Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Doug Henwood on Teddy KennedyFrom Doug Henwood's blog, LBO News.De mortuis: Teddy Kennedy and deregulation According to just about everybody, Teddy Kennedy represented the "soul” of the Democratic party, which presumably refers to his long-professed concern the poor and the weak. Now that that soul is safely buried, the Dems can move on to the important stuff, like preserving Wall Street power and escalating the war in Afghanistan. Let’s inspect that soul a little more closely though. I’ve never been inclined to hold my tongue about the recently departed. Well, yes, in personal life, but certainly not public life—especially in the midst of one of these orchestrated rituals of national morning that have become so damned compuslory since Ronald Reagan went on to his reward. Sure, Teddy had his virtues, especially in contrast to his older brother John, who could wage imperialist war with the best of them, and who’s revered by supply siders as their political ancestor. (Since we’re talking politics, not personality, let’s bracket that little incident where Teddy drunkenly drove a woman to her death, left the scene of the crime, and then dispatched a family laywer to get to the Kopechne family before the press did. One can only imagine what went on at that meeting.) Let’s just look at Teddy’s role in one of the greatest assaults on working class living standards of the modern neoliberal era, transport deregulation. Once upon a time, working for an airline or driving a truck was a pretty good way to make a living without an advanced degree: union jobs with high pay and decent benefits. A major reason for that is that both industries were federally regulated, with competition kept to a minimum. Starting in the early 1970s, an odd coalition of right-wingers, mainstream economists, liberals, and consumer advocates (including Ralph Nader) began agitating for the deregulation of these industries. All agreed that competition would bring down prices and improve service. Among the leading agitators was Teddy Kennedy. The right has been noting this in their memorials for "The Lion,” but not the weepy left. Why was Kennedy such a passionate deregulator? Greg Tarpinian, former director of the Labor Research Association who went on to work for Baby Jimmy Hoffa, once speculated to me that it was because merchant capital always wants to reduce transport costs—the merchant in question being Teddy’s father, Bootlegger Joe. Maybe. In any case, Kennedy surrounded himself with aides who worked on drafting the deregulatory legislation. Many of them subsequently went on to work for Frank Lorenzo, the ghoulish executive who busted unions at Continental and Eastern airlines in the early 1980s. (Kennedy’s long-time ad agency also did PR work for Lorenzo.) And what was the result of all this deregulation? Massive downward mobility for workers. The Bureau of Labor Statistics doesn’t provide earnings data for the airline sector, and its data on trucking only begins in 1990. (Start search for data here.) So for a longer-term view, we have to look at the entire "transportation and warehousing” sector (which is mostly transportation). The graph of that sector’s hourly earnings compared to the entire private sector average is below. Read the rest of the post. Labels: deregulation, Doug Henwood, Teddy Kennedy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On the Usefulness of Economics In Tough TimesThis Washington Post article speaks for itself. Note that Alan Greenspan apprears to be a devotee. Needless to say, perhaps, I found it on Marginal Revolution, a veritable treasure-trove for those enthralled by the trivial.Blue Chip, White Cotton: What Underwear Says About the Economy By Ylan Q. Mui Washington Post Staff Writer Monday, August 31, 2009 For one answer to the nation's most pressing economic question -- when will the recession end?--just take a peek inside the American man's underwear drawer. There may be some new pairs there, judging by recent reports from retailers and analysts, and that could mean better days ahead for everyone. Here's the theory, briefly: Sales of men's underwear typically are stable because they rank as a necessity. But during times of severe financial strain, men will try to stretch the time between buying new pairs, causing underwear sales to dip. "It's a prolonged purchase," said Marshal Cohen, senior analyst with the consumer research firm NPD Group. "It's like trying to drive your car an extra 10,000 miles." The growth in sales of men's underwear began to slow last year as the recession took hold, according to Mintel, another research firm. This year, Mintel expects sales to fall 2.3 percent, the first drop since the company started collecting data in 2003. But the men's underwear index--or, conveniently, MUI--may also have a silver lining. Mintel predicts that next year, men's underwear sales will fall by 0.5 percent, and as with many economic indicators, a slowing of a decline can be welcomed as a step in the right direction. Retailers are reporting encouraging signs in the men's underwear department. Sears spokeswoman Amy Dimond said stores are beginning to see more sales. At Target, spokeswoman Jana O'Leary said sales of men's underwear have been stronger over the past two months and multi-pair packs are moving. No less an oracle than former Federal Reserve chairman Alan Greenspan has given this theory credence.... Read the rest of the article Labels: Alan Greenspan, economics education, financial crisis, Marginal Revolution Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On the Profitability of the TARPTwo views.First, Daniel Gross. Then, Yves Smith. I'm with Smith. Even if *some* pecuniary benefit eventually accrues to the government's balace sheet, huge losses still loom, and the system remains dependent on us bailing out those responsible for the crisis, in effect enabling them to screw us again. Labels: Daniel Gross, financial crisis bailout, TARP program, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). One Forgotten Indicator: Restaurant SalesCalculated Risk discusses the 23rd consecutive month of depression for restaurant sales. Restaurant sales performed heroically during the bubble, and became a leading source of job-creation during that period. Both capacities have now crashed to earth, and with more and more displaced workers competing for restaurant jobs they would ordinarilly turn their noses up at, both the drag on employment and knock-on effects on consumer spending and revenues for restaurants will continue to have an outsized negative impact on the wider economy, it seems.Monday, August 31, 2009 Restaurants in July: 23rd Consecutive Month of Declining Traffic by CalculatedRisk on 8/31/2009 10:03:00 AMNote: Any reading below 100 shows contraction for this index. From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain In June as Restaurant Performance Index Declined for Second Consecutive Month The outlook for the restaurant industry improved somewhat in July, as the National Restaurant Association's comprehensive index of restaurant activity registered its first gain in three months. The Association's Restaurant Performance Index (RPI)--a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry--stood at 98.1 in July, up 0.3 percent from its June level. However, the RPI still remained below 100 for the 21st consecutive month, which signifies contraction in the index of key industry indicators. "Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are more optimistic about improving conditions in the months ahead," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "Restaurant operators reported a positive six-month economic outlook, and the proportion expecting higher sales rose to its highest level in three months." . . . In addition to sales declines, restaurant operators reported negative customer traffic levels for the 23rd consecutive month in July. emphasis added Read the rest of the post Labels: Calculated Risk, economic indicators, financial crisis, National Restaurant Association, restaurant sales Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). E-books, Content, Advertising and HardwareEmerging relations between, and implications for big media, discussed in this Financial Times article.E-book advocates highlight content evolution By Andrew Edgecliffe-Johnson in New York Financial Times Published: August 31 2009 03:00 | Last updated: August 31 2009 03:00 Steve Haber, president of Sony's digital reading division, stood in the New York Public Library last week with a picture of a stone tablet, a book and the electronic book reader he was there to unveil . The evolution from pages to pixels was as profound as that from CDs to MP3s, he argued. Sony's devices, priced as low as $199, heralded "the mass-market expansion of digital reading", he claimed. Two months earlier, Sony's main rival in the e-book battle had taken a similarly long view. The book "has had a 500-year run", said Jeff Bezos, the Amazon.com chairman who launched the Kindle reader. "It's been an unbelievably successful technology, but it's time to change." To date, reality has not lived up to the hyperbole on e-books. A recent Credit Suisse report found that wholesale e-book revenues were $1.48bn last year, or 5.5 per cent of the global publishing market. Most were scholarly texts, with consumer e-books selling just $78m. Current e-readers are suitable only "for the upper class, people over 45, big readers, big travellers, early adopters," said Arnaud Nourry, chief executive of Hachette Livre. But the technology and pricing of e-readers is changing fast, as devices from Interead, Hearst and Plastic Logic, backed by retailer Barnes & Noble, join Amazon and Sony's brands. Forrester Research expects the US e-reader market to grow from 1m units to 12m by 2012 as new devices offer wireless connections, touch screens and, in time, colour displays. The book industry sees in e-readers a chance to improve on its challenging business model, where publishers pay advances before reading authors' finished works, guess at what print runs to pay for, bear the costs of storing books and then shoulder the cost if unsold copies are returned. Newspaper and magazine publishers see a similar chance to save on costs, and are rushing to get on to devices whose consumer appeal offers a better chance of charging for content than they have online. Read the rest of the article Labels: ebooks, hardware industry, Information Technology, media, newspapers, publishing industry, software industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Weekly Indicator Outlook/Monday's IndicatorsFirst, setting the tone for market performance as the week starts is a Shanghai stockmarket loss of no less than 6.7% on Monday, which has led Asian and European (but not British, as of 10.30 am EST--3.30 pm GMT) stocks lower.Japanese Industrial production rose 1.9% in July, raising the string of consecutive rises to 5. But critical export growth is lacking, and the figures, viewed from a year-to-year perspective, remain quite depressed. The fact that production continues to grow robustly, while exports and imports decline, or, at best, level off throughout the region, makes me quite concerned that the much-remarked-upon post-Lehman inventory restocking will be seen to have overshot on the upside in the next few weeks. One can only hope that the fact that the swingeing declines have led to such meager advances, viewed from a yearly perspective, will keep inventory restocking aligned to a much-reduced capacity of consumers to buy, and businesses to invest. In the US, the Chicago Purchasing Manager's Index, which provides a snapshot of the bosses' propensity to invest, rose to a post-Lehman high in August. Later in the week, all eyes will be on Friday's US employment reports. The nonfarm payroll figure is expected to be down by *only* 220,000 for August, a slight improvement on July's 240,000 loss, but the unemployment rate is expected to climb a notch, back up to June's 9.5%, as discouraged (and uncounted) workers re-enter (presumably encouraged by July's downward movement in unemployment) still horrific labor markets. But other gauges of employment are also due out: on Thursday, US weekly new and existing unemployment claims figure comes in, ehile Eurozone unemployment indicators are slated for tomorrow. Unemployment there is forecast to rise .1% to 9.5%, which would, if it--and the US projection--materialize represent another noteworthy development in the crisis, when European and American unemployment rates finally converge after decades of mainly large divergence. It's a fool's errand as to which side will come off looking better.... US revised productivity and unit labor costs are due on Wednesday. Both figures are expected to be trimmed from their spectacular heights (inversely for ULCs), but the story of workers lucky enough to have steady jobs being squeezed implacably by the boss to make up for lack of sales and revenues is expected to stick. Finally, indications on the health of the all-important US service sector will be released Thursday. This sector has contracted since September of last year, albeit at a slowing rate. Improvement is key for the US outlook, because it has such a large service sector. Regarding housing, US July pending home sales is out tomorrow. US retailers will also report comparable stores-sales on Thursday, providing a look at the increasingly important back-to-school sales in the retaiing calendar, and of the state of the US consumer. Labels: corporate profits, economic indicators, employment, eurozone, housing market, industrial production, Japan, productivity, retail sales, service industries, stock markets, unemployment, United States Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 4 Years after Hurricane Katrina Grand Casino, Biloxi, MS, five months after Hurricane Katrina made landfall in Mississippi. On August 29, 2005, the eye of Hurricane Katrina made landfall in Waveland, Mississippi, and the western side of the storm grazed New Orleans. Five months after the storm, I visited the Mississippi Gulf Coast.According to a National Hurricane Center report on Katrina, "in many locations, most of the buildings along the coast were completely destroyed, leaving few structures within which to identify still-water marks." The center's researchers estimate that the hurricane produced a storm surge as high as 27 feet in some locations.When I wrote this for Dollars & Sense Magazine in 2006, I focused on the housng crisis faced by Katrina survivors in Mississippi. Today, at the fourth anniversary of the storm, the housing crisis rages on, thanks to government inaction and skewed priorites. Small rental and workforce housing progress has fallen dramatically short of State predictions, and so Mississippi has asked HUD for additional funds to temporarily subsidize lower-income residents in market rate rentals....But the housing crisis was just one part of the ongoing disaster. Katrina has also been a cultural and ecological disaster of epic proportions.  Framed family photos rest on the foundation slab of a home obliterated by Hurricane Katrina in Bay St. Louis, Mississippi. I emphasize Mississippi in this blog post because I know that nearly all of the fourth anniversary coverage of the ongoing Katrina aftermath, will focus myopically on New Orleans. The situation in New Orleans is still dire. The housing crisis is dire. But there will not be an adequate recovery until the interconnectedness of regions and issues becomes a fundamental insight that drives policy.While poor and minority survivors and activists will agree (if anyone asks them) that they face multiple, interconnected disasters in the aftermath of Katrina and Rita, this basic local insight goes largely unrecognized. Government failure is certainly most responsible for a "recovery" that has been arbitrary, resource-driven, and slow rather than holistic, need-driven, or effective. But no one, progressives as a group included, has adequately depicted, let alone offset, that failure. Narrowly focused aid has often segregated otherwise related issues, making one or another worse and masking the lack of an overall plan. Residents of the region feel tremendous gratitude to the tens—if not hundreds—of thousands of volunteers whose countless hours of labor, along with their financial contributions, are primarily responsible for what rebuilding has occurred. However, this individual good will is no substitute for the kind of comprehensive, coordinated, and sustained response that is needed from government at all levels.The Gulf Coast Civic Works Act, still needing co-sponsors in the House, is a step in the right direction: a hybrid model to partner directly with communities in planning, overseeing and administering recovery projects to assist the survivors of these disasters, provide communities with tools to build resilience against the impact of future disasters and revitalize the region economically. The bill would create a minimum of 100,000 prevailing wage jobs and training opportunities for local and displaced workers on projects reinvesting in infrastructure and restoring the coastal environment utilizing emerging green building techniques and technologies. This program would empower residents to realize their right to return with dignity and create stronger, safer, and more equitable communities.Ask your Representative to co-sponsor this important legislation.  Carland Baker, Sr. on the site of his former townhouse, Longwood Apartments, 2012 2nd St, Long Beach, MS. More reading and resources
(Cross-posted on Hungry Blues.) Labels: bay st. louis, biloxi, grand casino, gulf coast civic works act, gulfport, hud, louisiana, national hurricane center, northrop grumman ship systems, pascagoula, pass christian, road home, waveland Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Personal Consumption/GDP NOT 70% GDPOr so Michael Mandel insists. From his Economics Unbound/World Economy Blog:Economics Unbound Get It Straight: Consumer Spending is *not* 70% of GDP Posted by: Michael Mandel on August 29 Ok, now I'm getting aggravated. On the front page of the NYT this morning, Peter Goodman wrote Given that consumer spending has in recent years accounted for 70 percent of the nation's economic activity, a marginal shrinking could significantly depress demand for goods and services, discouraging businesses from hiring more workers. And Martin Crutsinger of the Associated Press wrote Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity--more than for most European nations and well above the rates in developing countries such as China. Both of these fine economics writers have fallen into a subtle but very important trap. They look at the category of GDP which the BEA calls 'personal consumption expenditures' and assume that it means what it sounds like: The money that persons, like you and me, spend on consumption. But in fact, 'personal consumption expenditures' in the U.S. is a grab-bag category which includes all sorts of money--like Medicare spending by the government--which never passes through the hands of households. PCE also includes all the consumer goods imported into the U.S.--cars, computers, clothing, and the like--which create very little economic activity in this country. In fact, by my very rough calculations, the money that people actually pull out of their paychecks and bank accounts to pay for domestically-produced goods and services drives about 40% of economic activity in this country. That's still large--but the U.S. is nowhere near as dependent on consumer spending as people think. Okay. Let's look under the hood... Read the rest of the post Labels: economic indicators, GDP, Michael Mandel, Personal consumption Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elections in the Other Ueber-Exporter: GermanyGermany, too holds a general election very soon. The ruling center-right Christian Democrats, under chancellor Angela Merkel, have been expected to win big enough to possibly form a coalition with their right-wing soul mates, the Free Democrats (they rule in a grand coalition with the center-left Social Democrats now). But yesterday's county elections in two laender, Saarland and Thuringia, saw the Christian Democrats lose a lot of support (as well as the hapless Social Democrats): the big winner (which the article neglects to mention: details on this score can be found here if you read German) was the Left Party. During the last general election, Merkel saw a similarly wide lead vanish, and won only by a relative whisker. Now, the fact that the Social Democrats are even more unpopular means that she'll probably win quite easily, but will not necessarily be able to govern with the FDP.From Reuters Merkel loses ground to left in German states Sun Aug 30, 2009 3:16pm ED By Noah Barkin BERLIN (Reuters) - Chancellor Angela Merkel's party suffered losses in German regional elections on Sunday, a setback that could hurt her chances of forming the center-right government she wants after next month's federal vote. Merkel's conservatives hold a comfortable 12-15 point lead in national polls over their main rivals, the center-left Social Democrats (SPD), and a weekend opinion survey showed 87 percent of Germans expect her to win a second term on September 27. But her Christian Democrats (CDU) saw their support fall sharply in the final weeks of the 2002 and 2005 campaigns and the regional results on Sunday may increase fears of another pre-election slump. In the state of Saarland, on the French border, and in Thuringia, in the ex-communist east, CDU leaders who have ruled for a decade saw their support slump by more than 10 points compared to 2004 and both could be unseated by leftist coalitions. "The Social Democrats now have the aura of a winner, something they will need for the coming weeks," said Karl-Rudolf Korte, a political scientist at Duisburg-Essen University. "It could mean a turning point in the election campaign." The regional election results from three German states were not all negative for Merkel. In a third vote in the eastern state of Saxony, her CDU looked poised to retain power, most likely in a coalition with the business-friendly Free Democrats (FDP)-- the same party she hopes to partner with after the federal vote. Gains for the FDP in all three states were a silver lining for the conservatives and the lack of strong rises in support for the SPD will be a comfort. But the risks Merkel faces in the final four weeks of the campaign have clearly risen. Read the rest of the article Labels: Angela Merkel, Free Democrats, Germany, Left Party, Social Democratic Pary Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Second Quarter Earnings RoundupFrom the New York Times' Site:U.S. Second-Quarter Earnings Tough to Beat By REUTERS Published: August 30, 2009 NEW YORK (Reuters) For corporate America and Wall Street, the second quarter may be a tough act to follow. Just as investors were closing the book on second-quarter earnings, Dell Inc (DELL.O) drew them back in by accidentally releasing earnings that beat expectations just minutes before Thursday's closing bell. Despite this minor misstep by Dell, the world's No. 2 personal computer maker, investors reacted to the news the way they did to many other pleasant surprises this quarter--by hungrily snapping up Dell's stock and lifting tech shares. This was the pattern throughout the latest earnings period, as a bevy of surprises provided the fuel to drive the benchmark Standard & Poor's 500 Index (.SPX) up 11.5 percent since July 1. The rally lifted the S&P 500 to a 10-month high this week. Intel Corp (INTC.O), which reported quarterly results that surpassed expectations last month, surprised the Street again on Friday morning by raising its revenue outlook. But the broader market's initial euphoric response to the news soon fizzled. That left participants wondering: In the dearth of earnings, what will push stocks higher from here? "This market has about as much good news baked into it as it can take," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore. "We're at that point now where there is no more good news that could come out that can really juice this market." For the past week, the S&P 500 rose 0.3 percent, while the blue-chip Dow Jones industrial average (.DJI) gained 0.4 percent. The Nasdaq Composite Index (.IXIC) also finished the week up 0.4 percent. MORE REALISTIC MOOD With just a handful of companies left to report, the S&P 500's second-quarter earnings are projected to decline 27.3 percent from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36 percent decline from the year-earlier quarter at the start of the earnings period, and a 35.5 percent drop in the year's first quarter from the same period in 2008. Some 73 percent of the companies that reported results beat estimates, well above the 61 percent average for a typical quarter, Thomson Reuters data showed. Wall Street used the abundance of positive surprises as the catalyst to keep the stock market's rally going. But it remains to be seen whether the broad market's buoyant reaction can be repeated in coming weeks. Intel shares rose sharply, and boosted semiconductors, but the market itself struggled on Friday. And even glittering results from jeweler Tiffany & Co Analysts say expectations are not as dire as they were when headed into the second quarter. Estimates are for third-quarter earnings to decline 20.8 percent from a year ago. The change in expectations may reduce the impact of positive earnings guidance, which will start to trickle out in a few weeks' time. "I don't think we will get surprises of the magnitude we got in the second quarter," said Hugh Johnson, chief investment officer of Johnson Illington Advisors, in Albany, New York. Read the rest of the article Labels: corporate profits, economic indicators, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Japanese Election: Ruling LDP Gets HammeredFrom The New York Times:Japanese Opposition Wins Elections in Landslide By MARTIN FACKLER Published: August 30, 2009 TOKYO In a rare display of democratic muscle in this traditionally apolitical nation, Japan's voters cast out the Liberal Democratic Party for only the second time in postwar history, handing a landslide victory to the opposition in hard-fought elections on Sunday The victor, the main opposition Democratic Party, must now tackle Japan's worsening economic problems. Almost as crucially, it faces questions here about its ability to manage the relationship with Washington. Voters set aside doubts about the untested Democrats, a broad coalition of former socialists and ruling party defectors who campaigned with promises to ease Japan’s growing social inequalities and