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Nouriel Roubini's Global EconoMonitor

Wednesday Note – Deja Vu: Will the U.S. Undergo a Reprise of 1937?

Today we look at the links between the current economic conditions and those of the 1930s, another era where the threats of sovereign defaults and inflation worries loomed large. A lengthy recent analysis by RGE’s Mikka Pineda identifies striking similarities in U.S. inflation attitudes between the mid-1930s, when the U.S. began to show signs of recovery from the Depression, and 2009. Americans during the Great Depression voiced the same concerns about excess bank reserves, budget deficits, competitive devaluations and commodities speculation as they do today. Even dissenting arguments followed the same script in both eras. The eerie resemblance in the psychological and economic backdrop of the mid-1930s and 2009—both historic junctures when recovery was thought to have begun—raises concerns that the U.S. could be on the edge of a double-dip.

A stroll through the archives of TIME magazine and The New York Times reveals other similarities in the reactions of Americans today to fiscal and monetary easing and the reactions of their forebears of the mid-1930s. When the U.S. economy began to recover from the Great Depression, widespread fear of credit inflation, currency inflation and public debt inflation drove the Federal Reserve Board to hike reserve requirements by 50% and prompted Congress to slash spending. A premature retraction of economic stimulus, among other things, pushed the U.S. back into recession.

In terms of GDP growth, there was a brief recession lasting only about a year from autumn 1937. Business leaders at the time called it a mere “business recession” to whittle down excess capacity and high inventories built up in response to rising commodity prices. To everyone else, particularly those laborers considered “excess capacity,” the economy’s fragile recovery took a big step back. Deflation took hold of the country for another two years and unemployment spiked to 20% and didn’t drop below 15% until 1940. Property prices and stock markets languished below their pre-1929 levels until World War II shocked production back to life.

Today the U.S. is experiencing a similar situation with hawks calling for the immediate exit from both loose fiscal and monetary policy even amid high unemployment. Though past is not prologue, learning from past mistakes can make a considerable difference.  Further reading:

54 Responses to “Wednesday Note – Deja Vu: Will the U.S. Undergo a Reprise of 1937?”

economicminorDecember 16th, 2009 at 9:11 am

The piece “Deja Vu: Will the U.S. Undergo a Reprise of 1937?” by Mikka Pineda is very well done and leaves me wondering the same thing I have been wondering and that is IF there really is a way out of this mess.The logic in my brain still says that when there is more debt than can be serviced by income from productive endeavors that transferring the debt from private to public is just a short term fix. And that the idea of creating inflation in order to minimize the consequences of over indebtedness can’t work through creating more debt.I don’t think that stimulus will work in the long run unless it was directed at either paying down debts or creating value added productive enterprise. The first could be done with direct payments to taxpayers. The second is much more difficult for a government to do, if not impossible.So far all I see that has happened is the government rearranging the deck chairs on a sinking ship and trying to force the band to keep playing. We may have an allusion of normalcy but that is all.

PeterJBDecember 16th, 2009 at 4:19 pm

I also notice that more and more “regulators”appear to have found their mandates and have awaken from their slumber obviously kissed by a wave on frogs with warts, but now appear to be in a frenzied overkill mode as I have stated much earlier here, to anticipateWhich of course means that the constraints and limitations of Law, and the usual practises of smooth functioning of the systemic means, will be corrupted to sticky, granulated and coarse grease and road-blocks heightened to zealous interpretation by the whole chain of regulators all trying to outdo their colleagues, and make some under-the-table, as only bureaucrats and their ilk can do so well.It is pleasant to get confirmation that the Carbon Credit scheme a la “leadership” is reported to have already been plundered to the tune of billions efficiently assisted by of course, “leadership” while the recipient winners have moved their industries onto other shores, in a state much fatter than they began. Too bad about those jobs of the faithful cum suckers. Blair country!And as we received news that the TBTF are repaying the “leadership” cum taxpayer, cum mainstream economy, their COST free loans, it is also be quietly reported er, rumoured that these chosen ones are also at the back door, dumping toxic waste, again, onto the yes, “leadership” (taxpayer ultimately) in return for cold hard cash; I assume freshly printed – “Thus I Have Heard”.In my definition of democracy and even Yes, indeed corruptive social management, where the fragrant grease that acts as the social interacting medium, plasma, a relative and somewhat respectful milieux, has been dumped in favour of an opinionated faith-based distribution system for upper management and all that hangs off them; an ignoratti for the boys (in suit).I believe that the Fatt Lady has begun to sing!Ho hum

2012December 16th, 2009 at 11:33 am

Meanwhile Obama continues to enlarge the government.More officers, more sanitation supervisors, more medical fraud spending.The revolution will be slow but nontheless is underway.

