversight drove us into this mess. The perps where only getting more stuff. The American way, if you will. Is this really going to change by the power elite that sustain the system? Egads…I don’t think so. Riots and protests, with the government killing protesters may be a watershed momment for change. Currently, the powerelite are busy trying to prop up the financial community to prevent social unrest in mass occuring any time soon. Will it work in the long run???

Adam SmithMay 13th, 2009 at 4:48 pm

There’s somethin’ rotten in your Kingdom, trust me. You hate taxes, ok, who doesn’t? You take pride in having the lowest tax burden of all developed countries. All civilised countries have understood that an excise duty on gasoline is a very efficient and rational tax, but that’s never going to gain a single one of your votes. You have declared Total War on narcs, but you’re addicted to cheap gas and expensive credit.And you never realised that you are paying more taxes than any other country. But you’re not paying them to the Treasury. You’re paying them to your plutocracy, and you call them interest and fees. So you’re paying tax twice, one for the Armies (the one run from the Pentagon and the other by the drug Czar) the politicians, the judiciary sprawling cancer and it’s metastases, the bureaucracies, and one for the fastuous lifestyle of your plunderers, the Wall street para-government. And you lament the incestuous Washington-Wall Street connection. What did you expect? Other peoples have public universities funded by taxes. Yours are funded by tuition fees costing you more than what you save on taxes.

GuestMay 14th, 2009 at 12:13 am

I think we’ve just realized we’ve been asleep at the wheel, after a drunken binge, and awakened to find ourselves on the road to death. Certainly there is going to be a heavy price to be paid for a return to monetary and political sobriety. It isn’t as if we weren’t warned. As William Jennings Bryan said: “The money power preys upon the Nation in times of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods, or throw light upon its crimes.”Our goal now is not just to survive but to recapture the heritage bequeathed us by our Founders. We have allowed this great nation to be stolen from under our noses, but at least we have awakened–and that is a very good place to start.

Octavio RichettaMay 13th, 2009 at 7:55 pm

Greetings from Burlington, MA (about 11 miles from Boston).We got here yesterday. The trip from Caracas on Delta was pleasant. We were the only dummies we saw wearing masks at planes and airports. I am really behind in my reading but I will venture offering my gut feeling on the US economy despite having incomplete information.IMHO, things economic have changed rather drastically in the US. Just walking around, visiting the malls,watching traffic flow by, you get the feeling people are really shocked and depressed. Many have realized the “Alice in Wonderland” country of free lunches where you can easily borrow to maintain an unsustainable lifestyle is gone for good.A short visit to the Burlington Mall show plenty of upscale deserted store filled with junk no-one really needs and left me wondering what will happen to most of those stores and the people who work there.I am too tired to keep writing but I summarize my views in saying that it appears to me the US and world economy is more about yellow weeds than green shots; that the crowd will soon realize this and equity and commodity markets will continue their recently resumed decline, maybe turning into a nosedive…

subgeniusMay 13th, 2009 at 8:25 pm

Yeah, I drove down Melrose (in LA) yesterday. I estimate 25% of stores either empty or having (liquidation) sales

GuestMay 13th, 2009 at 9:02 pm

commodity prices likely to go higher not lower as money printing accelerates… and demand is not about US demand anymore, it is about BRIC demand accelerating…

Pecos BankerMay 13th, 2009 at 9:25 pm

This is what the book “Disaster Capitalism, the Shock Doctrine” by Naomi Klein predicted. Well there you go, we’re now all in a state of shock. Now it’s time for some structural adjustment for America. First we need to sell off all our prime public assets into private hands at firesale prices, next, as in Pinochet’s Chile, we need to ban people from gathering in public, etc etc.I think the aristocracy just expect us all to collectively commit suicide. Don’t be surprised if some night some Ford Falcons appear in front of your house and your family never sees you again. This was part of the structural adjustment that happened in Argentina.

RohelioMay 13th, 2009 at 9:03 pm

In contrast, when I returned some years ago after a lengthy stay in Africa things around Boston were moving fast…very fast. But compared to the solid, earthy experience of Africa it all seemed out of balance. With new eyes, the enslaved humdrum of Americans seemed like hamsters on a wheel. An African asks ‘why are you always running towards work?…I have never seen work that runs from me.’