change the way the country is governed. However, the victory is widely seen here as less of an embrace of the opposition than a resounding rejection of the conservative incumbents, whom voters blame for this former economic superpower's stubborn decline and increasingly cloudy future. Prime Minister Taro Aso told reporters that he would step down to take responsibility for the defeat. The Democrats won 302 of the 480 seats in the powerful lower house, giving it control of the chamber and far surpassing the 112 seats they held before the vote, according to a count late Sunday night by national broadcaster NHK. The incumbents took just 115, about a third of their previous total. Most of the remaining seats were won by smaller parties. "This has been a revolutionary election," a triumphant Yukio Hatoyama, the Democratic Party leader, told reporters. "The people have shown the courage to take politics into their own hands." Read the rest of the article Labels: Democratic Party of Japan, Japan, Liberal Democratic Party, Taro Aso, Yukio Hatoyama Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Getting Health Care Incentives RightDavid Goldhill's father, 83 but still working, walked into a non-profit Manhattan hospital with pneumonia. Five weeks later he was dead from hospital-borne infections. Appalled by the negligence and primitive record-keeping of a top-rated hospital, Goldhill spent two years researching the US health system. The September Atlantic features Goldhill's report on how misdirected incentives seriously distort the system. Goldhill, a business executive, proposes an alternative system to give consumers more choice, and allow competition to improve quality and lower costs. (See "How American Health Care Killed My Father".) Key to Goldhill's reform is to split health care into two components: he would require us to contribute regularly to a health savings account to cover basic care and to purchase catastrophic insurance-with appropriate subsidies for lower income citizens. (Note that requiring subsidized purchase of health insurance, as Obama also proposes, is a political smokescreen to hide the reality that universal health insurance will reduce benefits and raise costs for those relatively well off Americans who have benefited most from the current system.) I agree with Goldhill on splitting the system between basic and catastrophic, but I don't think his health savings account will provide the best incentives. Here's the problem: As a society we want all citizens to receive basic health care. That means immunizations, treatment for minor illnesses or injuries, dental care, hearing aids, eyeglasses, pregnancy monitoring, routine counseling for chronic diseases like diabetes, or high blood pressure or heart disease-care that heads off serious conditions and keeps people productive and out of hospitals. Such care should be more than free: it should be accessible to those who can't afford a taxi or much time off from work. (Great Britain not only provides free health care, but reimburses transportation.) As a society, we also don't want over-treatment, let alone the incompetent treatment that killed Goldhill's father. But as long as doctors are paid by fee-for-service, there will be over-treatment and little incentive to make doctors wash their hands. That's true whether or not a hospital is non-profit. Moreover, fee-for-service encourages doctors to become specialists, who are better paid, instead of primary care practitioners. The problem with the health savings account part of Goldhill's proposal is that it would not only discourage over-treatment but encourage people to skimp on basic health care. Moreover, people would still lack the information to make good healthcare decisions. How do we promote basic health care while discouraging over-treatment? Some thirty years ago, we thought HMOs like Kaiser had come up with the solution: capitation, that is, charging a fixed amount per client. Supposedly, the patients who stayed healthy would balance out those who got sick, and the HMOs would profit by cutting waste. It didn't work that way. HMOs started denying care to sympathetic patients, provoking public outrage. The HMOs backed off--and raised premiums. What went wrong with capitation? As someone wrote at the time, if you charge a fixed price for a buffet at a cafeteria, watch the quality of the food decline. In other words, capitation gave HMOs an incentive to cut service. So are we stuck between over-treatment with-fee-for service and under-treatment with capitation? No. In the real world all-you-can-eat buffets thrive without cutting quality--because they face competition. Most HMO patients are there by choice of their employers, not their own. In some states, there is only one HMO. Capitation has failed in HMOs due to lack of competition. Here's my alternative to Goldhill's health savings accounts. Provide every citizen with a fixed, age-adjusted federal voucher to cover the services of a primary care physician/ medical service advisor. This primary-advisor would provide all basic health care services. And the advisor would offer counseling on serious health problems, recommendations for specialists as needed, and guidance on choices of catastrophic insurance providers. Why would this primary-advisor approach work where HMO capitation failed? The answer is competition and informed clients. First, the primary-advisors would compete with one another to offer the best service for the voucher. Second, they would enable clients to make well-informed health care choices--creating competition among service providers, such as MRI facilities or catastrophic insurers. A primary-advisor and catastrophic insurance system would of course require regulatory constraints. For starters, neither primary advisors nor catastrophic insurers could refuse or drop clients. While the system would be de facto single payer with private provision, it could potentially provide better service and more effective cost control than our current full single-payer system: Medicare. Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Crisis and US Export/Import DestinationsWonder how this reflects on NAFTA (especially from a Mexican perspective--they're getting absolutely killed by this). From Vox EU:Transmission of the global recession through US trade Michael J. Ferrantino Aimee Larsen 29 August 2009 International trade has transmitted demand contractions across national boundaries throughout the crisis. This column analyses the transmission of the recession through US trade flows at the sectoral level. US imports of housing construction inputs peaked before many other popular housing indicators. International trade has played a major role in the global recession especially in transmitting demand contractions across national boundaries (Freund 2009). According to standard trade-linkages reasoning, countries "catch" recessions from their major export partners while transmitting recessions to their major import suppliers. This simple economic logic directs attention to a set of facts that has heretofore attracted little attention in the global debate. US exports are disproportionately sold to the EU and Canada (a bilateral trade surplus); US imports are disproportionately sourced from China, Japan, and the rest of Asia (a bilateral trade deficit). Imports from China dominated the US (real) import decline, while exports to Canada figured disproportionately in US export declines. US imports peaked in October 2007, with a secondary peak in October 2008, and a trough in February 2009. US exports, by contrast, continued to rise until much later in June 2008. The timing of US import peaks by sector is markedly different from that of US export peaks by sector. The export peaks cluster around the general peak in mid-2008. The import peaks, by contrast, both came much earlier (end of 2007) and show a great deal of sectoral dispersion. US imports related to housing construction--especially wood and construction equipment--showed relatively early downturns. The downturn in US imports of motor vehicles and parts has been particularly deep; it began in March 2007 when oil prices were still rising sharply. Read the rest of the article Labels: exports, financial crisis, imports, NAFTA, Trade, vox eu Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Calculating the Benefit of Our Present HealthcareMany people aready know much of this, but these are points that deserve to be hammered into our heads these days. Here's the essential point:Let's start with value. Most Americans are blissfully unaware that their healthcare system provides appallingly little value for their money. This is because when it comes to costs, they see only the tip of the iceberg. While companies typically pay about three-quarters of an employee's family premium--on average $12,680 a year--individuals ultimately bear the burden. In a free market, companies do not hand over to their workers more than they absolutely have to. Money spent on healthcare is carved out of take-home pay or other benefits. Oh, and lest we forget, "The foundation estimates that without reform, the cost of premiums could double again by 2020--gobbling up still more take home pay." From Reuters: 13:49 August 26th, 2009 The mirage of U.S. healthcare Posted by: Christopher Swann On healthcare, the White House is struggling with a political riptide that threatens to drag it into deep water. Americans, as they contemplate change, have suffered a weakness of nerve. The main reason is that nearly two thirds of Americans are apparently happy with their healthcare coverage, for all its deficiencies. Repeated reassurances from President Obama that those who like the existing set-up will not be forced to change, have had little effect. A change of tactics may be in order. The administration must do a better job of underlining the glaring defects of the existing system. The genius of the U.S. healthcare is in providing the illusion of value and security. For their own sake, Americans must be encouraged to set aside jingoistic claims about having the best care system in the world and look more honestly at its short-comings. Read the rest of the article Labels: health care, health care reform, insurance industry, wages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China's "Bailout" of TaiwanFrom Reuters:02:25 August 26th, 2009 China's bailout of Taiwan is good for the region By: Wei Gu Wei Gu is a Reuters columnist. The opinions expressed are her own If market performance is anything to go by, Taiwan is the biggest beneficiary of China's economic stimulus. Because of Taiwan's heavy dependence on exports to Western consumers, it was assumed there was little Beijing 'could do about its downturn. But Beijing has gone out of its way to take care of the recession-hit island. This year, it sent several procurement missions to Taiwan to buy billions of dollars of goods, even though Taiwan's trade surplus with China is already approaching as much as a fifth of its economy. China might be pursuing its unification agenda. After all, it has vowed to bring the island under its rule, by force if necessary. But money is a lot better than missiles. The whole point of inter-dependency is that there will be less chance of confrontation. Taiwan could use more investment, particularly in properties and infrastructure, while China is looking for new areas in which to invest its excess liquidity. In the short run, increased purchases from Taiwan may come at Korea and Japan's expense. For example, computer maker Lenovo (0992.HK) is increasing its orders from Taiwan companies, probably also because Taiwanese firms are happy to stay as contract manufacturers. But in the long run, warmer cross-strait ties not only benefit Taiwan and are a positive for China, but also are a very bullish development for the region, which should lead to lower risk premiums in Asia. The wall of Chinese money has pushed Taiwan stocks up almost 50 percent this year, making it the second best performing market in the world after China itself and followed a decade of underperformance. Taiwanese stocks are currently valued at 26 times of 2009 earnings--a premium versus the rest of the region. Read the rest of the article Labels: bailout, China, economic statistics, financial crisis, supply chains, Taiwan Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). This Is What We Get for All the Bailout MoneyTwo related posts here: Simon Johnson of Baseline Scenario looks at the shakeout in the banking system that he says is leading to the creation of a two-tier economy that benefits connected-insiders of virtually Naomi Klein proportions (that's him, not me). And here's also a FT piece from early July that goes into the matter in more detail.And Yves Smith discusses one way in which this is being done, via the use of forms of leverage that contributed to the blowup last year. Seems like we really saved the banking system only to increase the likelihood that we'll be hit by it again. I hope, if that happens, we don't repeat this mistake again next time. Labels: bailout, Baseline Scenario, financial crisis, Naked Capitalism, Naomi Klein, Simon Johnson, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Excellent Radio on AfghanistanDoug Henwood's weekly radio program is just about the best there is on politics and economics generally, but the August 20th show, featuring Tariq Ali and the August 15th one, with Christian Parenti, should fill in the innumerable cracks left by the article we posted earlier this week on the Af-Pak situation somewhat. The interview on Nigeria, and on the connection between big oil and third world degradation, is fantastic, too. The link above provides streaming and download links to Doug's archive, so just scroll down a bit and click (and consider a contribution to WBAI, Doug's public radio station, if you're duly impressed).Labels: Afghanistan war, Christian Parenti, Doug Henwood, Tariq Ali, WBAI Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Indicators That Fell Through The Cracks......this week (sorry about that!):UK business investment falls at fastest rate since records began in 1966, despite rock-bottom interest rates (well, not quite at US levels, but...). Once again, super-lavish quantitative easing proceeds are being hoarded by banks. The number of Americans working part-time for lack of full-time work has, in an astonishing development, almost doubled since the beginning of last year. Thanks to Calculated Risk. According to Commerzbank economists, the economic crisis has cost the world $10 trillion so far (or, more specifically, will do so by the end of this year). This article, from Die Zeit, is in German (note: in German, like in British English, a billion is a trillion, while a 1,000 million is a billion). The researchers, who assumed that world growth would have been the same as in previous years without the crisis, claim that losses in the US and UK from real-estate amounted to $4.65 trillion, while measures to save the banking system and whatnot have added on another $4.2 billion. Labels: business investment, Calculated Risk, economic indicators, real unemployment rate, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China's Stimulus and Dodgy StatisticsFrom The Guardian:Too early to hail China's stimulus success China may be on course to hit its annual economic growth target, but the official figures don't tell the full story Zhang Hong guardian.co.uk Friday 28 August 2009 07.00 BST It seems likely now that China will reach its annual economic growth target of 8%, dwarfing most of the other countries in the world. In the second quarter of 2009, its GDP growth spiked to 7.9%, from 6.1% in the first quarter. If all goes well, the Middle Kingdom will see its economic growth rise to an even higher rate in the remaining two quarters, making it one of the few countries still enjoying a nascent economic growth in spite of the severe impacts of the global financial crisis. However, looking only at the handsome official figures and rushing to the simple conclusion that China's stimulus economic package has worked successfully would be wrong. In China, official figures don't always tell the true story. Furthermore, the economic growth curve might develop into a "W" shape, rather than the more exciting "V" shape. This means China's economy still faces the danger of nose-diving when the stimulus effects fade away. Ma Jiantang, director of China's national statistics bureau, admitted recently that some official figures might not reflect the country's real situation. A large number of net users have also questioned the latest official figures on the country's residential average income, released by the bureau, while Ma admitted that the official surveys didn't cover those employed in the private sector. With more than 60% of Chinese residents employed by the private sector, this is a major omission. Read the rest of the article Labels: bailout, China, consumption, economic statistics, economic stimulus, financial crisis, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Telecoms Regulation?Let's hope the administration's regulators are more aggressive in pursuing this hated quartet than they have been regarding certain financial institutions....From today's Financial Times:Watchdog to query 'big four' mobile phone set-up By Paul Taylor in New York Financial Times Published: August 28 2009 03:00 | Last updated: August 28 2009 03:00 US regulators launched a broad assault on the US mobile phone industry yesterday, announcing an investigation of competition in a sector dominated by the "big four" wireless network operators--AT&T, Verizon Wireless, Sprint Nextel and Deutsch Telekom's T-Mobile USA unit. The Federal Communications Commission, now controlled by the Democrats, voted five-to-one to pursue the inquiry. It is being taken as a further indication the Obama administration is to step up its scrutiny of antitrust matters. Consumer advocates and smaller mobile network operators have complained the wave of consolidation in the US mobile industry during this decade has damaged competition and put too much power in the hands of the big four national operators. Among the issues likely to be considered are whether large companies such as AT&T and Verizon Wireless thwart competition by charging high fees to connect smaller rivals' calls over their networks, and for use of lines that carry data for wireless internet services. The inquiry will look "broadly at all of the elements that affect what we understand to be the mobile marketplace," said Julius Genachowski, FCC chairman. The Democrat was presiding over his second monthly meeting since taking office in June as President Barack Obama's choice to run the agency that regulates television, radio and telephones Read the rest of the article Labels: AT and T, FCC, Sprint Nextel, T-Mobile, telecom industry, Verizon Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Environmental Stuff (Not Pretty)Peak Water? Thanks to Naked CapitalismThe "Great Pacific Garbage Patch" pinpointed at last. Thanks again to Yves Smith. Ever-more bizarre geoengineering proposals. Why can't we just consume sustainably instead? Finally, speculators and oil markets. Thanks to Economist's View. Labels: Economist's View, energy, Environment, environmental crisis, geoengineering, Naked Capitalism, natural resources, oceans, pollution, water, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Friday's IndicatorsUS personal income was .1% lower in July, reflecting continued weakness in the job market, but private sector wages were actually up $6.7 billion after a big decrease of $24.5 billion in June. July consumer spending rose .2%, powered by cash-for-clunkers, and the June figure was revised upwards to an increase of .6%. For the second quarter, spending fell at a 1% annualized rate. Savings fell as incomes were squeezed, to 4.2% from 4.5% in June.The fact that the private sector is starting to put some money on the table is good news, but one has to wonder how much of it is being confined to top earners. The fact that savings fell so much may be a consequence of such skewed distribution. And if that is the case, the implications for a relatively quick economic recovery must remain in doubt. On Wall Street, positive statements by Dell (despite a steep drop in 2Q earnings) and Intel (on the basis of a more optimistic sales forecast) have failed to energize the stalled tech sector at the time of writing, at about 11.00 am EST. The UK, unlike its continental counterparts France and Germany, saw negative second-quarter growth of .7%, according to the Swiss newspaper Neue Zuercher Zeitung (for some reason I couln't find this story in the headlines of the UK dailies). But UK house prices rose in July for the third straight month, and at the highest rate in five years. In Japan, which will hold a general election on Sunday, unemployment hit a record high of 5.7% in July, while deflation of 2.2% continued to ravage the positive growth figure announced a fortnight ago. This will no doubt contribute to the widely anticipated big defeat for the ruling Liberal Democratic Party. Ambrose Evans-Pritchard noted yesterday that Japanese exports fell yet again in July, with big declines in exports to its major partners China and the US. And the Baltic Dry Index, a key barometer of international trade, has been falling for 11 weeks, as Evans-Pritchard says. Finally, LIBOR, a key set of interest rates for banks lending to each other, continued a dramatic recovery since the collapse of Lehman Brothers saw them rise to unheard-of levels last September and October. Still, however, smaller banks are finding it difficult to borrow at low rates. All in all, the data remain disturbingly mixed. Signs of strength are offset by continuing imbalances and unwindings across the board. And there's no way economies can stand on their own feet without historic levels of government support. Labels: Ambrose Evans-Pritchard, consumption, corporate earnings, Dell, economic indicators, intel, Japan, LIBOR, personal income, Trade, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Afghanistan QuagmireThough this Reuters article is hardly one of the best I've read on the topic (for that, I'd refer to The Independent's Patrick Cockburn and Robert Fisk, and The Nation's Christian Parenti, among others), Afghanistan is a subject I think we've neglected on this blog. And with casualties higher in Afghanistan than Iraq for the first time, and the administration increasing the troop presence significantly (not to mention the propect of significantly higher outlays to fight the war in the years ahead--years which will quite possibly see the US deficit hit close to $10 trillion over the next decade), even this short article may remind us of the big financial impact this "little war" may have on all of us for a long time. Needless to say, I, like many of the readers of this blog, don't necessarily feel that the war can, or should be "won." And the article does make some interesting claims, like this one: "foreign assistance coming into Afghanistan was one of the richest sources of funding for the Taliban."04:15 August 27th, 2009 Obama’s Afghan war - a race against time By: Bernd Debusmann Bernd Debusmann is a Reuters columnist. The opinions expressed are his own) By making the war in Afghanistan his own, declaring it a war of necessity and sending more troops, President Barack Obama has entered a race against time. The outcome is far from certain. To win it, the new strategy being put into place has to show convincing results before public disenchantment with the war saps Obama’s credibility and throws question marks over his judgment. Already, according to public opinion polls in August, a majority of Americans say the war is not worth fighting. Almost two thirds think the United States will eventually withdraw without winning. There are similar feelings in Britain, which fields the second-largest contingent of combat troops in Afghanistan after the United States. A poll published in London this week showed that 69 percent of those questioned thought British troops should not be fighting in Afghanistan. In the United States, almost inevitably in a country that never forgot the trauma of the only war it ever lost, 36 years ago, pundits are conjuring up the ghost of Vietnam. A lengthy analysis in the New York Times wondered whether Obama was fated to be another Lyndon B. Johnson, the president who kept escalating the Vietnam war. The war in Afghanistan is drawing into its ninth year and chances are it will still be going when Obama is gearing up for his campaign for re-election in 2012. According to a study by the RAND institute, a think tank working for the military, counter-insurgency campaigns won by the government have averaged 14 years. Read the rest of the article Labels: Afghanistan war, Barack Obama, iraq war Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama's Neoliberal and Elitist Educational PolicyFrom Danny Weil, who's writing a book on elite-led educational reform, at Counterpunch. Not to disrespect the dead, but it must be remembered that No Child Left Behind was endorsed by the late Senator Kennedy...Neoliberalism, Charter Schools and the Chicago ModelObama and Duncan's Education Policy: Like Bush's, Only Worse By DANNY WEIL In his first major speech on education since his election and swearing in as President, a speech made to an unscheduled meeting of the Council of Chief State School officers, held on March 10, 2009 in Washington D.C., Barrack Obama repeated the claims heard from many quarters that the United States must drastically improve student achievement to regain lost international standing in the world. He called for tying teachers' pay to student performance (merit pay) and for expanding charter schools throughout the nation. In calling for merit pay for teachers, Obama argued: "Too many supporters of my party have resisted the idea of rewarding excellence in teaching with extra pay, even though we know it can make a difference in the classroom." The president of the 3.2 million-member National Education Association (NEA), Dennis Van Roekel, weakly insisted that Obama's call for teacher performance pay did not necessarily signify raises or bonuses would be tied to student test scores under No Child Left behind, as merit pay proponents have consistently called for. According to the NEA president, it could mean more pay for board-certified teachers or for those who work in high-poverty, hard-to-staff schools. However, much to the chagrin of the NEA president, administration officials later clarified the issue, saying that among other things, they most certainly do mean to tie higher teacher pay to student achievement on standardized tests. This clearly