PeterJBDecember 16th, 2009 at 4:53 pm

Speaking of “leadership”: The Onehttp://www.rense.com/general88/one.htmSad, true and totally predictableHo hum

GuestDecember 16th, 2009 at 5:25 pm

Income inequality was very high in the 1920s. New Deal policies in the 1930s tried to reduce the inequality in order to expand the consumer base because rich people alone didn’t consume enough to wipe out production surpluses.Cutting taxes will help keep more money in rich men’s pockets and supposedly give them more to invest with. That solution to the economic slump would make sense if they invested in ways that created more jobs for Americans.But they don’t. Rich people (and persons or companies that have enough savings to invest) invest in foreign countries, moving production overseas.And for those Americans that do have jobs, they are squeezed and squeezed to maximize profit for the company executives and/or shareholders. Employees do not see their pay increase commensurately with their productivity. Meanwhile, medical and educational costs eat away at their disposable income.Yet, business owners wonder why sales are down. Why is there a gap between aggregate supply and aggregate demand? Because most Americans produce more than they can buy themselves. At the same time, they earn less than they produce.

MM CADecember 16th, 2009 at 5:55 pm

NO JOBS! WTF are they doing to help these people…Detroit’s Unemployment Nears 50%Vince Veneziani|Dec. 16, 2009, 10:36 AM | 64 |PrintTags: Unemployment, Jobs, RecessionThe unemployment situation in Detroit has truly become dire as the “real” unemployment number climbs to 45 percent.Detroit News: Despite an official unemployment rate of 27 percent, the real jobs problem in Detroit may be affecting half of the working-age population, thousands of whom either can’t find a job or are working fewer hours than they want.Using a broader definition of unemployment, as much as 45 percent of the labor force has been affected by the downturn.And that doesn’t include those who gave up the job search more than a year ago, a number that could exceed 100,000 potential workers alone.

blindmanDecember 16th, 2009 at 9:00 pm

December 16, 2009.i mangled this posting joband apologize for it. this should be downthere and that should be rearranged butit can be pieced together.

blindmanDecember 16th, 2009 at 8:55 pm

http://www.globalresearch.ca/index.php?context=va&aid=16410.in print…The InterContinental Exchange (ICE)In 2000, Goldman Sachs, Morgan Stanley and several oil companies “founded the InterContinental Exchange (ICE)…. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate ‘dark pool’ trading in the commodities markets.”A Congressional investigation into this exchange found that these companies were fraudulently inflating the price of oil by executing “round-trip” trades where one company would sell shares in oil to another company who would then sell the shares right back. This would drive the price of oil to however high they wanted it to go to. “No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple.”So when oil was selling at $147 a barrel, the actual worth was most likely closer to half that price. Phil’s Stock World summed up the situation:“How widespread are ’round-trip’ trades? The Congressional Research Service looked at trading patterns in the energy sector and this is what they reported: This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the Government, we have only a slim idea of the illusion being perpetrated in the energy sector.DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were ’round-trip’ trades. That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue……the InterContinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country….Under investigation, a lawyer for J.P. Morgan Chase admitted the bank engineered a series of ’round-trip’ trades with Enron….ICE… turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced. And in just 5 years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007 and investors in the GSCI lost 15% in 2006 while Goldman had a record year. John Dizard, of the Financial Times calls this process ‘date rape’ by Goldman Sachs…..