AGolferMay 13th, 2009 at 9:15 pm

I’m sorry guys. This article was joke ! It’s like Happy Days Again everywhere. Like PeterCA says it’s about the jobs stupid !! Society like companies exist to provide humans with a societal need to work together to be happy. It’s not about even making money – most people (Wall Street excepted) need to work because they need to feel needed -without work there is no need to exist – very few of us can motivate ourselves to work entirely for ourselves. So no matter what Wall Street achieves – Great Profits !! – for the working people life will be miserable – and luckily miserable people do not spend money – sfter all what’s the point. Money will not make you happy – only a warm gun – preferably used for self-inflicted wounds. Today, in line at the grocery store, I noticed that everybody ahead of me paid with a debit card – God Bless America. We are not as stupid as the Euros think. At the end of the day we are not sheep and revolution will come. Praise the O and pass the ammunition.Ho Hum

GuestMay 13th, 2009 at 9:32 pm

Frank Shostak, an adjunct scholar of the Mises Institute, and chief economist of M.F. Global, documents the following CONCLUSION in his May 12, 2009 article, “Obama’s Stock Market Mini-Bubble”:At the end of February 2009, the S&P 500 closed at 735.09 — a fall of 52.6% from the end of October 2007. Since the end of February, the stock-price index has been gaining strength closing on Friday, May 8, at 929.23 — an increase of 26.4%. It is tempting to suggest that perhaps this visible rebound since February could be the beginning of a new bull market. An important factor behind this strong bounce is massive monetary pumping by the Fed that has contributed to a large increase in monetary liquidity. We suggest that, while the Fed can create plenty of monetary liquidity, it cannot make the underlying real fundamentals better. If anything, the Fed’s policies can only make the fundamentals much worse. Hence, if fundamentals were to continue to deteriorate, further investors are unlikely to provide support to the stock market, notwithstanding a strong liquidity buildup. The increase in liquidity is likely to be placed in various other asset classes, such as Treasuries and gold. For this reason we maintain that, for the time being, the underlying downtrend in long-term Treasury yields is likely to stay intact, while the price of gold is expected to easily surpass the $1,000/oz mark in a few months’ time.http://mises.org/story/3460

Guest golferMay 13th, 2009 at 9:51 pm

Joni Mitchell – Shine.Oh let your little light shineLet your little light shineShine on Wall Street and VegasPlace your betsShine on the fishermenWith nothing in their netsShine on rising oceans and evaporating seasShine on our frankenstein technologiesShine on scienceWith its tunnel visionShine on fertile farmlandBuried under subdivisionsLet your little light shine (2x)Shine on the dazzling darknessThat restores us in deep sleepShine on what we throw awayAnd what we keepShine on Reverend PearsonWho threw awayThe vain old Godkept Dickens and Rembrandt and BeethovenAnd fresh plowed sodShine on good earth, good air, good waterAnd a safe placeFor kids to playShine on bombs explodingHalf a mile awayLet your little light shine (2x)Shine on world-wide traffic jamsHonking day and nightShine on another assholePassing on the right!Shine on the red light runnersBusy talking on their cell phonesShine on the Catholic ChurchAnd the prisons that it ownsShine on all the ChurchesThey all love less and lessShine on a hopeful girlIn a dreamy dressLet your little light shine (2x)Shine on good humorShine on good willShine on lousy leadershipLicensed to killShine on dying soldiersIn patriotic painShine on mass destructionIn some God’s name!Shine on the pioneersThose seekers of mental healthCraving simplicityThey traveled inwardPast themselves…May all their little lights shineMay all their little lights shine.

GuestMay 13th, 2009 at 10:51 pm

From Judicial Watch…the docs are damning. Tiny Tim the Con Man continues his confidence game as his chicanery is withheld from public scrutiny in this latest bombshell…Also where is Paulson and Greenspan these days…oh yeah giving paid speeches. Both of their heads should be on pikes right now…Judicial Watch Forces Release of Bank Bailout DocumentsDocuments Detail Historic Treasury/Bankers Meeting – but Geithner Input on Key Document Withheld from the Publichttp://www.judicialwatch.org/news/2009/may/judicial-watch-forces-release-bank-bailout-documents