seems to signal that the No Child Left Behind standardized testing regime will continue unabated and the 'average yearly progress' will continue to serve as the metaphorical educational Dow Jones of 'measureable outcomes', not only for teachers and students, but as we discussed in previous chapters, eventually as benchmarks for the 'charter school providers' or EMOs themselves. Read the rest of the article Labels: Arne Duncan, Barack Obama, charter schools, Counterpunch, Danny Weil, education, NEA, no child left behind act Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On Shrinking the CityTwo FT pieces today on regulating international finance. The first covers some rather remarkable statements by the head of Britain's Financial Services Authority (the regulator of financial services in the UK) on the place of the City of London in the UK's economy. Lord Turner, the head of the FSA, says nothing less than that the FSA should "be very, very wary of seeing the competitiveness of London as a major aim", and that the city's financial sector has become a destabilising factor in the British economy. It also says that the FSA is looking at a Tobin Tax to curb the excesses of global finance.In the second piece, columnist Gillian Tett continues her thoughts from last week on regulating global finance by assessing the cogency of the Tobin tax. Labels: Adair Turner, banking system, City of London, financial regulation, FSA, Gillian Tett, James Tobin, Tobin tax Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). FDIC Bled by Bank Losses, Sets P.E. RulesFirst, the NYT on the scary FDIC banking report. As the article notes, the warnings about large numbers of banks should be contrasted with the financial sector's surge on Wall Street.And then there's Reuters' Rolfe Winkler on new FDIC capital-adequacy rules for private equity firms. Interesting commentary concerning the FDIC's slipping and sliding regarding definitions of Tier-one capital in promulgating the new rule. Winkler thinks these may serve to deter private equity investors from issuing lower-quality equity in the future. So while the new rules allow for a lowering of capital-adequacy ratios for P.E. firms looking to buy distressed banks, they may serve to tighten standards in a part of the market that really needs it. Labels: bad loans, banking system, FDIC, FDIC fund, financial crisis bailout, private equity, Rolfe Winkler, Sheila Bair, US Treasury Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Thursday's IndicatorsWeekly new jobless claims in the US fell 15,000 to 565,000, and continuing claims dropped by 80,000 to finish the week ending 15 August at 6.133 million. How many unemployed workers exhausting benefits, thereby contributing to the fall in existing claims, must be considered here, however.US 2Q GDP was revised upwards to minus one percent. In the longest recession since 1947, real GDP has fallen for four straight quarters. Corporate profits, though, rose 2.9 percent in 2Q, following a return to positive territory in 1Q of 1.3 per cent. Inventories were cut by more than anticipated during the quarter, but this was offset somewhat by stronger consumer spending (a part of that as a result of higher gas prices and the now-expired cash-for-clunkers--After posting this I remembered that the program didn't go into effect until July, so this had no impact on second-quarter purchases; sorry for the mistake). Tomorrow's personal income number will no doubt add definitively to the picture of the consumer's health. Wall Street opened by shrugging off these data, which seem to confirm long-awaited indications that consumer spending has at least some legs to stand on. Some may be puzzled by this--it wasn't too long ago that negative readings were routinely ignored by the Street. And there are some mighty strange things happening on the markets. Today's FT noted that AIG, Fannie Mae and Freddie Mac put in the most improved performance on the New York Stock Exchange since early August. All three have vaulted more than 150%, with the terrible government-sponsored entity twins posting gains of 250%. And there's more at work here than positive news on the homebuilding front: it seems short sellers have been betting against the trio, and have been caughtm, well, short: so some of the buying was of the panic sort, to buy back shares of the three that speculators had shorted which gained in price. Also, readers may recall a post from last week in which Arindrajit Dube showed how the shares of big insurers reacted to the demise of the public option in July. I don't follow individual stocks or sectors that much, so I'm guessing here, but I imagine that insurers are still racking up gains. To see so such upward activity suppported by such movements, which can only be regarded as neutral or harmful in an economic sense, would mitigate against the simple recovery story. And retail investors remain close to the sidelines. The FT also had a longer piece on the very weird upward movement of stocks, bonds and commodities recently (usually bonds move opposite to stocks, and commodities, especially oil, are used as a hedge against inflation--and hence, often-times, stock performance). Add in currencies, in which a movement away from the dollar as a safe haven has been proposed (and the dollar usually moves counter to commodity prices), and you have a very confusing situation, indeed. Labels: bond market, commodity prices, corporate profits, dollar, economic indicators, GDP, stock market, weekly initial claims Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). German Consumption: Can't Win for LosingGermany has long been castigated for its relatively restrained consumer spending habits (though it's definitely a thoroughly consumerist place), and the emphasis of its policymakers, still shellshocked by the Weimar years, on monetary ueber-prudence. But, as this FT article documents, German consumption, spurred on by cash-for-clunkers as well as a governmnet-financed job-saving scheme and generous welfare benefits, actually grew impressively during the country's worst recession since World War 2 (at least during the last two quarters), at rates unseen since the end of the boom year 2006. So did this spending do anything to balance Germany's much-castigated current account surplus? Alas, no: imports lagged exports yet again. This should be a lesson for those hoping surplus export economies can shift, relatively quuickly and painlessly, to a model more dependent on domestic consumption.Car scrap scheme boosts German spending By Ralph Atkins in Frankfurt Financial Times Published: August 25 2009 09:08 | Last updated: August 25 2009 09:08 German consumers, long berated internationally for not playing their part in supporting a global economic recovery, have increased spending at the fastest rate for more than two years, boosted by the government's car scrappage scheme. Details of Germany's second-quarter growth figures showed consumer spending in Europe's largest economy rose by 0.7 per cent, extending a 0.6 per cent rise in the first quarter. That was the fastest quarterly rise since the last three months of 2006. The data helped explain why Germany, along with France, escaped recession ahead of the US and UK. Overall gross domestic product in Germany's export-led economy was up by 0.3 per cent in the second quarter, the federal statistics office confirmed. They also highlighted the success of the incentives Berlin has pioneered to encourage consumers to trade in old cars for new models. When the global economic crisis intensified late last year, Germany's government faced widespread criticism from abroad for not doing enough to stimulate its economy. Instead Berlin preached fiscal prudence and Peer Steinbrueck, Germany's finance minister, complained about the "crass Keynesianism" pursued by Gordon Brown, the British prime minister. In fact, the boost to the economy provided by Berlin's emergency packages was comparable with those of other countries taking into account automatic increases in state spending caused, for instance, by higher unemployment. German consumer spending may also have been boosted by historically low inflation rates. "Consumers have been prepared to step into the breach more than many, including myself, expected--a welcome, if not huge, boost to global demand," said Colin Ellis European economist at Daiwa Securities SMBC Europe. "But from a macro perspective Germany will 'live up to its international responsibilities' when the trade, or current account, surplus closes, and it actually got bigger in the second quarter." Read the rest of the article Labels: balance of trade, consumerism, consumption, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Quantitative Easing Fails To Get Banks To LendAnalysis from FT Alphaville. Here are the main ideas:The Deputy Governor's remarks on 'quantitative easing' (QE) suggest the Bank of England has abandoned any hopes it might have had that its asset purchases would lead to a revival in bank lending. If QE is purely and explicitly aimed at flattening yields, it also raises certain questions for central bankers beyond those of the moral hazard of monetising debt. For instance, if yields (10-year gilt shown below) stop responding to government-bond buybacks, and rates start rising, what then? Today's FT also notes that the Bank of England is considering a move already taken by Sweden's Riksbank, of introducing negative interest rates on balanced banks hold with the central bank, to induce banks to finally lay out cash to borrowers (which has been liberally financed by the taxpayer, of course...) Labels: Bank of England, bond market, financial crisis bailout, Monetary Policy, Quantitative easing, The Riksbank, yield curve Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Israel/Palestine: "Breakthrough" Imminent?Two UK broadsheet dailies seem to be saying so:From The Guardian From The Independent Labels: Barack Obama, Israel, Palestine, The Guardian, The Independent Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Wednesday's Recommended ReadingOn China's stimulus, by a (sort-of) insider. Interesting how the author faces up to some serious problems, but disconcerting insamuch as no mention is given to the likely environmental impact of the massive infrastructure-building program, especially in its more extravagantly wasteful aspects (dirty airports to nowhere, etc).The FT's Krishna Guha on the future of central banking. Substitute class analysis at a couple of major points and you could be getting somewhere... Ambrose Evans-Pritchard on Bernanke's re-appointment. He makes several of the points other commentators, like Stephen Roach have, but with a wider perspective, and more style: His reflex is to see any fall in demand as an outside shock to be corrected by extra stimulus. What he does not accept is that the adrenal glands of the economic system have been depleted by perpetual credit stimulus, giving the world a form of Addison's Disease. Labels: Ambrose Evans-Pritchard, Ben Bernanke, Bureau of Labor Statistics, central banking, Federal Reserve, Krishna Guha, Yu Yongding Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Labor Leader To Head New York FedYves Smith thinks it's a gimmick, but one that may have some unexpected consequences.Tuesday, August 25, 2009 Naked Capitalism Labor Leader Chosen to Head of New York Fed Board of Directors Joseph Stiglitz has said that labor should have a voice in the setting of interest rate policy. Is this change at the New York Fed, teh appointment of the AFL-CIO's Denis Hughes as the replacement to ex Goldman co-chairman Steve Friedman as chairman of the New York Fed, a step in that direction? If it proves to be, it will only be by dint of miscalculation. This is clearly an image-burnishing move by the Fed, throwing a bone to critics, But letting labor into the tent may have unexpected consequences, simply by allowing someone who has not drunk the financial services industry Kool-Aid more influence (Hughes was on the board, but as vice chairman). This appointment is only until year-end, but if the Fed continues to be under political pressure, it isn't hard to imagine this appointment being extended. The Journal's Deal Journal voices the opposite possibility, that labor is being co-opted. The branding of labor as monolithic and radical is a bit of a canard. In the 1930s, the old AFL, which was a craft union, was comparatively conservative and regarded more favorably than upstart and aggressive CIO, for instance. From the Wall Street Journal (hat tip reader LeeAnne): Denis Hughes, president of the New York state branch of the AFL-CIO, had been serving as acting chairman of the New York Fed board since May, when Stephen Friedman stepped down from the position. Mr. Friedman, a former Goldman Sachs Group Inc. chairman and adviser to President George W. Bush, had faced questions about his purchases of Goldman stock while serving on the New York Fed's board. The Fed decision formalizes Mr. Hughes's role as chairman through the end of 2009. The Fed board in Washington will announce in November or December who will serve as chairman in 2010. Columbia University President Lee Bollinger was named deputy chairman, a position that Mr. Hughes previously held. Mr. Bollinger has been a New York Fed director since January 2007. The New York Fed chairmanship typically has gone to prominent Wall Street executives or academics. The ascension of a labor leader is a new twist for the New York Fed and a sign of the public pressure the Fed has been under to loosen its close ties to Wall Street. Labels: AFL-CIO, Bureau of Labor Statistics, Denis Hughes, Federal Reserve, Monetary Policy, Naked Capitalism, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's IndicatorsUS new home sales increased almost 10% more than forecasted in July, and, perhaps more important, unsold inventories dropped to 7.5 months worth of supply, the lowest that number has registered since April. 2007. There was a huge 32% increase over June in the Northeast. Too bad most of the troubled properties are in the West. Still, even the South registered a 16% monthly rise (don't know how benighted Florida performed v. other states in the region).This big number, taken in tandem with yesterday's Consumer Confidence figure, provides a much-needed boost to the notion that the US consumer sector is finally starting to respond to the electroshock therapy provided by the monetary and fiscal dollops thrown at it (very indirectly regarding monetary policy: banks still aren't lending). Friday's personal income reading will be decisive in gauging whether or not this view is really robustly supported. Pesonal incomes have been on life support all year, with gains coming only from government transfers, which are now thinning out. Interestingly, builders are beginning to buy land again, after a three-year hiatus. Housebuilder stocks are boooming on Wall Street these days. US durable goods orders also surged in July, led by purchases of aircraft. Capital goods orders increased by a quite-respectable 9.5%, consituting the best performance in this area since December, 2007. This is important, because business investment, like consumer spending, really needs a vigorous push if this recovery is to become at all sustaining. But even here, caution is in order: Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.3 percent in July, the Commerce Department said. Germany, with its big capital goods exporters, also saw a bigger rise in business sentiment in July than forecast. In addition, as cannot be emphasized enough, the process of deleveraging the vastly bloated debt of the US consumer and corporate sectors has scarcely begun. It is very difficult, indeed, to see how sustainble upticks in either is possible given this constraint, especially with prospects for employment, wages, corporate defaults, less government largesse and the possibility of higher taxes all added into the mix. Finally, the death of Senator Kennedy may resuscitate the public option in some sort of form. God knows what that means for the bond vigilantes and exit-strategists.... Labels: business confidence, deficit, durable goods, economic indicators, Edward Kennedy, Germany, health care reform, new home sales Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Fed Ordered To Disclose Emergency Loan DetailsFrom Bloomberg (the plaintiff, no less):Court Orders Federal Reserve to Disclose Emergency Loan Details By Mark Pittman Aug. 25 (Bloomberg) The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit. Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren't covered by the law because their disclosure would harm borrowers' competitive positions. The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit. "The Federal Reserve has to be accountable for the decisions that it makes," said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska’s ruling. "It's one thing to say that the Federal Reserve is an independent institution. It's another thing to say that it can keep us all in the dark." The judge said the central bank "improperly withheld agency records" by "conducting an inadequate search" after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs. Read the rest of the article Labels: Bloomberg, Federal Reserve, financial crisis bailout Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Changed Relation between Intellectuals and PoorInteresting Guardian piece by David Edgar, formerly of Marxism Today:In the new revolution, progressives fight against, not with, the poor The old, transformative alliance between the intelligentsia and the poor has been broken by the intelligentsia itself David Edgar guardian.co.uk Monday 24 August 2009 20.30 BST The year 2009 is not only the anniversary of many great events but also the anniversary of the many misjudgments that were made about them. So, not just the 1979Iranian revolution and Margaret Thatcher but the delusion that the first was an aberration and the second a blip. Not just the 1984 miners' strike but also the conviction that the National Union of Mineworkers (NUM) would win, as it had so decisively in 1972 and 1974. And in 1989, not just a series of uprisings in an obscure corner of Europe but also the failure to notice the new political fault lines they drew throughout Europe and beyond. In 1989, I was one of two non-communist members of the editorial board of the magazine Marxism Today (the iconoclasm of whose politics led to it being described by some on the left as the most inaptly titled periodical in Britain). Under its editor, Martin Jacques, the magazine had been right to see Thatcherism as representing a fundamental political sea change: this year also marks the 30th anniversary of Stuart Hall's coining of the term. However, in the autumn of 1989, as the dominoes fell across eastern Europe, our cover subjects were the Greens, the end of Thatcherism, the soaraway Sun and Shere Hite. We weren't alone. Many people underestimated or misread the significance of what was happening in eastern Europe in 1989. For all the American triumphalism, the revolutions gave the lie to the neocon theory – used to justify American support for brutal military dictatorships in Latin America and elsewhere--that rightwing "authoritarian" regimes would peaceably morph into democracies while leftwing "totalitarian" systems couldn't. Optimistic leftwingers thought eastern Europe had risen up for social democracy, not realising that the enticing Swedish (and West German) model was also in deep trouble. Reading backwards off the last east European insurgency (against Ceausescu in Romania), cynics argued that the whole thing was a fake, cooked up by Gorbachev's KGB. Others thought it wasn't so much a revolution as a restoration of the Austro-Hungarian Empire. What most people missed--because it wasn't immediately clear – was that the 1989 revolutions presaged a new kind of political movement. For all its religious fervour, Iran in 1979 was a recognisable, 20th- century, third-world revolution, in which the progressive middle class allied with the rural masses to overthrow a hated, foreign-backed autocracy. It's easy to see 1989, too, as a variation on that theme. Its seeds lay in the 1980 workers' occupation of the Gdansk shipyard in Poland. Its political mechanisms were borrowed from the 1960s anti-war movement. But in retrospect, rather than being the last of the 20th-century revolutions, 1989 looks more like an anticipation of the colour/flower-coded revolutions of the 21st: from Georgia's 2003 rose revolution via Ukraine's 2004-05 orange revolution to Kyrgyzstan's initially pink or lemon but finally tulip revolution against another crooked post-communist government, later the same year. Despite considerable, covert American backing for the insurgencies and the highly dubious character and record of the successor governments, the rose, orange and tulip revolutionaries had right on their side. But their side was much narrower than that of the 1979 Iranian revolution, narrower even than most of the anti-communist uprisings 10 years later. Most clearly in Thailand--where the airport-occupying yellow-shirted People's Alliance for Democracy actually wants to limit democracy, and openly expresses scorn for its "uneducated", red-clad opponents – there is a new divide running through world politics. The 21st-century revolution pits the educated, western-oriented, socially liberal, economically neoliberal urban middle class against the economically egalitarian, socially traditionalist rural poor. The green armbanded protesters--again, on the right side--against Ahmadinejad's election "victory" in Iran were urban and liberal, the president's supporters rural and conservative. As the BBC's John Simpson noted in the streets of Tehran, the two big differences between the 1979 and 2009 uprisings were the presence of women and the absence of beards Read the rest of the piece Labels: David Edgar, revolutionary praxis, social transformation Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yves Smith: Banks Sitting on Bad MortgagesMore reason to view Case-Shiller data with caution: increased buying activity is only one side of the problem.Naked Capitalism Tuesday, August 25, 2009 Banks Sitting on Bad Mortgages, And They Aren't Getting Any Better Fitch released an analysis that shows that mortgage cure rates, meaning the proportion of borrowers who manage to get current once they fall behind, have tanked. From the Wall Street Journal: The report from Fitch Ratings Ltd., a credit-rating firm, focuses on a plunge in the "cure rate" for mortgages that were packaged into securities. The study excludes loans guaranteed by government-backed agencies as well as those that weren't bundled into securities. The cure rate is the portion of delinquent loans that return to current payment status each month. Fitch found that the cure rate for prime loans dropped to 6.6% as of July from an average of 45% for the years 2000 through 2006. For so-called Alt-A loans -- a category between prime and subprime that typically involves borrowers who don't fully document their income or assets -- the cure rate has fallen to 4.3% from 30.2. In the subprime category, the rate has declined to 5.3% from 19.4%. "The cure rates have really collapsed," said Roelof Slump, a managing director at Fitch. Because borrowers are less willing or able to catch up on payments, foreclosures are likely to remain a big problem. Barclays Capital projects the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1. Ouch. On top of that, Greg Weston looked at the underlying New York Fed data for Fitch's comment, and found another sobering factiod, namely that banks are not foreclosing. The reason most often given is that the bank doesn't want to write the mortgage down even further (we've heard it bandied about for loss severities is 60% and Weston had a chart that shows it is worse for subprime, at 70%with Alt-As not as bad at 50%), so 60% is a representative level) but another reason is that if the bank does not take possession, the taxes are still the owner's responsibility. Read the rest of the post Labels: financial crisis, foreclosures, housing market, mortgage cure rates, Naked Capitalism, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Senate Republicans To Block Health Co-opsAccording to this Financial Times report. Co-ops are a totally insufficient substitution for the less-than sufficient public option anyway, but this confirms suspicions that the Republicans were never serious about playing a constructive role in passing health care legislation (at least from the beginning of the summer on). The article rightly points out that a co-op scheme will require considerable funds for start-up costs if they are to hope to compete with their bloated competitors, something many Republicans are dead-set against (I wonder why), anyway. And what's to prevent them from demutualizing when/if things become more "normal" again?US health co-op plan in doubt By Saskia Scholtes in New York and Edward Luce in Washington Financial Times Published: August 24 2009 20:58 | Last updated: August 24 2009 20:58 A plan to establish more insurance co-operatives could need start-up capital of tens of billions of dollars, analysts say, presenting a potential stumbling block for the US healthcare reform proposal. The scheme has been championed by some moderate Democrats as an alternative to proposals for a public option. It would aim to increase competition among healthcare insurers and help reduce the country's spiralling healthcare costs through government support for not-for-profit insurance co-operatives, which would be owned by and managed for the benefit of their members. However, analysts at Smart, a consulting firm, have said the co-ops would require tens of billions of dollars in start-up capital to pay for recruiting members, striking deals with medical providers and setting up administrative systems. Current co-op proposals include start-up funds of about $6bn, 4.2bn euros, 3.7bn pounds). Read the rest of the article Labels: health care reform, healthcare co-ops, insurance industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More on Craziness of China's StimulusFrom The Financial Times. Here's a taste:This was thanks largely to the government's Rmb4,000bn ($585bn, 409bn euro, 355 bn pound) fiscal stimulus and the Rmb7,370bn of new bank loans extended in the first half of the year, triple the amount lent in the same period a year earlier. Economists at BNP Paribas estimate that the loan expansion was equivalent to 45 per cent of half-year GDP and say they know of no other economy that has created credit on such a scale since the second world war. This lending boom, carried out by the country's state-controlled banks on the orders of the