blindmanDecember 16th, 2009 at 9:36 pm

here more ….”WHAT IT ALL COMES DOWN TO…In the global economy, the economic elite don’t need the US public anymore. When you see Obama taking trips to meet with the leader of China, and having his first official White House State Dinner in honor of the Prime Minster of India, you should know that the elite have moved on. There are billions of people in just these two countries that they believe can do all the work we do for much less pay. It is a race to the bottom, and we are considered obsolete to technocratic leaders who think it is better to hire cheaper workers in foreign lands.As the US continues to collapse, the technocrats have already moved on to the next country to rape and pillage. The economic elite don’t have a home country, to them the entire globe is theirs, and the majority of the US can collapse into poverty for all they care, and that’s exactly what they want to happen.The US working class is the biggest threat to them and they want us eliminated.As the IMF would say, there has been a structural adjustment program in place, and the US working class is obsolete.When you understand this, you can understand how the wars in Iraq, Afghanistan and Pakistan are wars against the US public. Wars that weaken and drain the US working class of vital resources and social safety nets.In the overall picture, the technocratic elite see everyone as a number on a spreadsheet. To them you are what your economic net worth says you are. Considering this perspective, most in the US public have much more in common with an Afghanistan farmer than the billionaires on Wall Street. And the billionaires have put us in the same category as those in Afghanistan. To them it really doesn’t matter if it’s an American life ended or an Afghani life ended in the war, as long as the profits keep coming in… they can care less.Common sense and statistics demonstrate that the more troops you send into war, the higher the causality count will be, and the more costs will rise, leading, of course, to higher profits.So as the Obama illusion and the motives behind this war become exposed, and the massive theft by the economic elite becomes known to a critical mass, the elite are ramping up their psychological operations on the US public by turning up their mainstream media distraction machine.PSYOPS: WAG THE DOG AND SHAKE THE MOHAMMEDWith the healthcare debate losing steam, and the people starting to understand that the final bill will do little to create much needed change, and as “health care reform” is exposed as another gift to insurance company executives, and as unemployment rates remain high, the Economic Death Squad vitally needs some new distractions.Never mind the criminals on Wall Street: It’s time to… Wag the Dog and Shake the MohammedBy Wag the Dog, I am of course referring to …..”..

The AlarmistDecember 17th, 2009 at 2:43 am

Yawn! This is what happens when a free and independent people of a republic lose faith in themselves and turn to their so-called leaders for sustenance so that they don’t lose too much of their reality-TV-watching time to life’s pesky little problems.Follow your leaders, sheep.

GuestDecember 17th, 2009 at 4:47 am

Naw … this is what happens when a free and independent people allow markets and consumerism to shape their values. Dismissing and debasing the role of government has intentionally given politicians and Wall Street license to loot the US economy.There’s no accountability because the ‘Invisible Hand’ is all-knowing and all-powerful and markets are efficient arbiters of value.Corruption has value for many.

The AlarmistDecember 17th, 2009 at 9:14 am

I meant to say ‘self-reliant people’ above.Markets and consumerism (and perhaps hedonism to round it out if you don’t count that as a part of consumerism) are what humanity is all about when values and a higher purpose are debased or even removed to fit the lowest common denominator to the whole society.Through all of history government has served little more role than being a vast protection racket to separate the mass of men (and women) from their wealth and liberty. Government has occasionally reached for the stars, but the quest for wealth or power was always in the background.The invisible hand is ever present and always effective, but it only works to the advantage of the masses when they are free to chose how the fruits of their labors are spent rather than having an omnipotent central figure in their lives to make those decisions for them.

GuestDecember 17th, 2009 at 11:20 am

The fruits of labor can only be realized if there are jobs. And the ‘Invisible Hand’ has off-shored our jobs to cheaper labor markets around the globe because government has been convinced that the market knows best.The Market is the ‘Decider’.

11b40December 22nd, 2009 at 7:06 am

Don’t forget FREE Trade. After all, that’s how we lost all those jobs. Not FAIR Trade – FREE Trade for everyone wanting to dump on our shores. FREE Trade for all those ‘American’ corporations eager to close the doors on their high cost manufacturing facilities at home and ship the jobs to the low-cost producer. FREE Trade for outsourcing high-tech jobs, too.Can we outsource our Social Security obligations? Our Health care? How about our infrastructure? Can we outsource that?There will be protectionism. It is coming with future elections and the rise of populism, because it is way over due. Just wait and see. The real question is where it will end?Independent Contractor