Guest ..o...May 13th, 2009 at 11:27 pm

not to change the subject….andspeaking of the new world order, shadow government,shadow banking, and a population that is a mereshadow of it’s former self; and of course the mismanagement of funds (theft) and lousy financing resulting (funneling of taxes and fees, fairs etc. to the ever growing financial sector) in a shadowy new bailout payroll tax..http://www.mta.info/mta/budget/feb2009.htm.one question. how is it that the m.t.a. in new yorkpays, at least on the public books, 13% of its annual budget on debt services and then receives abailout in the form of state payroll tax?.”Out of Control” MTA Cooked Books, Hid $500 MillionRiders want “Heads on Sticks” 2003..BNY Mellon Serves MTA’s Debt IssueThe Bank of New York Mellon has been appointed trustee, registrar and paying agent for Metropolitan Transportation Authority’s (MTA) USD750 million Build America Bond Issue. Build America Bonds provide state and local governmental entities with federal….The Sugar Daddy MeltsBy Eliot BrownApril 28, 2009 | 7:18 p.mhttp://www.observer.com/2009/real-estate/sugar-daddy-melts.The economic crisis and accompanying credit crunch has left a crater in New York’s once-untouchable real estate market, leading values to plunge and bringing sales to a standstill…Despite Flags, Citigroup and M.T.A. Cut Bond Dealhttp://www.nytimes.com/2009/01/27/nyregion/27mta.html?_r=1&pagewanted=1.By WILLIAM NEUMANPublished: January 26, 2009In August 2007, an official at Citigroup sent an e-mail message to a colleague warning of trouble in an obscure corner of the financial world: the $330 billion market for auction-rate securities.“There are definitely cracks forming in the market,” read the e-mail message, which is cited in a complaint filed last month by the Securities and Exchange Commission against a Citigroup subsidiary, Citigroup Global Markets. “Inventories are starting to creep higher in the market and failed auction frequency is at an all-time high.”In the following weeks, the problems in the market, which state and local governments across the country relied on to raise money for public projects, became more acute. So did the alarm at Citigroup.But that did not stop the bank from peddling the securities to investors and working with government agencies — including the Metropolitan Transportation Authority, which runs New York’s sprawling subway, bus and commuter rail system — to bring more bonds into the already stressed market. With Citigroup Global Markets as one of its underwriters, the authority issued $430 million of auction-rate bonds on Nov. 7, 2007.Almost immediately the deal soured. Interest rates on the bonds, set in weekly auctions, began to climb, to 4 percent from about 3 percent, and finally, by February, to 8 percent. By then, the entire auction-rate market had collapsed as panicked investors worried that they could not get access to their money.Stunned by the soaring rates, which were costing it up to $560,000 a week, the authority redeemed the securities in March. To do so, it issued a new round of bonds, outside the auction system and at more favorable interest rates. But the move came with a cost: about $5.6 million in fees to bankers, lawyers and others, including the state, according to data provided by the authority.All told, Citigroup earned more than half a million dollars on the two sales; Goldman Sachs, the authority’s financial adviser, which counseled in favor of the auction-rate sale, made $929,500 for its work on both.The transportation authority is now grappling with its worst fiscal crisis in decades, caused by plummeting tax revenues, rising expenses and a heavy debt load. To help plug a threatened $1.2 billion budget shortfall, it has proposed steep fare and toll increases for this year, as well as sharp cuts in service.The S.E.C. civil complaint charges that Citigroup misled investors and provides new evidence that the bank recognized early that the market was unstable but continued to underwrite and sell bonds.Though the complaint does not mention the authority’s bond sale in November 2007, it covers the bank’s actions during that time.Officials at Citigroup refused to answer questions about the transportation authority’s bond deal; in a statement, the bank said, “Since the beginning of the auction-rate securities crisis, Citigroup has worked diligently with issuers, investors and regulatory authorities to work toward solutions.”The complaint against Citigroup was filed in federal court in Manhattan on Dec. 11, 2008, the same day a prearranged final settlement was announced.Without admitting wrongdoing, Citigroup had settled the S.E.C. complaint and other cases brought by state regulators, including the attorney general of New York, Andrew M. Cuomo, agreeing to buy back more than $7 billion of securities from investors and to pay a $100 million fine. Other banks have agreed to similar settlements.While the commission’s complaint takes Citigroup to task, there is also evidence that the transportation authority — or its adviser, Goldman Sachs — should have seen warning signs, as other government issuers did. The authority’s offering was one of the largest municipal bond sales in the months before the auction-rate market collapsed, according to data compiled by Ipreo, a financial services firm.“We saw problems,” said Richard M. Froehlich, the general counsel and executive vice president for capital markets of the New York City Housing Development Corporation. The agency had used auction-rate bonds in the past, but as he prepared to sell more bonds in late 2007, Mr. Froehlich said he deemed them too risky.“There were dislocations that started in the summer of ’07,” he said. “After that, it was never our desire to go back into auction rate.”One authority board member, Doreen M. Frasca, has voiced concern about some financing decisions, including why the authority stepped into the auction-rate market just as it was about to implode……end of page 1…

MM CAMay 14th, 2009 at 8:17 am

Worries growing about commercial real estateDelinquency rates at hotels, office buildings have more than doubledhttp://www.msnbc.msn.com/id/30701874

MM CAMay 14th, 2009 at 8:22 am

NO JOBS! Weekly Unemployment up big…As far as housing, most of the points in this article are spot on, although i beliebe NO JOBS will lead to larger % of home value and larger foreclosure numbers. And as for The Gov’t and the Obama team- there is no freaking FIX to help people retain thier homes, nothing, zip, nada…The Real Housing Crisis Has Yet to Beginhttp://www.minyanville.com/articles/MSFT-C-citigroup-jpm-bac-mortgage/index/a/22654/p/2

FEDupMay 14th, 2009 at 9:17 am

Agree MM. The govt programs have done very little to help the homeowner; many of them are VOLUNTARY and they have deliberately created a “catch 22 situation” where if you have missed any payments, it results in a lower credit score and a typical response “we’re sorry sir, but you just don’t qualify.” On the other side of the coin, many people I know have received FHA loans with 3.5% DOWN on purchases of new homes-so what in the h**l is going on? This just it makes it easier for them to “walk away from their mortgage” when their job is gone.