central government, has raised concerns that much of the money has gone to borrowers who will not be able to pay it back. "I worry what’s happening now is similar to what happened in the US in 2001--the government is flooding the economy with cash that just ends up papering over the problems," says a Chinese corporate executive who used to live in the US. Rule of the iron rooster By Jamil Anderlini Financial Times Published: August 24 2009 20:19 | Last updated: August 24 2009 20:19 Under the leadership of the Communist Party, the people in China brace up to cope with the financial crisis and have scored marked successes to the worldwide attention. High-level figures from the western political and economic spheres...envy China's superb performance...as well as "China's spirit"--the kind of solid, unbreakable "Great Wall" at heart to ward off the financial crisis. English-language editorial in the People's Daily, official mouthpiece of the Communist party of China, July 30 China's rulers can be excused a modicum of less-than-grammatical gloating after the economic rebound the country has achieved in recent months. With its quick and overwhelming response to the crisis, Beijing appears to have engineered a powerful V-shaped recovery and by most estimates is on track to exceed the 8 per cent growth target it set at the start of the year. Official readings of industrial production, fixed investment, power consumption and gross domestic product all show a strong revival, while equity and property prices have soared in recent months. There have even been signs of a recovery in exports, although these are still about one-quarter below the levels of a year ago. But a growing number of economists and officials say the positive growth data hide worrying structural imbalances and the government’s response to the crisis may only have postponed an inevitable reckoning. With the world looking to China as a beacon to lead the way out of economic gloom, a second downturn would have a big impact on global confidence, not to mention commodity prices. "There is such a thing as good 5 per cent growth and bad 8 per cent growth," according to one senior adviser to the government. "We worry that what we're seeing falls more into the latter category." On an annual basis, China's economy grew 7.9 per cent in the second quarter, well up from 6.1 per cent in the first quarter. If measured sequentially the rebound was even more obvious, economists estimate, with seasonally adjusted quarter-on-quarter growth at zero in the fourth quarter of 2008 but picking up to 3 per cent in the first three months of this year and as much as 16-17 per cent in the second quarter. Read the rest of the article Labels: bailout, bank lending, China, financial crisis, speculation Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's IndicatorsUS Consumer Confidence surges above 50 in August; considerably fewer say jobs "hard to get." Go figure.In a closely-watched non-indicator reading, the June Case-Shiller index of single-family home purchases in selected cities (chosen to be nationally-representative) rose to a level three times May's reading. The fact that prime mortgage foreclosures are displacing subprime as a percentage of homes foreclosed upon, and that continued high joblessness may mean that a rising percentage of these new sales may end up in foreclosure, must be taken into consideration when viewing this number. Labels: Case-Shiller Index, consumer confidence, economic indicators, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). It's Better than the Alternative...to wit, nominiating Lawrence Summers. From Reuters:Obama renominates Bernanke as Fed chief Tue Aug 25, 2009 9:55am EDT OAK BLUFFS, Massachusetts (Reuters) U.S. President Barack Obama nominated Ben Bernanke to a second term as Federal Reserve chairman on Tuesday, entrusting him with guiding the economy out of the worst downturn since the Great Depression. Obama interrupted his vacation on the Massachusetts island of Martha's Vineyard to make the announcement with Bernanke at his side. "Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall," Obama said. U.S. stock index futures were slightly higher on Tuesday on the news. There was no significant impact on financial markets in Asia and Europe, however, where investors were more focused on whether a global economic recovery was really under way. Obama is counting on Bernanke to nurse the economy back to health at a time when unemployment, home foreclosures and bank failures are still mounting. Obama's Democrats control the Senate, but Bernanke has faced criticism from lawmakers of both parties who say he has gone too far in extending Fed support that will be difficult to unwind, threatening future inflation. "While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice," Senate Banking Committee Chairman Christopher Dodd said in a statement. Dodd vowed a "thorough and comprehensive" hearing to consider the nomination. (Additional reporting by David Lawder, Tim Ahmann and Anthony Boadle in Washington) Labels: Barack Obama, Ben Bernanke, Federal Reserve, financial crisis, Lawrence Summers, Monetary Policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China To Keep LendingThis is just weeks after asserting (or emphasizing?) the contrary. The Chinese are really dancing on a tightrope, here. I suppose the rest of us are, too....China to keep policy loose as economy faces new woes Mon Aug 24, 2009 8:22am EDT BEIJING (Reuters) China will maintain its stimulative policy stance because the economy, far from being on solid footing, is facing fresh difficulties, Premier Wen Jiabao said on Monday. In a downbeat statement on the government's website following a trip to the eastern province of Zhejiang, known as a hotbed of private enterprise, Wen said Beijing would ensure a sustainable flow of credit and a "reasonably sufficient" provision of liquidity to support growth. A drop in new yuan bank loans in July to 356 billion yuan ($52 billion), compared with an average of over 1.2 trillion yuan in each of the first six months of the year, has created worries among some analysts that the recent rebound in growth could be knocked off track. "We must clearly see that the foundations of the recovery are not stable, not solidified and not balanced. We cannot be blindly optimistic," Wen was cited as saying on www.gov.cn. "Therefore, we must maintain continuity and consistency in macroeconomic policies, and maintaining stable and quite fast economic growth remains our top priority. This means we cannot afford the slightest relaxation or wavering." China still faced great pressure from the slowdown in demand for exports, Wen said, adding that it was difficult to boost domestic demand in the short term to fill in the gap--despite the boost from the government's 4 trillion yuan ($585 billion) stimulus package. Thanks to the pump-priming, annual economic growth in the second quarter accelerated to 7.9 percent from 6.1 percent in the first three months of the year Read the rest of the article Labels: bailout, bank lending, China, economic stimulus, financial crisis, macroeconomics, Wen Jiabao Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Strange Things Afoot in the Bond MarketFrom Bloomberg:Bond Bears Dumping Two-Year Treasuries Defy History (Update3) By Oliver Biggadike and Daniel Kruger Aug. 24 (Bloomberg) Bond investors that drove two-year Treasuries down on Aug. 21 by the most since early June after Federal Reserve Chairman Ben S. Bernanke said the economy is "beginning to emerge" from recession may find themselves wishing they had held onto the securities. While the comments sparked speculation that the central bank may soon raise borrowing costs as growth resumes, history shows the Fed is likely to keep its benchmark interest rate at a record low for a year or more. Policy makers didn’t boost rates after the 2001 recession until 12 months into the recovery, while it was 17 months following the 1991 economic contraction. "It's going to be very difficult for the Federal Reserve to raise rates simply because there's no inflation," said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. "The two-year at a yield of 1 percent is an excellent yield," said Cheah, who has been buying the securities. The yield on the benchmark two-year note rose almost 11 basis points at the end of last week, or 0.11 percentage point, to 1.1 percent, according to BGCantor Market Data. That was the most since it surged by the same amount on June 8. The slump came after the National Association of Realtors said sales of existing U.S. homes jumped 7.2 percent to a 5.24 million annual rate, the most since August 2007, and Bernanke said at a Fed-hosted central bankers' symposium in Jackson Hole, Wyoming, that "prospects for a return to growth in the near term appear good." Speculative Positions Trading positions show that last week's sell-off may be short-lived, even as the government prepares to sell $109 billion of Treasury notes this week, including $42 billion of two-year securities. The benchmark two-year note rose today, with yields falling three basis points to 1.06 percent. Speculative long positions on two-year notes, or bets prices will rise, outnumbered short positions by 158,041 contracts on the Chicago Board of Trade last week, the most since Dec. 7, 2007. That was just before the securities, which are more sensitive to changes in Fed policy than longer-term debt, posted their biggest quarterly gain since 2001, returning 3.26 percent, Merrill Lynch & Co. indexes show. Read the rest of the article Labels: Ben Bernanke, bond market, Monetary Policy, speculation, Treasury bonds, yield curve Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). NYT on High Frequency TradingArrest Over Software Illuminates Wall St. SecretBy ALEX BERENSON Published: August 23, 2009 New York Times Flying home to New Jersey from Chicago after the first two days at his new job, Sergey Aleynikov was prepared for the usual inconveniences: a bumpy ride, a late arrival. He was not expecting Special Agent Michael G. McSwain of the F.B.I. At 9:20 p.m. on July 3, Mr. McSwain arrested Mr. Aleynikov, 39, at Newark Liberty Airport, accusing him of stealing software code from Goldman Sachs, his old employer. At a bail hearing three days later, a federal prosecutor asked that Mr. Aleynikov be held without bond because the code could be used to "unfairly manipulate" stock prices. This case is still in its earliest stages, and some lawyers question whether Mr. Aleynikov should be prosecuted criminally, or whether a civil suit may be more appropriate. But the charges, along with civil cases in Chicago and New York involving other Wall Street firms, offer a glimpse into the turbulent world of ultrafast computerized stock trading. Little understood outside the securities industry, the business has suddenly become one of the most competitive and controversial on Wall Street. At its heart are computer programs that take years to develop and are treated as closely guarded secrets. Mr. Aleynikov, who is free on $750,000 bond, is suspected of having taken pieces of Goldman software that enables the buying and selling of shares in milliseconds. Banks and hedge funds use such programs to profit from tiny price discrepancies among markets and in some instances leap in front of bigger orders. Defenders of the programs say they make trading more efficient. Critics say they are little more than a tax on long-term investors and can even worsen market swings. But no one disputes that high-frequency trading is highly profitable. The Tabb Group, a financial markets research firm, estimates that the programs will make $8 billion this year for Wall Street firms. Bernard S. Donefer, a distinguished lecturer at Baruch College and the former head of markets systems at Fidelity Investments, says profits are even higher. Read the rest of the article Labels: Goldman Sachs, high-frequency trading, Sergey Aleynikov Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's Reads: Morgenson, Roubini, MuenchauMorgenson cautions us on hopes for recovery in the banking sectorRoubini wonders if whether the recession will be "W-shaped" or "U-shaped". Muenchau writes about a recent study on the role of securitization in the crisis. This has been studied a lot, but I think Munchau's conclusion, that "we should be worrying a lot more about global economics right now than about global finance" is spot-on. Labels: bailout, bank failures, financial crisis, Gretchen Morgenson, Nouriel Roubini, stress tests, Wolfgang Muenchau Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). CBO: 2009 Deficit Down, 10-Year up by $2 TrillionFrom Reuters:New deficit projections pose risks to Obama's agenda Mon Aug 24, 2009 8:06am EDT By Jeff Mason WASHINGTON (Reuters) President Barack Obama's domestic policy proposals will face the reality of skyrocketing deficits on Tuesday when officials release two government reports projecting huge budget shortfalls over the next decade. The White House budget office and the Congressional Budget Office (CBO), a non-partisan arm of Congress, release updated economic forecasts and deficit estimates on Tuesday, providing further fiscal fodder to opponents of Obama's nearly $1 trillion healthcare overhaul plan. Many of the figures are already known. The White House has confirmed that its deficit estimate for the 2009 fiscal year, which ends September 30, will inch down to $1.58 trillion from $1.84 trillion after eliminating billions of dollars originally set aside for bank rescues. Looking forward, an administration official told Reuters the 10-year budget deficit projection will jump by about $2 trillion to roughly $9 trillion from an original forecast of $7.1 trillion. "One message the numbers will send is that the medium- and long-term deficits need to be addressed," said Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, an analysis and research organization. Obama has promised to do that. The president, a Democrat, says he will cut the deficit in half by the end of his four-year term, and he sees lowering healthcare costs as a key ingredient toward achieving long-term deficit reduction. But Republicans charge that his proposals to extend coverage to uninsured Americans and create competition for private insurance providers are too expensive, especially as deficits go up Read the rest of the article Labels: Barack Obama, congressional budget office, deficit, financial crisis bailout, health care reform, Monetary Policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). This Week's Economic IndicatorsBefore we get to the recognized indicators, some non-indicator news worthy on note (i.e. these things will probably affect indicator performance). First, the cash for clunkers program in the US ends today. This will surely dent demand somewhat in the months ahead. Second, Dell and Sun Microsystems announce results this week, events which will surely affect the current stock market rallies going on everywhere, and determine whether or not the tech sector will resume a leading position in the rally (it led gainers from March until last month, and has lagges somewhat since). Also, oil is trading yet higher, maintaining it's highest levels for the year.Japan holds a general election on Sunday, in which the Democratic Party of Japan is expected to defeat the Liberal Democratic Party, which has ruled virtually without interruption since the end of World War II. The turn against the LDP is richly deserved, given the levels of sleaze, incompetence and lack of coherence the party has represented for years, but the New Democrats, who favor some new economic liberalization measures, some new social protection measures, and a more independent (of Washington) foreing policy, will be challenged to get very much of their agenda enacted. Tomorrow, US consumer confidence is gauged, while July durable goods orders and new home sales readings come in on Wednesday. The weekly initial jobless claims report is due, as always, on Thursday, and income indicators come in on Friday: personal income and consumption readings are forecasted to show an uptick; if they don't concerns about the jobless recovery, foreclosures and the reduced workweek will surely put a big dent in the stock market rally, if it persists until then. Labels: consumer confidence, consumption, corporate profits, Dell, economic indicators, Japan, oil prices, personal income, Sun Microsystems, weekly initial claims Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). One More for The Road: Global StimulusOn the plus side, German business sentiment and Eurozone purchasing managers' index readings expanded at unexpectedly rapid rates according to the FT.On the negative side, the Asahi Shimbun says Japan's stimulus program has wastefully overestimated the demand for homebuilding program it's poured 350 billion yen (about $3.5 bn) into. Japan is facing an election in a few weeks, and the powerful building lobby certainly has something to do with that. Labels: economic indicators, eurozone, Germany, housing market, Japan, purchasing manager's index Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Administrative NoteThere may not be much blogging this weekend, as I'm taking the weekend off. A pleasant weekend to all...Labels: administrative Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Great Stuff in Today's FTFirst, Gillian Tett's appreciation of the contorted dialectics of finance (she quotes Bourdieu!).Spencer Jakab on a shift in China's dollar purchases. Labels: China, dollar, financial crisis, Financial Times, Gillian Tett, Spencer Jakab Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T.D.C.o.t.E: Rajan's Ineffective DemandThe Dull Compulsion of the Economic (xv)A series of blog postings by D&S collective member Larry Peterson Raghuram Rajan's Ineffective Demand As investors and policymakers in the west have become disheartened by the marked failure of the western consumer to resond to the heroic stimulus and recapitalization measures taken by their governments this year, there has been a tendency amongst observers of the economic scene to look for transgenic varieties of the already withering green shoots taking root in the--in many ways--far more forbidding soil of emerging markets. The latest to succumb to this tendency is former IMF chief economist Raghuram Rajan, who, in an op-ed in today's Financial Times (here's an indirect link to the article, courtesy of ninemsn Money), tries to find the magic formula that will result in a robust form of Asian consumption to pull the global economy out of its doldrums (and in a more balanced way, no less). Rajan's basic idea is to reconfigure the global supply netorks such that emerging markets will, rather than providing lower value-added manufacturing for products designed with western consumers in mind, as is the predominant model now (Rajan uses the example of an iPod, in which 3/4 of the value added is provided in the rich world, while only 1/4--corresponding to the manufacture of the item--takes place in emerging markets), involve higher value-added design, marketing, advertising and even financial (he doens't mention legal; I wonder why...) capacities. He goes further in saying that such a move would create much economic value, precisely because such a transfer would orient production toward pent-up emerging market consumers, whose stifled consumption is to a great deal due to the failure of western multinationals (hopelessly tied by the umbilical cord of rich-world demand) to meet or anticipate their needs. Accordingly, Rajan refers to the example of the Tata Nano, which wilfully "leapfrogs" the temptation to penetrate western markets (which demand sturdier family vehicles like SUVs) to fill a widening niche in India: as a cheap form of transport, but one that, given India's poor roads, does not need to emphasize safety, both because of the congestion that slows all vehicle transport down, but also because the vehicle is cheap enough to serve as a substitute for more dangerous family forms of transport, like single motor-scooters (he speaks of the perils of fitting driver, wife with baby, and number two son on the seat of one scooter), anyway. So, according to Rajan, the more the higher value-added cacities involved in anticipating local demand are transferred from rich-countries to the developing world, the greater local demand will grow, which will, in turn, generate greater local employment, both in higher- and lower-value-added jobs, which will increase demand all the more, and so on. Thus will the emerging country consumer save an over-indebted and demand-constrained world from itself. So what's the big problem? To my mind, there are two. First, Rajan assumes that companies, politicians and voters in the west will just sit back and allow this to happen. In fact, the only thing he says at all on this score is that rich countries will benefit as poorer countries grow rich. But growth in employment in many western societies is focused in two areas: one involves many of the the very sorts of activities Rajan focuses on. And these industries hardly compete with manufacturing (used to do) where job creation potential is concerned anyway. But many more workers cast off from acccelerated technological change and further losses among traditional employers (especially in manufacturing) find theuir way into lower-end service industries, in which demand is becoming now becoming more elastic as labor conditions decline precipitously: luxury services catering to the (shrinking ranks of the) affluent (especially as the high-end of the housing market languishes even behind the low-end one) or which play on the hidden costs of the celebrated worker flexibility in the US (day-care is the best example). In the latter case, other arrangements are replacing employed day-care, especially as more unemployed people are able to provide that care. In other cases, such as beauticians, such services are completely substitutable by nonmonetized activities. Moreover, as Dean Baker has consistently maintained, considerable obstacles to the replacement of service workers exist in the US already; and given the political power of those holding these jobs, any movement to liberalize services at a pace required to make Rajan's scheme truly effective would seem to be a pipe dream at present. But there is another shortcoming, involving the developing countries themselves. Though savings rates in these countries are often extremely high, much of the savings, especially in China, come from the corporate sector, and even in the household sector, savings need to be kept at a high level because health care, education and social security benefits are scarce or nonexistent. China has rammed through reforms in its health care provision, but these will take some time to implement, and considerable doubt has been cast on their comprehensiveness or even potential effectiveness. So consumption will continue to be constrained in these countries by poorer employment outlooks than those that held for the hypercharged years that have just ended. Beyond this, the lack of consumer finance in these countries is a factor. And though some would this is precisely an argument to open these countries up to the services of western financial institutions, I would argue that rapidly leveraging-up rural consumption in China, say, could lead to the development of a kind of unsustainable triangle like that which is plaguing Europe now, which has seen peripheral (Baltics, Greece, Italy and Spain) consumption, dependent on central customer-finance (Germany), except on a far more massive scale. And we have the example of South Korea, hobbled by a wave credit card debt the last time consumer finance was supposed to come to the rescue of a bubble-economy in Asia to serve as a warining on this score. Ultimately, the the double squeeze on labor worldwide that is the source of the problem. Workers in the rich world have been pitted against workers being paid far less in other parts of the world, but copious amounts of consumer credit have disguised this somewhat, and increased demand in the poor world to such an extent that rapidly rising wages there could offset somewhat cutbacks in social provisions demanded by of macroeconomic planners hell-bent on transformational, if haphazard, global integration. So ramping up demand in one part of the world to the exclusion of the other is a fool's game. The US (and UK) economically requires a heroic deal of capacity to be re-sent to it to re-balance its current-account deficit, while emerging countries continue to covet whatever rungs of the value-added ladder they can get a foot on, and sink huge amounts of capital on the rungs (China's stimulus program, which involves far more money per head that any western stimulus) currently unoccupied. This stickiness means that both high levels of debt and the lure of protectionist temptations will be inevitable in the medium-term, regardless of the economic case that can be made for a vast transfer of capacity of the sort Rajan is arguing for. And this will only be extended as the cost of ignoring climate change becomes ever higher, as the costs are set to rise precipitously if the problem isn't tackled. Only a solution involving workers in all markets, more or less simultaneously, will be capable of defusing the kind of medium-term social unrest that will lead to the derailment of recoveries by protectionism, the accumulation of debt, or inactivity regarding climate change. Unfortunately, it looks like labor itself is at present unable to bridge this gap. Labels: bailout, Dean Baker, Environment, financial crisis, Larry Peterson, Raghuram Rajan, supply chains, the dull compulsion of the economic, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's IndicatorsU.S. July existing home sales pace fastest in two years. But, as this Bloomberg article says, "The number of previously-owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a "notable" increase, according to Lawrence Yun, the Realtors' chief economist. At the current sales pace, it would take 9.4 months to sell those houses, the same as in June." And much of this is foreclosure-driven.Also, oil prices have reached their higheest leevels this year. As more and more people argue that the old relationship between risk and the US dollar (more risky investing means a lower dollar) is breaking down, it's interesting to see some commodities (which gain on dollar weakness) maintaining this movement. Meanwhile, more worries (courtesy of Economist's View) on commercial property. This, as well as the fact that prime lending is now failing at a greater rate than subprime, and will continue to do so as unemployment remains very high, must be considered when evaluating the state of