GuestDecember 17th, 2009 at 7:22 am

BEIJING – Former United States vice president Dick Cheney, ex-defense minister Donald Rumsfeld and assorted US neo-cons will have plenty of time to nurse their apoplexy. One of their key reasons to unleash the war on Iraq in 2003 was to seize control of its precious oilfields and thus shape a great deal of the new great game in Eurasia – the energy front – by restricting the access of Europe and Asia to Iraq’s staggering 115 billion barrels of proven oil reserves.After at least US$2 trillion spent by Washington and arguably more than a million dead Iraqis, it has come to this: a pipe dream definitely buried this past weekend in Baghdad with round two of bids to exploit a number of vast and immensely profitable oil fields.The bids, supervised by the Oil Ministry, were presented on a live TV game show. Instead of American Idol, Iraqis got “Oil Idol”. In a raucous carpet bazaar atmosphere, the ministry played “my way or the highway” and forced 44 foreign Big Oil corporations to cut to the max the fee they collect on every barrel extracted in Iraq and submit to 20-year contracts. These multinationals were not given a share in Iraqi oil production; they will be paid a $2 fee per barrel for raising output above a mutually agreed level.Still, for Big Oil, the possibility of having a crack at all those mega-giant fields in Shi’ite-controlled southeast Iraq – the largest concentration of its kind in the world – led all players to yell , “It’s raining oil!” Once you’ve paid the ticket, you’re inside the theater. And what a theatre … The Iraqi government may end up paying foreign Big Oil as much as $50 billion for its know-how. All these “service” deals will dodge Iraq’s parliament – which might throw a wrench in the works. And Big Oil will still get $2 for each barrel of extra crude above a minimum production target.In June, Iraq held its first oil auction, offering foreign companies the chance to increase production at already-pumping fields. The latest auction was the first time foreign firms could bid on untapped fields. Of the 10 groups of fields available, seven were awarded.Win-win for Russia and ChinaCheney’s and Rumsfeld’s script was never supposed to develop like this. Instead of US Big Oil getting the lion’s share, strategic competitors Russia and China turned out to be big winners. Dick Cheney’s “consolation prize” was an Exxon-Mobil-Shell alliance getting the phase 1 of West Qurna in early November. Exxon-Mobil had been the favorite to also win Rumaila (17.8 billion barrels of reserves). But a BP-CNPC (China National Petroleum Corporation) alliance got it in the end because unlike Exxon-Mobil they agreed to cut their fee per barrel down to the Oil Ministry-enforced $2.CNPC (50%), along with partners Total from France (25%) and Petronas from Malaysia (25%), was also a big winner for Halfaya (4.1 billion barrels of reserves, projected output of 535,000 barrels per day (bpd)), southeast of Amara.Petronas again (with 60%), and the Japan Petroleum Exploration Company (Japex), with 40%, will invest a cool $7 billion to develop Gharaf (reserves of around 860 million barrels, projected output of 230,000 bpd). Bidding was fierce. Losers were a joint Turkish-Indian bid, a Kazakh/South Korean/Italian consortium, and Pertamina from Indonesia.A Petronas-Shell alliance got the highly coveted Majnoon (reserves of more than 12 billion barrels, projected output of 1.8 million bpd), near the Iranian border. Russia’s Lukoil (85%), with junior partner Statoil (15%), got phase 2 of the immense West Qurna (located 65 kilometers northwest of Basra; about 12 billion barrels of reserves; projected production of 1.8 million bpd) – which in theory it had already bagged under Saddam Hussein. When Lukoil was stripped of its contract by Saddam, it blamed US-instigated United Nations sanctions, while Saddam blamed Lukoil itself.West Qurna’s phase 1 (8.7 billion barrels of reserves, with a projection to increase output from 300,000 bpd to 2.3 million bpd before 2016) was won in November by the aforementioned Exxon Mobil-Shell alliance. Losers were Total from France, a consortium of Petronas, Pertamina and Petrovietnam, and a BP-CNPC alliance.Gazprom (40%), with junior partners TPAO, Kogas and Petronas, got Badra (projected production of 170,000 bpd). Unlike the mad scramble for the southern fields, no one even bid for the East Baghdad field, for obvious reasons: it’s located in a virtual war zone. [1]The Shi’ites are coming!Iraq nationalized its oil industry in 1972. Now Big Oil is back with a vengeance. Iraqi Oil Minister Hussain al-Shahristani made no bones about Iraq’s ambitions, saying, “Our principal objective is to increase our oil production from 2.4 million barrels per day to more than four million in the next five years.” Iraq is at present exporting less oil than under Saddam, but it aims to export seven million barrels a day by 2016. Shahristani also insists “our country will have total control over production”.That is enormously debatable.For the moment, Prime Minister Nuri al-Maliki’s government in Baghdad is obviously a winner. Iraq currently gets only $60 billion a year in oil revenues. It’s not enough to rebuild a country destroyed by the Iran-Iraq war of the 1980s, UN sanctions and the American occupation. Arguably, Iraq’s oil industry would not have sufficient funds, equipment and technical people to get back on its feet alone.Whether with more oil revenues Baghdad will be able to impose law and order – starting with the capital – and fully equip its 275,000 military plus police forces, that’s an open question. No one knows for sure who will be in control of Iraq in the near future, with parliamentary elections due early next year. A new government may be tempted to renegotiate these contracts, or even invalidate them.In the next few years, with Iraq being able to reach the target of producing at least four million barrels a day, it’s fair to argue this won’t substantially influence the price of oil; but it will prevent it from shooting up out of proportion. China is now importing over four million bpd – and this will continue to rise. China by itself will be gobbling up any output increase in the global oil market.What the early 2010s will definitely see is the rise of a relatively wealthy, Shi’ite-controlled Iraq friendly with Iran and Lebanon’s Hezbollah. Essentially, Shi’ite Islam on the rise. The US-friendly autocracies and dictatorships in the Gulf will cry again, “It’s the return of the Shi’ite crescent!” United States think-tanks may be tempted to define Maliki as the new Saddam. The only difference is that by then, Cheney and company will be safely ensconced in the dustbin of historyhttp://www.globalresearch.ca/index.php?context=va&aid=16574