MM CAMay 14th, 2009 at 9:26 am

those FHA loans with 3.5% down are being given by using the $8000.00 new home tax credit as the downpayment, esstentially noew mortgages with no down payment. so what has changed… these types of actions jsut ensure that the current problems are here for many, many years…

MM CAMay 14th, 2009 at 8:33 am

S&P: Banking Crisis Could Extend Another 3-4 Yearshttp://www.businessinsider.com/sp-banking-crisis-could-extend-another-3-4-years-2009-5One gets the distinct impression that the ratings agencies are trying to compensate for all those years of handing out AAA ratings like candy.Now they’re making comments about a banking crisis going on much longer than any mainstream pundits are saying:Reuters: A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor’s said the nation’s banking crisis has “merely entered a new phase” and might not end before 2013.The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail.While efforts to spur lending, take bad assets off banks’ balance sheets, and restart the market for packaging and selling securities may help the sector, S&P said banks will have a tough time surviving absent a bigger capital cushion than regulators require. Read the whole thing >

MM CAMay 14th, 2009 at 8:37 am

We are about to implode out here… read between the lines… massive cuts and layoffs coming no matter what… Calif unemployment already over 12%…California Asks For TARP BailoutYou knew this was coming.There have been various ideas floated for how the federal government can bail out the state of California. Some of it’s already happening via money coming in through the stimulus. And a plan to backstop the entire muni market would be a (not so subtle) backdoor bailout of California, if it happens.And now the state is just directly asking to be part of TARP.MarketWatch: In a letter, Lockyer asked Geithner for TARP assistance for California and “other financially strapped states and local governments which face a severe cash flow crunch.””If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens,” Lockyer wrote.In particular, Lockyer cited fire and police protection, education and social services.See Tim? If you deny them TARP, there will be more crime, less educated children and more people will die in fires.Getting TARP cash may actually be the state’s best shot at getting a bailout. If they actually had to get a law passed by Congress, there’s no way the non-California Congressmen would support it. But TARP — despite being a program to buy toxic assets from banks (ha!) — has morphed into a program that’s basically anything the Treasury sectretary and the President want. PPIP, cars, insurance companies, you name it. So why not states?

MM CAMay 14th, 2009 at 8:42 am

“Roubini: The Dollar’s Dead”Oh Boy- the boss is saying major problems for the dollar….hmmmm same thing i and msot here have been saying…Op-Ed ContributorThe Almighty Renminbi?NOURIEL ROUBINIPublished: May 13, 2009THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.rest of article: http://www.nytimes.com/2009/05/14/opinion/14Roubini.html?_r=2&emc=tnt&tntemail1=y

Adam SmithMay 14th, 2009 at 12:26 pm

About a year ago, I talked with a friend of my late father, a retired economist whose name is’nt familiar to the general public, but who was OECD’s Chief economist and afterwards spent a few years in Washington as a fellow of the International Finance Institute, where he made a lot of money by predicting the $ crash of 1985. He remains well connected with the Washington inner circles. I asked him don’t you think the gvt should launch a kind of Brady Plan, ie swap deeply discounted home loans for Treasuries and pass on part of the discount to broke homeowners, refinancing the new much lower loan with ARMs at say 6 month Tbill rates plus a reasonable spread (1 or 2 points). He replied that there was a task force in DC working on it since January 2008, BUT there’s a major impediment, the Moral Hazard problem. That moral hazard of course is the idea that the irresponsible small time borrowers would be saved at the expense of, well of whom? Solvent taxpayers? More likely “prudent” bankers. So basically nothing was done until Obama’s election. I retorted, ok, but let’s face it, subprime mortgage pushers are plain crooks.That’s the mainstream economits’ idea of moral hazard. Today there are many people who realise where is the real moral hazard. But did the new administration act any smarter? Obviously not. Big banks like Citicorp have been allowed to count as income the discount at which their debt is trading, under the assumption that they could buy it back for that price, a nice trick that worked wonders in the last Q results. You have the same right. Your bank contends you have 40% negative equity? So what? Your debt is only worth 40ct to the dollar, therefore you have already paid off 60% and you may reduce interest payments accordingly.

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