the property market. There's a real chance that a dive in prime home lending or commercial property lending--or both--may take the whole sector back down, and with it, prospects for economic recovery. Labels: commercial property, consumer prices, economic indicators, Economist's View, existing home sales, Inflation, oil prices Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economists' Poll: US 3Q GDP To Rise 2.4%That's a big number, and these people are also predicting a 2.2% uptick in the fourth-quarter. It's all due to the unprecedented stimulus and bank recapitalization programs: consumer consumption is very weak, as is business investment. With continuned deleveraging dampening both, and the government spigot starting to close (under the watchful eye of Congressional masochists), it will be a fragile recovery, indeed. Across the Curve has some interesting observations on the outlook today, particluarly as it affects sentiment in the bond marketFrom Reuters: U.S. starts long, gradual and fragile recovery Thu Aug 20, 2009 3:18pm EDT By Burton Frierson NEW YORK (Reuters) The U.S. economy is recovering more strongly than expected from its worst recession in decades, but next year will be lackluster and risks of a double-dip downturn remain, economists said in a Reuters poll. After shrinking by 1.0 percent in the second quarter on an annualized basis, U.S. gross domestic product will grow 2.4 percent in the current quarter and 2.2 percent in the final three months of the year, according to a sample of around 70 economists. This would make the recession that many say ended in the second quarter the longest since World War Two. The recovery is now expected to be more robust than economists predicted last month, when they saw growth of 0.8 and 1.8 percent in the third and fourth quarters, respectively. The broad U.S. stock market is up 50 percent from March lows. High unemployment, which the poll showed topping out at 10 percent, and a massive debt load on the shoulders of consumers will hamstring the economy after the initial rebound. This will keep inflation largely in check and official interest rates low, while economists still see a 25 percent chance of a double-dip recession. "Recent data suggest that the economy is near a bottom, but the recovery is likely to prove to be lengthy, gradual, and fragile," said Scott Brown, chief economist with Raymond James & Associates in St Petersburg, Florida. "Fiscal stimulus should provide support through the end of the year and in 2010. Fed policy will remain supportive." The government and Fed have pumped trillions of dollars into the economy in economic stimulus spending and intensive care measures meant to revive the moribund financial system, which appeared on the verge of collapse late last year. The consensus prediction of a peak unemployment rate of 10 percent compares with 10.2 percent in the July poll. A government report earlier this month showed the U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected. Read the rest of the article Labels: Across the Curve, bailout, economic indicators, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Uptick in Corporate Defaults: A "Virtuous Circle?"From the FT (subscriber only access to the whole piece, alas), courtesy of, and with comments by, MonkeyBusiness:The number of companies defaulting on their debts has risen to record levels this year, according to Standard & Poor's, while investment returns for risky corporate debt have skyrocketed since January. S&P said 201 borrowers with $453.1bn in debt have defaulted this year, exceeding the 126 defaults for all of 2008, which comprised debt worth $433bn. It also surpassed the number of defaults from the comparable period in 2001, the previous worst year on record. Wow, that sounds pretty bad. Moreover, we still have three months left to go in 2009. "Recessionary economic conditions and ongoing uncertainty in the financial markets are pushing the number of corporate casualties higher," said S&P Makes a lot of sense. Surprising (the making sense part) coming from S&P but still.. The defaults have not stopped speculative debt from being this year's best performing sector for investors as they look instead to a virtuous cycle that enables more financially strapped companies to refinance as the market rallies, a scenario that portends lower future defaults. "The number of defaults is impressive but, on an absolute month-to-month basis, it has been coming down steadily," said Martin Fridson, chief executive of Fridson Investment Advisors. "It makes sense that the market has been rallying since then." He added: "The virtuous cycle is a function of the high-yield new issue market reopening in response to the increased confidence in credit that provides the bridge for companies to get over any near-term maturities that could threaten their solvency." Yes, I have been watching this in a combination of awe and stupor. The "virtuous cycle". That cuts both ways Mr. Fridson. Remember that the virtuous cycle of unlimited liquidity and risk license made it possible for every bad asset underwritten in the Western World to find a buyer.....until one day the music stopped and well, you know the rest. Also, it is apparent that a lot of smart money is beginning to bet against this virtuous cycle through buying investment grade (IG) and selling High Yield (HY). Hence, if you are thinking, or a fund you invest in is thinking of getting into HY now, you're probably buying it from a smart guy getting out or establishing a fresh short. That's usually a "bad technical". Back to the article! US high-yield debt has generated a return of nearly 40 per cent so far this year, outstripping the 10 per cent rise in equities, while pan-European high yield is up 63per cent, according to data from Barclays Capital. Investors began buying debt at highly distressed levels earlier this year, confident that the extreme projections for defaults would not materialise. Hmmm. How are actual defaults coming in? S&P's 12-month trailing global corporate speculative grade bond default rate increased to 8.58 per cent in July, up from 8.25 per cent in June 2009. On a 12-month trailing basis, S&P forecasts that the US corporate speculative grade default rate will rise to 14.3 per cent by March 2010. The current record rate is 12.54 per cent, set in July 1991. Under S&P’s two alternative economic scenarios, the pessimistic scenario yields a catastrophic mean corporate default rate of 18 per cent, which would entail 255 defaults. The optimistic scenario yields an average corporate default rate of 11.4 per cent, or 161 issuers defaulting. Umm, I'm going to go out on a limb here and say the High Yield sector is a tad "overbought". Hey you! Watch this!! (Remember Madness??) Labels: bankruptcy, bond market, corporate defaults, corporate finance, high-yield bonds Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). John Lewis: Worker Management That Works?From today's Independent:Streets ahead: Does John Lewis offer a revolutionary way forward for big business? John Lewis is Britain's best-loved, most employee-friendly retailer. And business is booming. Martin Hickman wonders if there's a connection.. Thursday, 20 August 2009 The Independent As he emerged into the sunlight outside John Lewis in London's Oxford Street this week clutching a plastic carrier bag, Meir Abutbul, a hotelier, had acquired some carpet cleaner and a cameo role in a long-standing industrial experiment. "I like it," he said of the department store that has become synonymous for customer service and respectability. "It's got everything. It's very clear. When I buy electricals there's the guarantee and they have people to talk to you." When told how it operated, however, he looked stunned. "It's like socialism." John Lewis, with its "Never Knowingly Undersold" slogan, is the supplier of sofas, dining tables and widescreen televisions to the nation's sensible shoppers. The Queen buys its haberdashery and household goods. When MPs stuffed second homes at the taxpayers' expense, the Commons Fees Office checked claims for rugs and sideboards against John Lewis prices. Only Marks & Spencer and the BBC can match it in terms of public affection. Now, however, the John Lewis Partnership (which owns the department store and the upmarket grocery chain Waitrose) is increasingly on the receiving end of public admiration as well. Last year Which? members voted John Lewis best high street retailer; this year they gave the award to Waitrose. A poll of 6,000 people by Verdict Research in 2008 named John Lewis "Britain's favourite retailer". This autumn, John Lewis will take a further step forward with the launch of the first in a planned chain of Home stores that will offer its core range in a smaller format; in effect, a John Lewis convenience store. The store will open in Poole, Dorset, in October; if it is successful, another 50 will open across the country. For retail commentators, the expansion is yet another example of John Lewis doing things right. They attribute its success to its long-term approach and, underlying this, its revolutionary partnership structure – something of which roughly half its customers are aware. Unlike other big businesses, the John Lewis Partnership is a plc owned not by investors but by its staff. "Partners" are paid more generously than employees at other retailers. On top of that, they receive an annual "partnership bonus"--a share of the profits--that has ranged between 13 and 20 per cent of salary in the past five years. They receive five weeks' annual holiday, a 25 per cent discount and a final salary pension. There are other perks, too. They can rent subsidised rooms in two large country estates, or stay at lakeside hotels in Snowdonia and the Lake District, or in a 16th-century castle in Dorset. Five cruising yachts can be rented cheaply. And then there is the 60 pound annual subsidy on exhibitions, theatres, visitor attractions and comedy shows. What sets the company apart from its rivals, though, is not its perks but the fact that its staff--shop assistants, warehouse workers, delivery drivers--are involved in the running of the business. Staff are represented in workers' councils from top to bottom of the company. They have the power to sack the boss (though no chairman has been unseated). They can hold management to account and vote to change company policy. They can--and do--write letters of complaint about the business to an internal newsletter, for which they cannot be disciplined. With a 7bn-a-year pound turn-over, a constitution, its own democratic structures and a public commitment to maximising the happiness of its staff, John Lewis operates almost as a shadow state within corporate Britain. Is it too good to be true? Or, if not, should other companies be following its lead? Read the rest of the article Labels: employee ownership, John Lewis, labor, labor organizing, worker rights, workplace democracy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's IndicatorsMost are covered in this NYT piece. It mentions a surprise jump in first-time unemployment claims and a strong bounceback by the Shanghai Composite Index, which has lost some 20% of its value in the last couple of weeks.Calculated Risk has this update on 2Q mortgage delinquencies. Regarding the situation in China, comments in FT Alphaville and the FT itself elucidate the bounceback a bit. Finally, the Philadelphia Index of Manufacturing Activity unexpectedly expanded in August for the first time in a year. Labels: China, economic indicators, mortgage market, Philadelphia Manufacturing Index, unemployment benefits, unemployment rate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's Inevitable Healthcare ItemsIt's getting a bit much, granted....Here's a piece from the WSJ on the latest tack by the administration and its allies: split the healthcare bill so prioritized parts of the legislation can be passed by a simple Democratic majority in the Senate. And this op-ed by Mort Zuckerman in the FT is obviously deficient politically, but it does mention some key fact about cost containment. Labels: health care reform, healthcare co-ops, Mort Zuckerman, public option Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Death Panel MentalityTwo interesting discussions, by Asia Times columnist Julian Delasantellis and The Independent's Johann Hari.Labels: health care reform, Johann Hari, Julian delasantellis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Labor Dept To Begin Enforcing Own Regs?After nearly three decades of complete non-enforcement? From today's Wall Street Journal:AUGUST 19, 2009 Labor Department to Tighten Scrutiny Wall Street Journal By MELANIE TROTTMAN WASHINGTON Labor Secretary Hilda Solis has spent her first few months in office focusing on handing out $46 billion in stimulus money. Now, her department is adding staff and signaling it will soon begin putting in practice the more assertive regulation of business she promised early in her tenure. Ms. Solis has begun hiring 670 new investigators to enforce labor regulations. There will be 150 investigators added in the Wage and Hour division to enforce wage rules and child-labor laws. Another 100 staff will be added to ensure contractors on stimulus projects are in compliance with applicable laws. The additions will boost the division's staff by more than one-third The Employee Benefits Security Administration, which helps to regulate private retirement, health and other benefit plans covering 150 million Americans, is adding 75 staffers to conduct nearly 600 more criminal and civil investigations. Ms. Solis and President Barack Obama also have reversed or postponed some policy decisions made under former President George W. Bush. In April, the labor department postponed a last-minute Bush-era rule that would have required unions to disclose more about their finances. The agency will take more time to consider the rule, which businesses praised and unions said was excessive. The Occupational Safety and Health Administration recently formed a task force to design an enforcement program for severe violators. OSHA will conduct an intensive examination of an employer's inspection history and any systematic problems would trigger additional, mandatory inspections. Read the rest of the article Labels: Department of Labor, Hilda Solis, labor law, osha Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's Indicator ActionUS Office Prices Jump for first time since 2007 (seems strange given the dire situation in the commercial propert market, but there it is...)German Producer Prices Drop at Fastest Rate in 60 Years. European construction fell even as much of Europe emerged from recession. This isn't an economic indicator, but... Again, it's not an indicator, but, on the profits front, Hewlett Packard took the wind out of the sales of the hot tech sector (couldn't get the whole article, sorry) And, finally, joined a ever-louder chorus, another voice saying the US emerged from recession in 2Q> Labels: commercial property, economic indicators, European Union, oil prices, producer price index, profits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). On the Public Option and Co-opsA number of pieces today on the Public Option and Health Co-ops. Though many of those reading this blog have little interest in the former proposal (as is the case with me, a fervent advocate of single-payer), and virtually none in the latter, the health care legislation that passes, if it does, will define the Obama presidency until the mid-term elections at least.From what I've seen, these links are the most helpful in determining exactly what is being proposed, and why (it looks like the co-op proposal may be a mere feint by the Republicans, simply used to provide some sort of non-hysterical--to put it mildly--criticism of the public option). First, this short Financial Times piece provides a useful scorecard of the votes in the House and Senate. Second, Ezra Klein suggests that the co-op proposal isn't serious, and certainly isn't well thought out (i.e it's a tactic/gimmick, anyway, by those hell-bent on derailing the public option anyway). Third, Mark Thoma provides a few specific objections to the co-op proposals. Note that these are hardly radical points of critique. Finally, one of the country's foremost health care economists, Uwe Reinhardt of Princeton, outlines the following scenario if healthcare reform ceases to be passed. Courtesy if LBO Talk At the end of the day, it looks like something will be passed, given the fact that the administration has staked so much on it. Strange, then, that they've been so cowed by a few village idiots at industry-staged "town halls"? One wonders what the revolt of left (using the term extremely loosely) Democrats spoken of by the FT will do. Even given that revolt, it seems that even a dismembered public option will be the best anyone can hope for at this point. So there's nothing in this legislation for thee left to support anymore, if there ever was anything at all. But, seeing that they're hell-bent on passing something, we have one choice: to get out there and yell like mad for single payer, single payer alone, and single payer once and for all. Because you can bet we'll be the ones paying for the direct costs (higher premiums) and shortfalls (related to the increased national debt involved in paying for the faulty legislation, or, as Reinhardt illustrates, in the lower wages that will offset increasing company health costs if legislation is ineffective at controlling costs) of the horrific legislation that will be passed. Labels: Economist's View, Ezra Klein, health care reform, healthcare co-ops, insurance industry, LBO Talk, public option, uwe reinhardt Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Monbiot/Kingsnorth on Ecological CollapseFrom today's Guardian. Happy reading....Is there any point in fighting to stave off industrial apocalypse? The collapse of civilisation will bring us a saner world, says Paul Kingsnorth. No, counters George Monbiot--we can't let billions perish Dear George On the desk in front of me is a set of graphs. The horizontal axis of each represents the years 1750 to 2000. The graphs show, variously, population levels, CO2 concentration in the atmosphere, exploitation of fisheries, destruction of tropical forests, paper consumption, number of motor vehicles, water use, the rate of species extinction and the totality of the human economy's gross domestic product. What grips me about these graphs (and graphs don't usually grip me) is that though they all show very different things, they have an almost identical shape. A line begins on the left of the page, rising gradually as it moves to the right. Then, in the last inch or so--around 1950--it veers steeply upwards, like a pilot banking after a cliff has suddenly appeared from what he thought was an empty bank of cloud. The root cause of all these trends is the same: a rapacious human economy bringing the world swiftly to the brink of chaos. We know this; some of us even attempt to stop it happening. Yet all of these trends continue to get rapidly worse, and there is no sign of that changing soon. What these graphs make clear better than anything else is the cold reality: there is a serious crash on the way. Yet very few of us are prepared to look honestly at the message this reality is screaming at us: that the civilisation we are a part of is hitting the buffers at full speed, and it is too late to stop it. Instead, most of us--and I include in this generalisation much of the mainstream environmental movement--are still wedded to a vision of the future as an upgraded version of the present. We still believe in "progress", as lazily defined by western liberalism. We still believe that we will be able to continue living more or less the same comfortable lives (albeit with more windfarms and better lightbulbs) if we can only embrace "sustainable development" rapidly enough; and that we can then extend it to the extra 3 billion people who will shortly join us on this already gasping planet. I think this is simply denial. The writing is on the wall for industrial society, and no amount of ethical shopping or determined protesting is going to change that now. Take a civilisation built on the myth of human exceptionalism and a deeply embedded cultural attitude to "nature"; add a blind belief in technological and material progress; then fuel the whole thing with a power source that is discovered to be disastrously destructive only after we have used it to inflate our numbers and appetites beyond the point of no return. What do you get? We are starting to find out. Read the rest of the exchange Labels: environmental crisis, George Monbiot, Paul Kingsnorth Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). "America's Japanese Banks"Interesting Reuters post. Nice charts (you need to click on the link to get them) for reference:Rolfe Winkler Option Armageddon August 17th, 2009 America’s Japanese banks A banking system loaded down with hundreds of billions of dollars worth of unrecognized bad debt--Japan in the 1990s? No, it's the United States today. And where are American banks hiding their losses? Among other places, in their loan portfolios. Banks have written down billions in toxic securities, but many toxic loans are still carried at close to full value. According to data published by the Federal Reserve late last year, banks are carrying $3 trillion of residential real estate loans and $1.7 trillion of commercial real estate loans on their books for a total of $4.7 trillion. Dan Alpert at Westwood Capital thinks as much as a fifth of that total could be uncollectable "We know lots of mortgage loans are underwater," he says, describing the situation where the value of collateral has fallen below the principal balance of a loan. "A majority of the loans banks are holding were originated at the height of the bubble, when securitization broke down." When securitization markets were fully functional, banks had been able to package and sell their loans to investors. When those markets buckled, banks were forced to eat their own cooking--much of it rancid. Banks argue that loans should not be marked down if they’re still "performing." As long as borrowers are meeting their contractual obligations, there’s no reason to take a writedown. The problem is, this gives banks an excuse to extend, amend and pretend. They can make concessions on loan terms or delay foreclosure notices, if only to maintain the fiction that borrowers will make good. Read the rest of the post Labels: bailout, financial crisis, Japan, mark to market accounting, nonperforming loans, Rolfe Winkler Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). How Insurers Value End of Public OptionFrom a posting on Baseline Scenario (from a few weeks ago, reposted by Mark Thoma at Economist's View) by Arindrajit Dube, who will be joining our friends and comrades at U-Mass Amherst soon. Here's a tidbit:President Obama may have harsh words for the insurance companies. But those are not the words investors in these companies are paying attention to. They are paying attention to whether President Obama will sign a bill with vague "co-ops" or demand a public option. And the reaction by these investors bodes poorly for "co-ops" fulfilling their role as a serious competitive alternative to private insurance companies. This guest post was written by Arindrajit Dube, an economist at UC Berkeley Institute for Research on Labor and Employment who is joining the Department of Economics at the University of Massachusetts, Amherst. His work focuses on labor and health economics topics, as well as political economy. Why have pivotal members of the Congress been reluctant to allow individuals the choice to buy into a public health insurance option? A political-economic reason is that the "bipartisan" group of six senators responds more to the interests of health insurance companies than public opinion, including the median voter. While this is hard to assess directly (although we do know they receive substantial campaign finance from insurance companies), we can however observe the effects of (a somewhat unanticipated) decision they made on those who stand to privately benefit from that decision. Here is how the share prices of three major insurance companies (Cigna, United Healthcare Group, Aetna) responded on Tuesday, July 28 to the Monday night announcement that the group of six senators is going to eliminate the public option from their version of the health care reform legislation [graph produced using Yahoo Finance]. We have basically an 8-10 percent gain for these companies from the Senate announcement. And as the graph below shows, the S&P 500 index (yellow) was essentially flat. The market caps of these three companies together are around $53 billion, which suggests a $4-5 billion value from the announcement by the group of 6. Read the rest of the post Labels: Arindrajit Dube, Barack Obama, Baseline Scenario, Economist's View, health care, insurance industry, public option Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UK CPI Unexpectedly High, Retail Prices DownFrom The GuardianHigher-than-expected inflation defies City forecasts CPI unchanged at 1.8%, compared with predictions of 1.5% RPI -1.4% from -1.6% a month earlier Julia Kollewe guardian.co.uk, Tuesday 18 August 2009 The City was caught on the hop today with data showing higher-than-expected inflation last month. Consumer prices were unchanged in July from June, keeping the annual rate at 1.8% – defying analysts' forecasts of a fall to 1.5%--government figures showed this morning. Sterling rose by half a cent against the dollar on the news, while government bond prices dropped. But the City and the Bank of England still expect inflation to dip to 1% or below in coming months. The largest upward effect on consumer prices came from computer games and DVDs where prices rose this year but fell in July last year, the Office for National Statistics said. This pushed inflation in the communications category to its highest rate since the start of last year. There was also less discounting on furniture and clothing in the July sales than last year, probably because furniture prices were not hiked as much as normal in June, the ONS said. These factors offset falling meat and vegetable prices and smaller price increases at restaurants and cafes than a year ago. Food price inflation hit its lowest rate in two years, while inflation at hotels and restaurants was the slowest since records began in 1997. George Buckley at Deutsche Bank said: "The consumer price index (CPI) has proved to be a bit more sticky than we thought it would be. However, I do think the rate of inflation will fall quite sharply in August and September, and that is not because we are expecting any specific price falls between now and then but rather we are expecting the big rises in energy prices from a year ago will drop out of the comparison--base effects alone that will take inflation possibly down to around 1% in a couple of months' time." Read the rest of the article Labels: consumer prices, economic indicators, Inflation, retail sales, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Housing Starts, PPI, Retailer EarningsFrom Reuters:U.S. housing starts, producer prices fall in July Tue Aug 18, 2009 9:09am EDT WASHINGTON (Reuters) Ground breaking for new U.S. homes fell unexpectedly in July, but a rise in single-family home construction for a fifth straight month kept hopes alive the economy was poised to recover from recession. The Commerce Department on Tuesday said housing starts fell 1 percent to a seasonally adjusted annual rate of 581,000 units, well below market expectations for 600,000 units. June's housing starts were revised up to 587,000 units from the previously reported 582,000 units. Groundbreaking for single family homes, the worst-hit part of the housing market, rose 1.7 percent to an annual rate of 490,000 units--the highest since October. "The single-family sector continued to edge higher and that was the silver lining of the report," said Michelle Meyer, an economist at Barclays Capital in New York. U.S. stock index futures pared gains, while U.S. government debt prices trimmed losses after the weak housing and prices data. While data has pointed to the likely end of the recession, analysts have warned of a weak recovery as rising unemployment crimps consumer spending. A higher-than-expected quarterly profit reported by Home Depot Inc on Tuesday helped ease investor fears as the world's largest home-improvement chain partly offset weak sales with cost cutting. No. 2 U.S. discount retailer Target Corp also reported better than expected results. Compared to July last year, housing starts dropped 37.7 percent. New building permits, which give a sense of future home construction, fell 1.8 percent to 560,000 units in July, and were down 39.4 percent from a year ago. The inventory of total houses under construction fell to record low 609,000 in July, the department said, while the total number of permits authorized but not yet started also hit a record low at 102,300. A separate report from the Labor Department showed U.S. producer prices fell 0.9 percent versus a 1.8 percent gain in June. Compared with the same period last year, producer prices were a record 6.8 percent lower in July. Core producer prices, which exclude food and energy costs, edged 0.1 percent lower in July compared with a forecast for a 0.1 percent rise, and after a 0.5 percent increase in June. The core producer price index stood 2.6 percent higher measured on a year-on-year basis, versus a forecast for a 2.8 percent advance. (Reporting by Lucia Mutikani and Alister Bull; Editing by Neil Stempleman) Labels: corporate earnings, economic indicators, Home Depot, housing market, housing starts, Inflation, producer price index, Target Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Michael Perelman: China v. US Class WarfareFrom Unsettling Economics:China vs. the US: Class Warfare Posted August 17, 2009 Filed under: economics | In July, Chinese workers murdered beat an executive to death in protesting an immanent privatization of their steel mill. Canaves, Sky and James T. Areddy. 