The AlarmistDecember 17th, 2009 at 9:03 am

Stick to the script …Recession is overTARP workedStimulus WorkedJobs are being created or savedHealthcare will be made available to allClimate still a’ Changing, butAll is well in the RepublicLather, rinse repeat.

MM CADecember 17th, 2009 at 10:57 am

Why Does The Government Care About Healthcare When 30 Million Are Out Of Work?John Carney|Dec. 17, 2009, 11:06 AM | 184 |4PrintTags: TBI Live, VideoJohn Carney, Managing Editor, The Business InsiderYour Questions (3 min)With over 30 million unemployed/underemployed, does health care really matter? – MM CAhttp://www.businessinsider.com/business-news/dec-17-youask-2009-12

GuestDecember 17th, 2009 at 11:27 am

Shadow stats info posted by MM the other day was scary. Here’s different view.Scary Drop in Velocity of Money: Is Deflation Knocking? The Author, Steven Hansen, participates in the comments section.http://seekingalpha.com/article/159814-scary-drop-in-velocity-of-money-is-deflation-knockingProfessor and all responsible for the new look, congrats. The only thing I would suggest is bringing an opinion to some of the question asked in the comments section.For example: Is John Williams misguided in your opinion, if so why. Peter Schiff, Marc Faber (and others) who also forewarned of the coming mess, along with you are now in opposite camps regarding the future inflation/deflation. A conference (perhaps televised) between those of you who correctly seen the bubbles would be not only great for us, but perhaps for each of you to better advise.If only you would all agree.hlowe

GuestDecember 17th, 2009 at 2:59 pm

Debate between Peter Schiff and a professor of political science from Columbia University David Epstein. Epstein maintains that Obama’s economic policies are saving the economyhttp://housingdoom.com/2009/12/15/peter-schiff-debates-obamas-economic-policies/“Over the weekend, top White House economic adviser, Lawrence Summers, even pronounced that the recession was now over. Without hedging his bets, Summers declared that thanks to the Obama administration’s wise stewardship, economic stimuli and emergency bailouts, another Great Depression, set up by the prior administration, had been narrowly averted. Summers saw no impediment to the return of sustainable growth. He may as well have delivered these remarks from the deck of an aircraft carrier, in the manner of president George W Bush, who delivered a speech on Iraq from the USS Abraham Lincoln in front of a banner proclaiming “mission accomplished”.”“Paul Volcker, the only independent voice in the administration and a former Federal Reserve chairman, has not been deceived by his colleagues’ sunny claims. He recently noted that our economy still evidences “too much consumption, too much spending relative to our capacity to invest and export” and that the problem is “involved with the financial crisis but in a way [is] more difficult than the financial crisis because it reflects the basic structure of the economy.” Yet, President Obama has chosen not to address these concerns.”http://www.atimes.com/atimes/Global_Economy/KL16Dj02.htmlProfessor, I would pay ($$$) to see you and Schiff debate.Considering interest rates and taxes have been going down over a 30 year period, yet we still borrow to consume products made primarily from those same countries, were is sustainable growth going to come from now that rates are at zero?hlowe