2009. "Murder Bares Worker Anger Over China Industrial Reform." Wall Street Journal (3 August): p. A 1. The state responded by halting the sale. McGregor, Richard. 2009. "Killing of China Steel Plant Boss Halts Sale." Financial Times (26 July). Now the money is being returned to the intended privatizer While not condoning violence, the role of the state is interesting here. China is not always known for respecting the interests of those who stand in the way of what we in the United States call economic progress. I would assume that a violent military response would occur here (unless the union would reorganize as a bank). Instead, the Chinese negotiated with the workers. I assume that some sort of punishments will be meted out, but even so, I am amazed at what happened. Here is the latest from the NYT "A Chinese provincial government halted the privatization of a state-owned steel mill on Sunday, apparently capitulating to thousands of workers who protested last week and took an official as hostage. The protests, in Henan Province in central China, were the latest sign of increasing labor activism in China’s steel industry, the world's largest and a cornerstone of China's construction-dependent economy. Three weeks earlier, rioting workers beat to death an executive who had been overseeing the sale of another state-owned steel company, Tonghua Iron and Steel, in northeast China's Jilin Province, to a private business. The privatization of Tonghua was immediately postponed after that death." Read the rest of the post Labels: China, labor, Michael Perelman, Unsettling Economics Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TALF Extension for Newly-Issued CMBSsFrom Reuters:Fed, Treasury extend TALF to mid-2010 for CMBS Mon Aug 17, 2009 11:23am EST By Mark Felsenthal and Al Yoon WASHINGTON/NEW YORK (Reuters) The U.S. Federal Reserve said on Monday it will extend to mid-2010 an emergency program aimed at boosting lending in the ailing commercial real estate market. In a joint announcement with the U.S. Treasury Department, the Fed said it would extend its Term Asset-Backed Securities Loan Facility (TALF) to June 30 for newly issued commercial mortgage-backed securities, a program that has yet to get off the ground. The Fed and the Treasury also extended through March 31 its TALF for newly issued securities backed by auto, credit card, student and small business loans, and existing CMBS. Analysts said the move is most important to the commercial real estate sector being buffeted by a lack of credit and as the recession curbs revenue from office, retail and apartment buildings. The industry has been often cited by Fed officials in the past month as a particular danger to a U.S. economic recovery if borrowers with maturing loans find no other outlet than default. Read the rest of the article Labels: bailout, commercial mortgage-backed securities, Federal Reserve, financial crisis, mortgage backed securities, TALF, Treasury Department Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Chinese Sell-Off Sparks Global RoutStocks in China got hammered today, with the Shanghai Composite losing nearly 6%, and the Hang Seng in Hong Kong down by 755 points. Japan's Nikkei was a loser as well, even as Japan scored a positive GDP gain. We've spoken before on the recent slide in Chinese shares, which started as equities in other important countries were registering big gains. Here in the US, at noon EST, Reuters is reporting increased insider selling, and the S&P is down some 5%, falling below 1,000.Yves Smith of Naked Capitalism has these comments on the potential significance of this conjucnture. Labels: China, financial crisis, Japan, stock markets, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). This Week's Economic IndicatorsThe first important reading of the week already came in from the Far East: Japan joined Germany and France in pulling out of recession, at least temporarily. It chalked up a .9% increase in GDP in the second quarter.Tomorrow a few reports in the US will concern inflation, as July producer prices are announced. July US housing starts are also scheduled. The other thing to watch in the middle of the week is Thursday's UK retail sales. This indicator has been jumping all over the place since the meltdown last autumn. Manufacturing data from euro country and euro-zone economies come in on Friday, as does US existing home sales. And the US initial claims make their weekly appearance of Thursday Labels: economic indicators, employment, Inflation, retail sales, unemployment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T.D.C.o.t.E: Persistence of Idiocy in EconomicsThe Dull Compulsion of the Economic (xiv)A series of blog postings by D&S collective member Larry Peterson Greg Clark and the Persistence of Idiocy in Economics Recently there's been a lot of ink spilled in the financial press about what responsibility, if any, should be acknowledged by economists regarding their role in not sufficiently anticipating the onset or the extent of the current economic crisis. Sometimes reading this stuff is exasperating to the point of annoyance, or even anger, like when Alan Greenspan gives his suggestions for fixing a financial system he obviously had a huge role in destroying. But nothing has made me more angry recently than a piece I saw a week ago. At the time, I didn't even think it was worthy of a response (I know, not that a response from me would matter a whole lot, anyway...). But all week it weighed on me: how was it that such a terrible piece could be taken seriously by anyone in the first place? And taken seriously it was: The Washington Post opinion piece, "Tax and Spend, or Face the Consequences," by UC-Davis economics chairman Gregory Davis, was linked to by at least three of the most visited econ blogs: (the usually good) Economist's View, (the usually awful) Marginal Revolution, as well as (the always pompous) Brad DeLong, and I also saw it on the Economic History Blog. Clark has recently written a book, A Farewell to Alms, which is a silly and preposterous title, as anyone who has had to fight his way, as I just did moments ago, through city streets full of beggars and (far more annoying) solicitors for charities. But his book purports to be no less than "A Brief Economic History of the World." I managed to make it through about fifty pages before almost throwing the book out the window in disgust: his crass technological determinism coupled with institutional Malthusianism does a disservice to serious research in economic and technological history. But this book isn't what I want to talk about here: I'll confine my remarks to the article. Clark's basic line is that technological change will force society, or "us"--whoever that may denote--to choose between subsidizing a growing number of "socially needy but economically redundant" people, or "confront growing, unattended poverty." After seeing off the current financial crisis as a "minor blip," Clark opens his piece by stating where the real challenge will lie: In the next chapter, abundance beckons--for some. Advances in technology drive economic growth, and there is no sign that they are slackening. The American economy is likely to continue unabated on the upward path that began with the Industrial Revolution. Despite the nonchalant tone in which this simply unacceptable--morally speaking--idea is couched, it is hardly a novel one: serious scholars like Richard Sennett (but he's not an economist, only a sociologist...) have been researching and writing about the plight and diminishing prospects of the modern "precariat" for some time now. But, to Clark, there's nothing to do about it: consumers' preference for technology, presumably, simply demands massive labor-saving substitution such that only the most "skilled" will be able to outperform machines. So the challenge for policy will be reduced to figuring out a way for the "winners"--those who still can command an ever-increasing premium on the labor market, as well as those who have benefited from previous accumulation--to basically pay off the losers, and make them, for all practical purposes--except as consumers--simply go away. Will the "winners" be politically astute enough to buy off the rabble? Or will they risk unrest by failing to stump up? As I said, Clark's nonchalant tone in outlining this nightmarish scenario is noteworthy: I suppose it has something to do with his idea of being a detached "scientist". And in his notion of economics, any idea of an intrinsic dignity to labor certainly doesn't trump consumer preference, and the associated notion of labor as simply a means to the former. As for faith in the power of social movements, he seems to have none. But, then again, I don't have a whole lot these days, either. Many of Clark's arguments are just plain silly. At almost every turn he makes the most unacceptable or plainly misleading generalizations. For example, consider the following: For much of the past 200 years, unskilled workers benefited greatly from capitalism. Before the Industrial Revolution, for example, skilled construction workers earned 50 to 100 percent more than unskilled laborers; today, that premium has fallen to 33 percent in the United States. The era of the two world wars, 1914 to 1945, was one of particularly sharp gains for the wages of unskilled workers, relative to the rest. He makes no mention here of the labor movement, or of the perhaps more important fact that the requirement on the part of competing states and empires to maintain mass armies between the 1860s and the end of the Cold War (in many places) dictated that generous welfare policies, involving active (though insufficient) government efforts to keep employment rates as high as policymakers felt possible (given their other economic goals and assumptions), would determine employment levels as much as, or, at times, far more than levels of technological change alone. Both the labor movement and mass conscription are pretty much things of the past now. But it is arguably this lack--far more than demand (by whomever) for technology that is leading to the situation Clark so nonchalantly remarks upon. But this sort of thing is a social phenomenon, and one that can conceivably be changed by the actors themselves, as well as committed, activist intellectuals--not detached "scientists". And then there's this beauty: Modern society seems comfortable with the rich and poor living in vastly different housing, eating disparate qualities of food and facing radically dissimilar crime risks. No one pickets four-star restaurants because they feed only the rich, or the Waldorf Astoria because only the wealthy can afford to sleep there. But when it comes to medical care, Americans display strong ethical resistance to having the poor receive a substantially inferior product. (Just recall the outrage a few years ago when news reports emerged of Los Angeles hospitals discharging poor patients onto city sidewalks.) Just this week, many Americans have shown that they have no problem with the idea that the poor receive worse or no health coverage at all. For what such polls are worth, The Financial Times reported earlier this week that "[s]upport for Mr. Obama has dropped furthest and fastest among people earning between $60,000 (42,000 euros, 36,000 pounds)and $89,000 a year--those who are likely to have health insurance and fear that they may face higher taxes to pay for the extension of coverage to the almost 50m Americans without it." Then, a couple of lines later, Clark says that the "United States was founded, essentially, on resistance to taxes." This is a simplification of the most boneheaded sort. America was founded on free land for increasing numbers of settlers. The British wanted the settlers to pay for the increasing cost of protection as they expanded the frontier and decimated the native population (the factor that made the land free). This was the taxation the Americans resisted. But the true awfulness of the article concerns Clark's policy prescriptions. He confines these two a choice between two: increased access to education and, as mentioned before, paying off the economically redundant via transfers of wealth. Clark brushes off the education option because of one thing, and one thing alone: grade inflation. He actually seems to be saying that a perceived prevalence of grade inflation in US schools means that any attempt to increase access to education is bound to fail, and will be unable to halt the relentless capital substitution demanded by the stern taskmaster technology. As if cost inflation in education alone had no part to play in this process! Indeed, it's arguable that the grade inflation is part and parcel of an educational system built on profit, just as medical inflation is the result of largely for-profit medicine: the need to graduate more students to keep the tuition dollars flowing in is a consideration regarding higher educational costs just like the need to order the most expensive tests is to medical finance. Also, if Clark wants to mention grade inflation, he should also consider the inflated value of much of the teaching that goes on. He may want to start by examining his own.... And then there's culture. Clark's seeming emphasis on the primacy of revealed preference causes him to neglect completely the role of the culture industry in dumbing us down, well before schools and universities can work their grade magic. I remember seeing something in the British press which may serve as an instructive anecdote here. Some children's program producers were having a party for their kids, and a dressed-up version of one of their creations came in, and was recognized by none of the children. The parents, who would, no doubt, be classified by Clark as "winners" and, as creative artists, relatively unlikely to be replaced by machines, actually shielded their own children from what they produced. "Do you think we let them watch this garbage?" I think was what one of them said. It's a cliche itself, but cultural fast food, like that of the real variety, affects different segments of the society in vastly different ways; and some have no choice but to consume it, while others have whole worlds available, even if they themselves consume their share of the junk. So that leaves the only other option: paying off the losers. Clark actually ends his piece by quoting Marx: "Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, "from each according to his ability, to each according to his need" becomes the guiding principle of government--or else confront growing, unattended poverty." But to my mind, the biggest error of all in his analysis is his complete disregard for the essential role that the undereducated play--and will continue to play--in our shamefully wasteful economy. Far from being increasingly redundant, as Doug Henwood has remarked, a good amount of the leading employers of the next decade will be industries in which low levels of skill (or of formal education, anyway) will be required: health care, retail, telemarketers, security guards, receptionists, et cetera. According to Henwood, "a quarter of the new jobs will require a bachelors degree or more--but almost twice as many will require no more than short-to-medium term on-the-job trainning. Three quarters will require less than an associate's degree." And he's looking at US Bureau of Labor statistics for 2000-2010 (in 2003). Now this is precisely where Clark would say that the inexorable force of technology will reduce these exceptions rapidly, especially in the wake of a financial crisis that has hit some of the listed industries, like retail, very hard. And 2010 is, after all, only next year. But I don't know how soon it will be before technology will be cheaper than humans in performing many mundane tasks, even if machines are better. There's much talk in Japan about deploying robots to service their rapidly ageing population in a few decades, so that they won't have to rely on unwelcome immigrants. Given the financial state Japan is in now, and the fact that the famed Japanese saver has gone the same way as the almighty Yen, I wonder whether or not even the most jaundiced Japanese retiree will have enough money to pay for the services of a perfectly good robot in a score of years or so. In fact, I'd put my money on the unwelcome immigrant. But there's a deeper problem than this, one that's totally unappreciated, to my mind, by just about everyone, in terms of its ramifications for society. A big reason, to my mind, why the relatively unskilled and uneducated are so important in our economy is the fact that as providers of services like security, child-care, home maintenance and so on, they actually provide the wealthy or more competitive workers with the means to increase their competitive advantage (and that of their progeny) over rivals and, needless to say, the less well-endowed. So it is they, and not just the technology, that allow the best off, many of whom work (unlike earlier elites) incredibly demanding schedules, the time to successfully take in what they need to in order to compete at the highest levels. And this while, at the other end, the rudimentary provisioning of the same sorts of services to the less well-off is becoming de-funded (if it's public) or prohibitively expensive. In this sense, many of our celebrated service workers are performing a social function that is more regressive than their counterparts, who worked as domestics in Victorian times. And if the kind of technological growth Clark envisions continues apace, it is arguable that the place for these "unskilled" workers, anyway, will become more--not less-demanded. And there's one more thing. Clark doubts that increased efforts to improve education and access to it will result in capacity-building to a degree that it will be able to offset technological change. But, as I mentioned before, Clark seems to see no role for the unwashed themselves to rise up and demand more dignified treatment, and a bigger presence in economic decision making. I lamented that this is unlikely, under present conditions, to take place in such a way as to prove Clark wrong politically speaking. But it may come true in a more sinister way. Much of the more publicized "debate" on the health care issue has taken the form of the aggressive assertion of claims that are patently untrue. It's hard for me, sitting in my stifling little room in Cambridge, Massachusetts, to gauge how prevalent these sentiments really are amongst the population, but it's clear that two things are responsible for much of the phenomenon: poor education and the popularity of corporate hate-radio and hate-media amongst the relatively poorly-educated, and especially among those who have suffered most from job losses. If these people were to be paid off, as Clark wishes, to remove themselves permanently from the labor market, would that not potentially lead to the formation of a culture politics of a very dangerous variety? Already the health care issue has shown that, like the Iraq war, warring elites are incapable of doing what needs to be done to keep their gravy train rolling; and that they rely on the active solicitation of cultural warriors to fight their increasingly destructive cultural wars. And, after the healthcare mess goes its ignominious way, there's the climate change issue; and, as the Financial Times reported last week, the oil companies are trying to corral folks for the interminable "town halls" that will take place then. But for the "detached scientist" Clark, these things are of little consequence. It's hard to believe, that in a time as desperate as ours is, that people can stomach this kind of detached, and yet utterly misleading twaddle. Why do we listen to these people? Labels: bailout, Brad DeLong, Doug Henwood, Economist's View, financial crisis, Gregory Clark, Larry Peterson, Marginal Revolution, Richard Sennett, taxation, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). It's a Start? Maybe?This is nothing more than a gimmick in a market that lost $2 trillion or something like that in 2008 alone. And it's ironic that the piece comes out on the day the administration seems to be caving in on the only worthwhile part (not very worthwhile at that, compared to single-payer) of the healthcare reform bill--the public option. But there it is. Noteworthy of the diminishing vision of "public servants" in this age of "change we can believe in" is Rep. Frank's remark to the effect that simply having a home is a dream these days. From The Boston Globe:President shifts focus to renting, not owning Using $4.25b to build affordable housing By Joseph Williams Globe Staff / August 16, 2009 WASHINGTON The Obama administration, in a major shift on housing policy, is abandoning George W. Bush's vision of creating an "ownership society" and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities. The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates. Analysts say the approach takes a wrecking ball to Bush's heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan's recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home. In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis. "I've always said the American dream should be a home--not homeownership," said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration's push to put mortgages in the hands of low- and moderate-income people. Read the rest of the article Labels: Barack Obama, barney frank, housing market, hud, renting Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yves Smith on "Mortgage Armageddon"Yves Smith summarizes Frank Veneroso's views on why recovery in the mortgage market (and, presumably, for the rest of the economy) will be so very difficult.Sunday, August 16, 2009 Guest Post: Frank Veneroso on Mortgage Armageddon Frank Veneroso was kind enough to write as a result of seeing a guest post "Debtor's Revolt?" by his colleague Marshall Auerback. Veneroso also provided his latest newsletter and gave us permission to post it. It it pretty long (12 pages), I extracted the executive summary and other key bits. Be sure to read the final section, starting with the boldface heading "Why Resolving The Mortgage Armageddon Problem Will Be So Difficult:." (Enjoy!) From Frank Veneroso: 1. Deutsche Bank now predicts that 48% of all mortgaged American homeowners will be "under water" by 2011. 2. One might assume that means that the aggregate loan-to-value ratio of all mortgaged households will be a little less than 100%. 3. I have been focusing first and foremost on the aggregate loan-to-value ratio of all households with mortgages rather than the number of mortgaged homeowners who will eventually be underwater. 4. I calculated that, on mean reversion in house prices, this aggregate loan-to-value ratio would rise to 120% to 125%--a lot worse than what the Deutsche Bank analysis seems to imply. So I studied their analysis to ascertain why I went wrong or why they went wrong. 5. Though their analysis has a somewhat different objective and employs a different methodology, their analysis in fact comes to almost exactly the same conclusion as I have reached: when one focuses not on the share of all homeowners who will be underwater but the aggregate of mortgaged home values that will be under water, on mean reversion in home prices the aggregate loan-to-value ratio will probably be north of 120%. Here is why. 6. Deutsche Bank admits that their data on total mortgage debt is incomplete. Using more complete mortgage data the percent of homeowners under water would be higher and the implied aggregate LTV might be closer to 110% than 100%. 