Octavio RichettaDecember 17th, 2009 at 9:44 pm

It looks like the Santa rally won’t happen this year. The red tide is back! Check my posts starting the day before Turkey day…

The AlarmistDecember 18th, 2009 at 2:44 am

Wasn’t the 21% rally for the rest of the year (+60% from the lows) enough for you? Gee, Bah humbug.

Octavio RichettaDecember 19th, 2009 at 4:03 pm

You make it sound as if I am waiting for a Santa rally which having gone from an 80%+ from a less than 10% equity exposure around T day is clearly not what I am betting for. I think I wrote in a recent post that I saw a 40% chance of a Santa rally (i.e., I thought not having a Santa rally was more likely). It is extremely difficult to find old posts in this site. I am gonna have to start posting my comments from here in my seeking alpha account.

GuestDecember 18th, 2009 at 7:50 am

The Economist: The Recession Was Nothing, Here Comes The Real PainVincent Fernando|Dec. 18, 2009, 6:51 AM | 1,221 |3PrintTags: Economy, Financial Crisis, RecessionThe Economist warns that the recession we just experienced is only a small taste of the pain to come.While massive government action around the world softened this recession’s blow, to the point that many in the world barely felt it, it will soon be time to deal with the repercussions of bailouts and stimulus.These include stagnation in developed economies, asset bubbles in emerging ones, and the rise of anti-business sentiment among outraged American and European populations.The Economist: The bad news is that today’s stability, however welcome, is worryingly fragile, both because global demand is still dependent on government support and because public largesse has papered over old problems while creating new sources of volatility. Property prices are still falling in more places than they are rising, and, as this week’s nationalisation of Austria’s Hypo Group shows, banking stresses still persist. Apparent signs of success, such as American megabanks repaying public capital early (see article), make it easy to forget that the recovery still depends on government support. Strip out the temporary effects of firms’ restocking, and much of the rebound in global demand is thanks to the public purse, from the officially induced investment surge in China to stimulus-prompted spending in America. That is revving recovery in big emerging economies, while only staving off a relapse into recession in much of the rich world.Read more here.

MM CADecember 18th, 2009 at 8:06 am

I said this time last year he would be in the 30’s, so i missed by a few points, but he will be by spring….there will be big problems hitting late January in all segments of the eceonomy from, continuing job loss, bank problems, housing declines, auto problems, china, rising foreclosures, liquidity issues, health care issues, state and local city govts imploding on lower tax revenues and having massive budget problems… it has only jsut begun… the past 18 months was practice and warmup before the game actually beginsThe Washington Post has just posted on its website the results of its latest poll conducted jointly with ABC News:“Most [of those surveyed] oppose a widely floated proposal in which the United States and other industrialized countries would contribute $10 billion a year to help developing countries pay for reducing the amount of greenhouse gases they release. Overall, 57 per cent of those polled oppose this idea; 39 per cent support it. Most Republicans (74 per cent) and independents (58 per cent) are against this proposal, while a small majority of Democrats (54 per cent) are supportive.At the same time, there’s growing negativity toward the president’s handling of the broader global warming issue. Around the 100-day mark of Obama’s presidency, 61 percent approved of the way he was dealing with the issue. Approval slumped to 54 per cent in June and to 45 per cent in the new poll.The drop in Obama’s ratings has been driven by a steep slump among political independents, who went from 62 per cent positive in April to 36 per cent now.

The AlarmistDecember 18th, 2009 at 8:34 am

It’s largely because after a little communication of the ramifications of the Cap-N-Tax bill, a lot of people suddenly realised that feeling good about ‘saving the planet’ came with a stiff price tag. Especially when it is made clear that this is just another giant sucking sound, this time with assets flowing in a one-way exchange to the developing world.Add the cost of feeling good about Obamacare, and its a surprise he is still in the 40s.

MM CADecember 18th, 2009 at 9:14 am

Does anyone think the crisis is over? read this… while everyone is focused on the 20-30 billion the big banks received, look at these numbers… and dont think for one second that some of this money is not going to the big banks… all the back doors and hidden trap doors of how the money is being funneled. come 2010 the govt and the fed are out of options techincally to keep printing, that is when all the problems will come out… how to they go back to congress and start saying they need trillions more? the ponzi sheme is slowly being exposed… they lived to fight another day mentality is slowly coming to end… that day is now in sight…Minh Uong/The New York TimesMARY WILLIAMS WALSHPublished: December 16, 2009Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.Though the four are not in all the same businesses, they were caught in one of the same traps: They sold mortgage guarantees — in some cases to each other. Now when homeowners default, as they are doing in record numbers, these companies are covering the losses. Essentially, taxpayer money to these companies is being used partly to protect banks and other investors who own the mortgages.Like the big banks, these four companies would no doubt prefer to be free of government assistance, which comes with pay and other restrictions on their executives. But they appear at risk of getting onto a debt merry-go-round, where they have to draw new money from the government just to keep up with their existing government debts.Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”All the companies have recently drawn new government money or are in talks to do so:¶Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now, according to people close to the talks, officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment.¶GMAC, which finances auto sales, already has $13.4 billion from the Troubled Asset Relief Program, and has been in talks with the Treasury about getting up to $5.6 billion more, because a government “stress test” showed it was still too weak.¶A.I.G., the insurance conglomerate, recently drew $2 billion from a special $30 billion government facility, which was created in the spring after a $40 billion infusion proved inadequate.

GuestDecember 18th, 2009 at 12:41 pm

The Wagner Act of 1935 had a lot to do with the economic decline. I’m surprised the author didn’t draw the act’s impact on the economy then with the current administration’s attempt to stregthen the unions today.

Octavio RichettaDecember 19th, 2009 at 4:42 pm

Friday’s market action was quite weird. “RED Asia” was followed by green Europe, supposedly in Germany’s increased business confidence. And US futures were green on oracle’s and RIM’s results. I kept on telling myself, after my post above about “red Asia”, that the “green” In Europe and the US didn’t jibe.The action most of the day appeared to prove me right. However, there was the usual 180o turn later in the day and into the close! Watz going on? I have several hypotheses which may be going on simultaneously:1) The zero rates put: There seems to be a belief out there that as long as zero rates are perceived to be around for the foreseeable future stocks cannot go down.2) Options expiration day in an environment where bulls/call buyers clearly have the upper hand.3) we go back to 1. As long as liquidity is out there fundamentals will be ignored until they hit market players in the face.Barron’s issue this week is quite bullish. There was not a single bear among the “crystal ball” strategists making S&P 500 predictions for next year. About the only negative I found was the possibility that emerging markets may be a “tad” overpriced (no, kidding!) Combine that with Time’s man of the year cover (Bernanke), and an excellent contrarian case could be made.However, at this point I am utterly confused. I don’t have a clue on where things are going in the short term. It would appear that Da’ bulls will save the year; and perhaps 2010 Q1, even Q2. But, IMO, the fundamentals are weak and should ultimately result in a lower market. This is in disagreement with ECRI’s WLI which seems to have stopped/reversed his declining trend (see the news at their website).If one were to just blindly go by the economic indicators (LEI and WLI), a case could be made for being long the market at least through Q1. I think there is a good chance (better than 50% odds) that we may even see S$P500 @ 1300 sometime before Q1 is over, but I cannot get myself to buy that as I am very worried about the downside, even if the likelihood of that is under 50%, it is quite significant.I hope my thinking clears up as the holidays pass/the new year arrives. There is no rush. In the mean time, I will remain almost perfectly hedged with positions that more or less have worked in my favor. I am @ 12.9% YTD return, about 0.5% below my 2009 peak which happened in the last few weeks. Shorting the Russell 2000 hasn’t worked well so far, but if the market starts caring more about negative news, it should start working.

Octavio RichettaDecember 19th, 2009 at 4:45 pm

BTW, Friday’s action leads me to believe a Santa’s rally is still very likely. Datz vat the big money boyz want. However, I will be pleasantly surprised if the Grinch and not Santa scores the market touch down!:-)

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