7. Also there is skewing. Those who are underwater have negative equities that exceed in value the positive equities of those who are not underwater 8 There is skewing on more than one account. Because the highest shares of those underwater are in the regions with the highest home values and the greatest percentage home price declines the overall skewing might be very great. And this skewing increases as home prices fall further to the Case Shiller mean. 9. When one factors in this skewing the aggregate loan-to-value ratio of all mortgaged homeowners based on the Deutsche Bank analysis probably rises to 120% or more Read the rest of the post Labels: Deutsche Bank, foreclosures, Frank Veneroso, mortgage banking, mortgage meltdown, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Squeezing Both Ends of the Labor MarketThese two recent pieces focus on disturbing developments in labor markets. Ambrose Evans-Prithchard zeroes in on unbelievable global undercapacity rates, and on troubling disinflationary readings, in spite of massive money creation schemes undertaken in the US, UK and Japan. Surely tongue-in-cheek, he actually ends his piece "Back to socialism anybody (The only objection I'd have to this deals with the "back to")?"The second piece, posted on Time Magazine's "The Curious Capitalist" blog, fleshes out Evans-Pritchard's view by looking at developments on the high end of the labor market, and specifically on Silicon Valley. The essential insight here is that the demand for talent may be forcing technology companies to redouble their efforts in an increasingly competitive market by attempting to initiate ever-larger labor-saving technological advances. It also makes the key point that the wage gap in this country goes far beyond Wall Street. Taken together, the picture that emerges is one in which a geographical form of labor arbitrage (playing off workers in one part of the world against others in other parts of the world) is being reinforced by technology that both increases the market power of the highest-paid while reducing that of just about everyone else. This is hardly a novel insight, but it's instructive to revisit it now and then. And, with data like these, the picture of thew underlying trend seems to become more well-defined all the time. Labels: Ambrose Evans-Pritchard, bailout, Bureau of Labor Statistics, financial crisis, labor arbitrage, overproduction, technology, The Curious Capitalist Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Nonperforming Loans To Assets Above ThresholdFrom BloombergToxic Loans Topping 5% May Push 150 Banks to Point of No Return By Ari Levy Aug. 14 (Bloomberg) More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank's equity and threaten its survival. The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full. The biggest banks with nonperforming loans of at least 5 percent include Wisconsin's Marshall & Ilsley Corp. and Georgia's Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan's Flagstar Bancorp. All said in second-quarter filings they're "well-capitalized" by regulatory standards, which means they're considered financially sound. "At a 3 percent level, I'd be concerned that there's some underlying issue, and if they're at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition," said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn't commenting on any specific banks. Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of "problem banks," which stood at 305 in the first quarter. Read the rest of the article Read the rest of the article Labels: bailout, banking industry, financial crisis, nonperforming loans, toxic assets Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Indicator Watch, FridayMichigan Consumer Survey (Reuters)Consumer prices (Reuters) Industrial Production (FT), with this caveat; note the abysmal capacity utilization rate: 68%! Labels: Calculated Risk, consumer confidence, CPI, economic indicators, industrial production, Inflation, University of Michigan Survey Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Gillian Tett on Corporate TransparencyAs ususal, Tett does a great job. The ending is key. From The Financial Times:Idea of 'living wills' is likely to die quiet deathBy Gillian Tett Financial Times Published: August 13 2009 19:50 | Last updated: August 13 2009 19:50 Preparing a will is usually an emotionally charged experience. After all, no one really wants to ponder their demise when they are in the prime of health. Nor is it pleasant to spell out difficult issues such as how to divide up all the family silver--or not. But could the lessons learnt from preparing for death prove useful for the modern banking world? Some western regulators are tossing the idea about. In recent months Treasury officials in Washington have been scurrying to create a so-called "resolution" regime, which would make it easier to wind up large banks if they fell into a crisis. The British Treasury and central bank have gone further by suggesting that banks should be forced to write "living wills" as part of a resolution system. These documents would in essence force banks to stipulate in advance how their operations could be wound down in a crisis and how their assets might be distributed, in the hope that such clarity might help to avoid a replay of the type of panic that erupted when Lehman Brothers collapsed last autumn. What spooked regulators and investors at the end of last year was not just the bank's collapse, but the fact that it was unclear where Lehman’s assets lay, or who could claim them. Thus, by injecting more transparency--and forethought--into corporate structures, another panic might be averted, or so the argument goes. Read the rest of the article Labels: banking system, corporate transparency, financial regulation, Gillian Tett, shadow banking system Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Latest Inequality Figures (To 2007)From Paul Krugman's blog. For perspective, here's a chart showing corporate profits from 1996 (and another, going back to 1947--scroll down about 2/3 of the page).Labels: Emmanuel Saez, financial crisis, income inequality, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Oligarchs' Threat To Indian DemocracyNice FT piece from yesterday:Brotherly shoveBy Joe Leahy Financial Times Published: August 11 2009 20:40 | Last updated: August 11 2009 20:40 Murli Deora, India's oil minister, normally relaxes by playing bridge at the weekend with his wife and friends. But in recent weeks, a rather less genteel contest than that has been intruding on his free time. Mr Deora was a close confidant of Dhirubhai Ambani, the rags-to-riches entrepreneur who built his Reliance polyester group into a corporate titan but died in 2002 without leaving a will. This sparked a succession war between his sons Anil and Mukesh, now Asia's richest siblings. Dropping into Mr Deora's Mumbai home one weekend in June after his customary jog on the seafront, Anil Ambani complained to "uncle" about how he believed Mukesh Ambani's Reliance Industries was trying to corner the spoils of the KG Basin, a giant gas field discovered by the group off India’s east coast in 2000, says a person familiar with the matter. Late last month, frustrated by suspicions that the minister was siding with his brother in the dispute, Anil Ambani went public. He used the podium of the annual meeting of one of his companies, Reliance Natural Resources, to lambast Mukesh’s Reliance Industries and the oil ministry. The nationally televised onslaught--and the release of an earlier letter to Manmohan Singh, prime minister, that contained the same allegations--sent reverberations through the halls of power in New Delhi and has elevated the long-running Ambani succession war into an issue of national importance. "Motivated by corporate greed, RIL [Mukesh Ambani's Reliance Industries] is dishonourably trying every trick in the book to get out of its binding commercial obligations," Anil alleged later in e-mailed answers to questions from the Financial Times. (Mukesh Ambani and Reliance Industries declined to comment for this article.) Not only is the row, which is being heard in the Supreme Court in New Delhi, threatening to disrupt sales from the KG Basin, India’s most important natural resource discovery in decades, but it has also raised questions about how business is done in the world's fastest-growing large economy after China. Read the rest of the article Labels: Ambani family, development economics, energy, India, infrastructure, Manmohan Singh, natural resources, project finance Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). HuffPo: Memo Documents Admin's Pharma DealFrom Huffington Post:Internal Memo Confirms Big Giveaways In White House Deal With Big Pharmadigg Huffpost - Internal Memo Confirms Big Giveaways In White House Deal With Big Pharma First Posted: 08-13-09 11:10 AM | Updated: 08-13-09 11:15 AM A memo obtained by the Huffington Post confirms that the White House and the pharmaceutical lobby secretly agreed to precisely the sort of wide-ranging deal that both parties have been denying over the past week. The memo, which according to a knowledgeable health care lobbyist was prepared by a person directly involved in the negotiations, lists exactly what the White House gave up, and what it got in return. It says the White House agreed to oppose any congressional efforts to use the government's leverage to bargain for lower drug prices or import drugs from Canada--and also agreed not to pursue Medicare rebates or shift some drugs from Medicare Part B to Medicare Part D, which would cost Big Pharma billions in reduced reimbursements. In exchange, the Pharmaceutical Researchers and Manufacturers Association (PhRMA) agreed to cut $80 billion in projected costs to taxpayers and senior citizens over ten years. Or, as the memo says: "Commitment of up to $80 billion, but not more than $80 billion." Read the rest of the article Labels: Barack Obama, health care reform, lobbyists, pharmaceutical industry, PhRMA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Widening Fair Market Value GapFrom Bloomberg:Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil Aug. 13 (Bloomberg) It’s amazing what a little sunshine can accomplish. Check out the footnotes to Regions Financial Corp.'s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion. So, if it weren’t for the inflated loan values, Regions' equity would be less than zero. Meanwhile, the government continues to classify Regions as "well capitalized." While disclosures of this sort aren't new, their frequency is. This summer's round of interim financial reports marked the first time U.S. companies had to publish the fair market values of all their financial instruments on a quarterly basis. Before, such disclosures had been required only annually under the Financial Accounting Standards Board’s rules. The timing of the revelations is uncanny. Last month, in a move that has the banking lobby fuming, the FASB said it would proceed with a plan to expand the use of fair-value accounting for financial instruments. In short, all financial assets and most financial liabilities would have to be recorded at market values on the balance sheet each quarter, although not all fluctuations in their values would count in net income. A formal proposal could be released by year's end. Read the rest of the article Labels: bailout, banking system, Fair Value Accounting, FASB standards, financial crisis, market value, profits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Indicators: Retail Sales, ForeclosuresFrom Bloomberg:Retail Sales From Reuters: Foreclosures Labels: economic indicators, financial crisis, foreclosures, housing market, retail sales Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Germany and Japan Return To Growth (For Now)From Bloomberg:Euro-Area Economy Contracted 0.1% in Second Quarter (Update4) Bloomberg By Simone Meier Aug. 13 (Bloomberg) The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe's worst recession since World War II is coming to an end. Gross domestic product fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the most since the euro- area data were first compiled in 1995, the European Union's statistics office in Luxembourg said today. Economists had estimated GDP declined 0.5 percent in the three months through June, the median of 32forecasts in a Bloomberg survey showed. Stocks rose and the euro climbed after today's figures added to evidence the worst of the global slump has passed. Demand for European exports is improving just as government rescue packages and lower interest rates support spending at home. While the data suggest the European Central Bank won’t need to add to stimulus measures, rising unemployment across the region may still stifle consumer spending. Read the rest of of the article Labels: bailout, Bank of Japan, Eastern Europe, economic indicators, financial crisis, GDP, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Today's Indicator ActionFrom Bloomberg:Fed meeting and Treasury purchases decision US Trade deficit Home prices Labels: balance of trade, economic indicators, Federal Reserve, financial crisis, foreclosures, monetary pilicy, real estate market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Inflection Point for Dollar as Risk Haven?From The Financial Times:Speculation grows over dollar's turning pointBy Peter Garnham Financial Times Published: August 11 2009 19:31 | Last updated: August 11 2009 19:31 Just a week after the dollar hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen. The change of sentiment has been sparked by last week's US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan. "Markets are in a flurry of debate about whether Friday's US payrolls data marks an inflection point for FX, whereby good US economic news starts to benefit rather than hurt the dollar," says Ray Farris at Credit Suisse. Hans Redeker at BNP Paribas says there are signs that the US economy has responded positively to the massive US fiscal and monetary stimulus, thus reducing the risk premium for holding US assets. "The introduction of quantitative easing in March has let the performance of the dollar diverge from the guidance of real interest rate differentials," he says. "Now, as the economic outlook has stabilised, the relative yield and interest rate differentials should regain their impact on currency markets." Others are hesitant to call an end to the trend of dollar weakness, given that the currency's rebound has been based on its reaction to a single piece of economic data. Read the rest of the article Labels: bailout, currencies, dollar, financial crisis, foreign exchange, macroeconomics, Monetary Policy, Peter Garnham Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Michael Mandel on Productivity StatsI seem to recall there was a stretch in which productivity was revised downward for about five quarters in one go tright before the financial crisis hit...Productivity: Don't Watch the Latest Number Economics Unbound Business Week Posted by: Michael Mandel on August 11 The second quarter productivity numbers came out today, and they were a mixed bag. On the good side, nonfarm business productivity looked like it jumped at a 6.4% annual rate in the second quarter. Manufacturing productivity, according to the release, went up at a 5.3% annual rate. But please don't be overly impressed. Quarterly productivity numbers are always subject to big revisions. They can even change sign from positive to negative. Instead, it's the long-term productivity trend which is much more important for the economy--and in that regard, today’s report is more mixed. For one, today’s release shows a significant downward revision in reported productivity growth since the recession started. Before the revisions, the nonfarm productivity growth rate from the fourth quarter of 2007 to the first quarter of 2009 had been 2.1%, a good number for a recession. Now productivity growth for that five-quarter stretch is 0.8%. Including 2009II, the productivity growth rate in the recession is 1.7%. But even 18 months may not be long enough to give us a good baseline on productivity growth. Generally, economists look at productivity trends over five and ten year period--enough time to smooth out the random wiggles. Here are the charts of the five year and the ten eyar growth rates of productivity. Read the rest of his post Labels: economic indicators, financial crisis, Michael Mandel, productivity Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Climate DisobedienceNice piece by Mark Engler at TomDispatch.com. They gave a nice introduction to the article, too, and they've also posted an interview with Mark, available here.Climate Disobedience Is a New "Seattle" in the Making? By Mark Engler In the early morning of October 8, 2007, a small group of British Greenpeace activists slipped inside a hulking smokestack that towers more than 600 feet above a coal-fired power plant in Kent, England. While other activists cut electricity on the plant's grounds, they prepared to climb the interior of the structure to its top, rappel down its outside, and paint in block letters a demand that Prime Minister Gordon Brown put an end to plants like the Kingsnorth facility, which releases nearly 20,000 tons of carbon dioxide into the atmosphere each day. The activists, most of them in their thirties and forties, expected the climb to the top of the smokestack would take less than three hours. Instead, scaling a narrow metal ladder inside took nine. "It was the most physically exhausting thing I have ever done," 35-year-old Ben Stewart said later. "It was like climbing through a huge radiator -- the hottest, dirtiest place you could imagine." In the end, the fatigued, soot-covered climbers were only able to paint the word "Gordon" on the chimney before, facing dizzying heights, police helicopters, and a high court injunction, they were compelled to abandon the attempt and submit to arrest. They could hardly have known then that their botched attempt at signage would help transform British debate about fossil-fuel power plants -- and that it would send tremors through an emerging global movement determined to use direct action to combat the depredations of climate change. The case took on historic weight only after the Kingsnorth Six went to court, where they presented to a jury what is known in the United States as a "necessity" defense. This defense applies to situations in which a person violates a law to prevent a greater, imminent harm from occurring: for example, when someone breaks down a door to put out a fire in a burning building. In the Kingsnorth case, world-renowned climate scientist James Hansen, director of the NASA Goddard Institute for Space Studies, flew to England to testify. According to the Guardian, he presented evidence that the Kingsnorth plant alone could be expected to cause sufficient global warming to prompt "the extinction of 400 species over its lifetime." Citing a British government study showing that each ton of released carbon dioxide incurs $85 in future climate-change costs, the activists contended that shutting the plant down for the day had prevented $1.6 million in damages -- a far greater harm to society than any rendered by their paint -- and that their transgressions should therefore be excused. What surprised both Greenpeace and the prosecution was that 12 ordinary Britons agreed. The jury returned with an acquittal, and the freed defendants made the front pages of newspapers throughout the country. The tumult also produced political results. In April, British energy and climate change minister Ed Miliband announced a reversal in governmental policy on power stations, declaring, "The era of new unabated coal has come to an end." Discussing Kingsnorth, Daniel Mittler, a long-time environmental activist in Germany, told me recently, "it was probably one of the most impactful civil disobedience cases the world has ever seen, because it was the right action at the right time." Read the rest of the article. Labels: climate change, Mark Engler, TomDispatch.com Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Monbiot on Fighting the SuperstoresTragic stuff. From The Guardian:My town is menaced by a superstore. So why are we not free to fight it off? guardian.co.uk, Monday 10 August 2009 21.30 BST George Monbiot People know a Tesco will suck the marrow from us. Yet the decision is left in the hands of a remote and frightened council I have been writing about it for years. But it's only now, when I'm caught in the middle of it, that the full force of this injustice hits me. Like everyone else here I feel powerless, unstrung as I watch disaster unfolding in slow motion. I live in the last small corner of Gaul still holding out against the Romans. In other words, a small market town (Machynlleth, in mid-Wales) which has yet to be conquered by the superstores. No one expects us to hold out for much longer. Last month Tesco submitted an application to subjugate us. It wants to build a store of 27,000 square feet on the edge of the town centre. This is twice the size of all our grocery stores put together, and bigger than our tiny settlement--2,100 souls--can support. Tesco will prosper here only if other shops close and customers come from miles away. More than 300 people--roughly one fifth of the adult population--have sent letters of objection. The case against the store and the strength of local feeling is so strong here that if we can't beat Tesco, no one can. But, being deficient in magic potion, we have precious little chance of stopping it. This town's tragedy has been precisely foretold. In 1998, the government commissioned a study of the impact of big stores on market towns. It found that when a large supermarket is built on the edge of the centre, other food shops lose between 13% and 50% of their trade. The result is "the closure of some town centre food retailers; increases in vacancy levels; and a general decline in the quality of the environment of the centre". Towns are hit especially hard where supermarkets "are disproportionately large compared with the size of the centre". In these cases the superstore becomes the new town centre, leaving the high street to shrivel. Read the rest of the article Labels: community organizing, Environment, George Monbiot, superstores, Tesco, Wal Mart Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Delasantellis on Foreclosed Home SalesThe Asia Times columnist sees a new breed of buyer--one that will buy-to-rent, and be financed by, of all things, debt! And don't forget to click on the link to the award-winning photo of the foreclosed property at the end of the article.August 12, 2009 Credit still at the wheel By Julian Delasantellis Asia Times In 1977, the Swedish pop band Abba sang Knowing Me, Knowing You, a lover's lament over once-vibrant rooms and a home now being vacated by passion's demise. These old familiar rooms, children would play, Now there's only emptiness--nothing to say. Walking through and empty house, tears in my eyes Here is where the story ends--this is goodbye. But that's probably not where the story ends--at least if the break-up took place in the United States. It's a lot more likely that it concludes at one of the thousands of court-adjudicated distressed home and property auction sales going on all across America, like the one I recently attended outside Seattle. Before the deluge, before the CDOs and the CDSs, before AIG and Lehman Brothers, and the TALF and the TARP, were the homeowners who borrowed and bought more house than they could afford. The nightmare that their American dream turned into was the match that lit the powder keg of an overleveraged world. According to Realtytrac, a real estate statistical service, 2.5 million American homes entered the foreclosure process in 2008, a number that had tripled just since 2005. For the first six months of 2009, foreclosures are running 15% ahead of last year's record, a torrid pace. In 1942, Austrian economist Joseph Schumpeter, in his book Capitalism, Socialism and Democracy, extolled capitalism's virtue in regularly promoting what he called "creative destruction", that is, the ability to build new, successful capitalist enterprises on the wreckage of those that have failed. In many ways here, the auction struck me as a celebration the "creative destruction" of about 80 families' dreams of a better life. Read the rest of the article Labels: bailout, financial crisis, foreclosures, Julian delasantellis, mortgage banking, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). China's Wages "Miracle"We've noted the dodgy nature of China's statistics before on this blog. But never regarding wages, which are notoriously late, often-times, as well as incomplete, in China. This does not bode well for those hoping for Chinese consumption to ramp up. So now we may be faced with both inadequate aggregate demand and rampant overcapacity (in the form of huge investment, much of it funded by speculative bets on the stockmarket and dodgy bank loans) in certain industries in China. From Monday's Asia TimesSUN WUKONG China produces a wages miracle By Wu Zhong, China Editor Asia Times HONG KONG China's National Bureau of Statistics (NBS) has with its latest release of economic data again become a target of public censure for suspected fabrication of statistics. This time, even state-run media are making high-pitched criticism, slamming "too-good-to-be-true" figures for aggravating a "crisis of confidence" in government numbers. On July 27, the NBS said the actual per capita income of urban Chinese reached 8,856 yuan (US$1,296) on average in the first half of this year (or 1,476 yuan a month), a growth of 11.2% from a year ago. Even average cash income (excluding income in kind) of farmers jumped 8.1% to 2,733 yuan per capita in the same period. This shows that despite a slowdown in economic growth as a result of the global financial crisis, China's citizens still managed to increase their incomes. In other words, the latest statistics suggest that average income is outgrowing the nation's economy, for according to an earlier NBS report, China's gross domestic product (GDP) grew only 7.1% in the January-June period. The NBS income statistics were immediately rejected and ridiculed by the public. Commentaries on state-run media openly questioned their reliability, saying the figures were too good to be true, given widely reported bankruptcies and massive layoffs in the first half of this year. "Increase in figures, decrease in income" was the title of a commentary in the Qianjiang Evening News. The income data add to public distrust of government statistics, to the extent that even state-run Xinhua News Agency opened a discussion panel on its website to let people vent their anger amid what it called "a crisis of confidence in [official] statistics". The income data certainly seem to contradict other statistics. An index designed by the People's Bank of China (PBoC) to measure how comfortable people feel living with their current incomes registered a negative 8.6% in the second quarter, the lowest since the index was launched in 1999. (The higher the figure, the more comfortable people feel they can live with their present incomes). While such an index is more or less subjective, it is supported by hard data from other departments. The Ministry of Human Resources and Social Security said at least 20 million migrant rural workers had lost their jobs in the first half of this year, as many factories, particularly in export-oriented industries, either closed or scaled down production. The Ministry of Education said about 40% of the more than 6 million university graduates this year were still struggling to find employment. Read the rest of the article Labels: bailout, China, economic indicators, financial crisis, labor Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). They Haven't Gone Away Yet...And there's a commercial lending bust just round the corner that might deplete the capital the banks have raised despite them (and despite the fact that certain of the stress test criteria have already been broached). I'm talking about banks' toxic assets, of course. From today's New York Times:Troubled Assets May Still Pose Risk New York Times By EDMUND L. ANDREWS Published: August 11, 2009 WASHINGTON The Treasury Department's $700 billion bailout program has stabilized the banking system, but it has done little to prod banks to fully deal with the troubled loans on their books, a Congressional oversight panel said in a report to be released Tuesday. The Troubled Asset Relief Program was originally conceived as a program for the government to buy troubled and unsalable mortgages and mortgage-backed securities. But the Treasury has never actually used the program to buy assets, in part because it was faster to invest money directly into the nation's banks and in part because banks have not wanted to sell their problem loans and book the loss in their value. "The nation's banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell," the panel said in its latest monthly report. As a result, it warned, many banks could find themselves short of capital if the economy suffered another downturn and their losses on troubled loans soared. In an encouraging note, the panel said 18 of the 19 biggest bank holding companies would probably have enough capital even if economic and financial conditions deteriorated more than they have already. That conclusion essentially backed up the results of the Federal Reserve’s stress tests in April. But it warned that thousands of small and medium-size banks, which it defined as those with assets of $600 million to $100 billion, might find themselves short a total of $21 billion if the conditions matched its worst-case assumptions. Read the rest of the article Labels: bailout, financial crisis, TARP program, toxic assets, Treasury Department Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bad News for Jobseekers: Productivity SurgesWith its biggest quarterly gain in six years. But here's the dirty little secret: "According to the productivity report, hours worked plunged at a 7.6 percent rate in the second quarter, while output fell 1.7 percent." From Reuters:U.S. productivity surges, inventories lean Tue Aug 11, 2009 5:12pm EDT By Lucia Mutikani WASHINGTON (Reuters) U.S. output per worker rose at its fastest pace in six years during the second quarter as businesses wrung more productivity from fewer staff in a sign that a recovery from recession will be slow and unlikely to create a surge in hiring. A Labor Department report on Tuesday showed non-farm productivity, a gauge of hourly output per worker, jumped at a 6.4 percent annual rate, the sharpest since the third quarter of 2003 after a 0.3 percent gain in the January-March quarter. "The bounce in productivity is another indication that the nasty U.S. recession is drawing to a close. The bad news is, however, that firms are still reluctant to hire," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York. A separate government report showed U.S. wholesalers cut their inventories of unsold goods for a 10th straight month in July as businesses continued running as lean as possible in the face of uncertainty about how durable a recovery will be. U.S. stocks fell and government bond prices rallied to session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a rebound in consumer demand. The Dow Jones industrial average ended down 1 percent at 9,241.45 points, while the Standard & Poor's 500 index dropped 1.27 percent to 994.35. White House economic adviser Larry Summers said on Tuesday a foundation for economic recovery was being laid, but warned the economy still had a long way to go. Analysts said the sustained drop in wholesale inventories posed a risk that second-quarter gross domestic product could be revised lower to show a annual rate of decline steeper than the 1 percent reported by the government last month. "We are lowering our estimate of the percent change in second-quarter real GDP from -1.2 percent to -1.8 percent," said Abiel Reinhart, an economist at JPMorgan in New York. "We also expect that the change in real business inventories in the second quarter will be revised down from what was already a record $141 billion decline (annual rate) to a $162 billion decline," he added. Read the rest of the article Labels: economic indicators, financial crisis, productivity Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). G.D.P. R.I.P. (NYT)Nice op-ed in yesterday's New York Times; hat-tip to J.B.:IF there's a silver lining to our current economic downturn, it's this: With it comes what the economist Joseph Schumpeter called "creative destruction," the failure of outmoded economic structures and their replacement by new, more suitable structures. Downturns have often given a last, fatality-inducing nudge to dying industries and technologies. Very few buggy manufacturers made it through the Great Depression. Creative destruction can apply to economic concepts as well. And this downturn offers an excellent opportunity to get rid of one that has long outlived its usefulness: gross domestic product. G.D.P. is one measure of national income, of how much wealth Americans make, and it's a deeply foolish indicator of how the economy is doing. It ought to join buggy whips and VCRs on the dust-heap of history. The first official attempt to determine our national income was made in 1934; the goal was to measure all economic production involving Americans whether they were at home or abroad. In 1991, the Bureau of Economic Analysis switched from gross national product to gross domestic product to reflect a changed economic reality—as trade increased, and as foreign companies built factories here, it became apparent that we ought to measure what gets made in the United States, no matter who makes it or where it goes after it's made. Since then it has become probably our most commonly cited economic indicator, the basic number that we take as a measure of how well we're doing economically from year to year and quarter to quarter. But it is a miserable failure at representing our economic reality. To begin with, gross domestic product excludes a great deal of production that has economic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn't show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable—and give G.D.P. a bit of a bump. Read the rest of the article. Labels: GDP, growth, growth consensus Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Corporate Treasurers Continue To HoardFearing another credit crunch. From Bloomberg:Treasurer Fear of Credit Freeze Seen in Cash Hoarding Update 2 By Bryan Keogh and John Detrixhe Aug. 10 (Bloomberg) Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade. "Every action we take or contemplate taking is measured by its impact on our balance sheet and liquidity," Mark Jacobs, the chief executive officer of Houston-based RRI Energy Inc., told analysts and investors on Aug. 3. The company sold its Texas retail electricity business and the Reliant brand name in May, helping triple cash and equivalents from a year earlier to 18 percent of assets, according to data compiled by Bloomberg. Even as government reports show that the first global recession since World War II may be easing, corporate treasurers are raising cash as fast as they can, wary of losing access to capital. Corporate defaults reached 10.7 percent worldwide in July, the highest since 1991, according to Moody's Investors Service. Credit markets that started to freeze in August 2007, have now triggered more than $1.5 trillion in writedowns and losses at the world's biggest financial institutions. Cash and short-term investments accounted for about $1.98 trillion, or 8.2 percent, of assets at the end of the second quarter for companies in the Standard & Poor’s 500 index, up from about $1.6 trillion, or 6.4 percent, a year earlier, Bloomberg data show. Cash reached a record $2 trillion in the first quarter, 8.3 percent of assets. 'Cash is King' "Cash is king," said Paul Kasriel, the chief economist at Northern Trust Corp. in Chicago. "Businesses are in survival mode right now." While companies sold a record $837.9 billion of bonds this year and raised $109.8 billion in stock offerings, the increase in cash shows they are following the lead of consumers, who pushed the U.S. savings rate to a 14-year high of 6.2 percent in May. "There's going to be a generational psychology shift as to how you and I and the rest of the world think about finance," said Jonathan Fine, a managing director on the investment-grade syndicate desk at Goldman Sachs Group Inc. in New York. "People will keep cash on hand so long as what happened in the last two years remains so visible in the rearview mirror." General Electric Co., the world's biggest maker of power- plant turbines, increased cash and short-term investments at the fastest pace in 14 years in the second quarter, to $97.5 billion, or 12.5 percent of assets, from $64.9 billion, or 7.7 percent, a year earlier, Bloomberg data show. Read the rest of the article Labels: bailout, corporate finance, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Quote of the dayFrom Paul Krugman's blog:... And just as an illustration: a number of people have pointed this out, but here's the latest in the "Obama's health reform will kill people" news: Investor's Business Daily--which poses as a reputable source of financial information--opines that People such as scientist Stephen Hawking wouldn't have a chance in the U.K., where the National Health Service would say the life of this brilliant man, because of his physical handicaps, is essentially worthless. That would be Stephen Hawking, British professor, who was born in the UK and has lived there for his whole life. Labels: Barack Obama, health care reform, Paul Krugman Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bank Overdraft Fees To Hit $38.5 bn This YearWith the brunt of the burden on the poorest. Thankfully the banks are doing this for our own good, because we want it! From The Financial Times, courtesy of Naked Capitalism (and with comments by Yves Smith):Monday, August 10, 2009 Banks Expected to Collect $38 Billion in Overdraft Fees in 2009 Today's Financial Times highlights a possible target of regulatory action: bank overdraft fees. And those fees are not distributed the proverbial 80/20 pattern, with 20% of the accounts contributing 80% of the activity, but 90/10. And that 10%, not surprisingly, is in consumers with the lowest credit scores. And the biggest banks are the ones with the most aggressive fees. What is disappointing is that this FT article failed to indicate what costs the banks incur in processing overdrafts. Although this activity is presumably very profitable, it would be nice to know by how much. From the Financial Times: US banks stand to collect a record $38.5bn in fees for customer overdrafts this year, with the bulk of the revenue coming from the most financially stretched consumers amid the deepest recession since the 1930s...The fees are nearly double those reported in 2000... The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress. Data from Moebs Services, a research company, show that the crisis has prompted many banks to lift charges on overdrafts and credit cards in order to boost profits. The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years..... Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits... The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US.... Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts.... The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn--a group including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo--the median overdraft fee is set at $33. At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty.... Chase has tiered overdraft fees--the first overdraft within a 12-month period is charged at $25, the second to fourth at $32 and the fifth at $35.... Consumer advocacy groups point to very low loss rates on overdrafts for all banks and argue that overdrafts are the least risky form of credit, while being the most expensive for consumers. Eric Halperin, director of the Center for Responsible Lending said: "The banks own your pay check before you do, so the only way you can default on your overdraft is if you choose to open another account and deposit your income elsewhere." Labels: bailout, bank fees, Bank of America, checking accounts, Citibank, financial crisis, JP Morgan Chase, Wells Fargo, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economic Indicators To Watch This WeekTomorrow, Tuesday (and Wednesday as well), the Federal Open Market Committee meets. There is 0 chance that it will move short term interest rates from their current position, which is a managed float somewhere between 0% and .25%. But all eyes will be on whether or not the Fed chooses to keep buying Treasury securities in its attempt to keep longer-term rates (and the mortgages tied to them) down. The Fed is scheduled to cease its program of purchases ($300 billion worth) in September.Meanwhile, the Treasury will dump a record $75 billion in bonds on the markets this week. Most of the important data mid-week will come from abroad. Particularly important will second-quarter GDP from Germany, France and the Eurozone. Some commentators are expecting Germany, which has been showing pronounced strength in exports and industrial production recently, to actually register positive growth. This would no doubt make for a a big, big psychological boost worldwide, but even if growth is positive, big troubles still loom in Germany, and the threat of a double-dip can't be wished away (they haven't taken toxic loans off their banks' books yet, and their job-saving schemes, in which workers are paid, and their positions maintained during periods of inactivity, are set to wear down soon, for starters). The US reports on its July Trade balance Wednesday: the expected figure is in the mid-twenty billions,around where it's been for the last few months. At the end of the week, US industrial production and capacity utilization reading will shed more light on how robust any dawning recovery is, especially in manufacturing. Retail sales come in on Thursday, and on Friday the University of Michigan survey will report on the state of the consumer. Observers hope the latter can begin catching up with the formers' expected upward trend. At the end of the day, its the consumer that remains the big question mark. Eurozone inflation figures also come in on Friday. Labels: bailout, economic indicators, financial crisis Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Note on Friday's Employment ReportFriday's employment report from the Bureau of Labor Statistics, which showed the official unemployment rate decreasing for the first time in over a year, was hailed by markets, with the S&P 500 crossing the "psychologically significant"--whatever that means--threshold of 1,000 points on Friday. Given the recent uptick in the Case-Shiller index, which revealed that house price declines may be leveling off at long last, and the prevalence of second-quarter corporate earnings surprises on the upside, some are talking about the economy emerging from recession, possibly even in the current quarter. But we've heard this story before: only a few weeks back, talk of "green shoots" ended in tears with June's awful employment report. So what are we to make of the current conjuncture?Looking at the labor statistics alone, the picture is mixed, at best. On the plus side, job losses for July, at 247,000, were far, far lower than the expected 350,000. Even the U5 and U6 measures of unemployment, which attempt to include underemployed persons, finally fell back (but remained at very high levels, comprising almost 30 million people). And the work week, which had plumbed depths unseen since records began in 1964, finally recorded an increase. In fact, the manufacturing work week reached its highest level of the year, as inventories were built up after the complete collapse of working capital stocks and trade finance last autumn. Needless to say, much of the hiring was in the government sector, as stimulus programs got up and running. Temporary agencies, however, which had seen large cutbacks in personnel, saw a pronounced slowdown in cuts as more assignments were extended. More ambiguously, health care and leisure and hospitality, two of the best performers in recent years, were the only categories in which there were no net losses in jobs. But the increase in health care was less than that registered a year ago, while the numbers from leisure and hospitality were essentially flat. On the minus side, the reversal in the unemployment rate was ultimately dependent on the fact that some 422,000 people were taken out of the labor force altogether (many were classified as discouraged workers who, having become jobless, and no longer looking for work--out of frustration with dwindling job vacancies--are not considered part of the labor force by government statisticians). As The Financial Times' Edward Luce noted, if these people had remained in the labor force, the unemployment rate would have hit 9.7%, which was about the level foreseen by many economists. In one of the most forbidding sentences I have read in the press for some time, Luce then attempted to describe the significance of this development: "However, the drop in labor force numbers in July mirrors a rise in the number of people looking for work earlier in the year, which then exaggerated the rise in unemployment, which leapt by more than 500,000 in each of the months between February and May." Ouch. Meanwhile, in the private sector, job losses, far from reversing, are merely slowing down. And even the welcome increase in hours worked may be a quirk: as Dean Baker noted, the auto industry shuts down many of its factories in July to retool for the new model year. This leads to a large drop in hours and employment. Since the data are seasonally adjusted, the Bureau of Labor Statistics corrects for the normal July layoffs so it doesn't appear that the auto industry is going into a slump every July. So, the employment picture is, as stated before, mixed at best. Beyond that, there are several reasons to avoid undue optimism. First of all, even the impressive profit performances put in by many companies during this reporting season is the result of one thing, and one thing alone: savage cost-cutting. Revenues remain dormant, and pronounced weakness on the wages front will no doubt deter spending sprees on the part of anxious consumers already shell-shocked by the bloodletting on the labor market. And if this weren't bad enough, credit card delinquencies are rising steadily, which means that further cutbacks in spending are to be expected. And, lest we forget, home foreclosures continue their relentless advance, which augurs poorly for both the housing sector (which must revive if the toxic assets remaining on banks' balance sheets are to find a floor, and which might allow for a sustainable economic recovery) and consumer spending. Some developments abroad appear more hopeful. Recent export numbers out of Germany and of industrial production in Japan have been excellent. But China presents a more troubling outlook. China's extraordinary economic stimulus, which far outpaces that of the US and other Western countries as a percentage of GDP, and is without doubt one of the two most important reasons why the global financial system didn't collapse altogether last autumn (the other being taxpayer-funded Western bank recapitalizations), has been dependent on a level of bank lending that is truly frightening. Analysts say the level of lending has increased to a level three times higher than that of last year, and fear that much of the money lent has been spent on punts in the Chinese stock markets (which are up 84% this year, surprisingly enough), or in real estate. As a result, the Chinese authorities are attempting to rein in the pace of lending (one major lender, The China Construction Bank, plans a pullback of no less than 70%), and this has meant that China's stock markets, almost alone in the world, fell for much of last week (including Friday, when the US labor data buoyed markets just about everywhere else). And expectations that many of these loans will be duds have increased amongst many observers of the Chinese scene. So the mixed employment picture, coupled with the problematic--to put it politely-- nature of Chinese growth, suggest that the optimists are once again getting ahead of themselves. Given the crazy nature of this conjuncture, however, it may not take the bursting of the Chinese bubble or anything of that sort to put a damper on this putative recovery. More likely, increased risk taking will lower the dollar and that will lead to rises in commodity prices, which will then nudge longer-term interest rates up until the monetary authorities are forced to speak of exit strategies again, which will clinch the deal. Or maybe another terrible employment report will do the trick? Larry Peterson Labels: bailout, Dean Baker, economic indicators, Edward Luce, financial crisis, Larry Peterson, unemployment rate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). July U6 Measure of Unemployment: 16.3%Along with Friday's readings of 247,000 jobs lost in July (far less than expected), and the slight movement downward in the official unemployment rate to 9.4% from 9.5%, the Bureau of Labor statistics also released the less publicized U5 and U6 readings, which attempt to flesh out the woefully incomplete (the official figure doesn't include so-called "discouraged workers," who aren't actively looking for jobs, etc) official number, by taking into account various categories of underemployment (part-time workers looking for full-time work, etc.). U5 came in at 10.7% and U6 at 16.3%. It should be mentioned that both these figures represent improvements upon June's readings of 10.8% and 16.5%, respectively. Here's a link to the BLS numbers, which also provides short summaries of the different measures.Labels: Bureau of Labor Statistics, economic indicators, unemployment rate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Supply Chain Shift To Counter Globalization?From The Financial Times:Crisis and climate force supply chain shift By Richard Milne in Amsterdam Published: August 9 2009 18:43 | Last updated: August 9 2009 18:43 Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts. Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously. "A future where energy is more expensive and less plentifully available will lead to more regional supply chains," Gerard Kleisterlee, chief executive of Philips, one of Europe's biggest companies, told the Financial Times. Supply chain experts agreed, with Ernst & Young underlining how as much as 70 per cent of a manufacturing company's carbon footprint can come from transport and other costs in its supply chain. Dan O'Regan, the accounting firm's head of supply chains, said: "It is not just the prospect of regulatory changes but also the downturn that is forcing many organisations to consider restructuring their supply chains in their entirety. I think you will find smaller, more regional supply chains." Mr Kleisterlee said businesses needed to find ways to build an economy on a sustainable basis ahead of the Copenhagen summit on climate change later this year, with "a review of global logistics and transport” one of the important steps. He said that until now cheap transport costs had meant “Mexico wasn't competitive with China for supplying the US". Read the rest of the article Labels: climate change, energy, financial crisis, globalization, multinational corporations, supply chains Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Unions Receive Healthcare Forum ThreatsThe wacky sideshow surrounding the health care reform debate certainly upstaged the main event this weekend, with Sarah Palin and Newt Gingritch, among others, issuing silly tirades, but this Huffington Post dispatch documents a more sinister turn that's been taken:Sam Stein stein@huffingtonpost.com | HuffPost Reporting Unions Receive Increasingly Scary Threats Of Violence For Town Hall Participation First Posted: 08- 8-09 04:32 PM | Updated: 08- 8-09 11:22 PM Union officials continued to receive a barrage of threats on Friday evening and into Saturday punctuated by warnings that if organizers were sent to counter-demonstrate at health care town halls they would be met with violence. An official with the AFL-CIO, a federation of labor organizations, passed on what he described as a "pretty direct threat" to those union hands who were showing up to balance out anti-Obama demonstrations being waged at local Democratic forums. "I will be going to a local town hall this weekend, all you union members BEWARE!" an emailer wrote at 9:40 Saturday morning. "We will be waiting for you. better make sure you have arrangements with your local ER. today is the day when the goon meets the gun. see you there." The email was first sent to the media-watching organization Newshounds before being passed to Eddie Vale, a spokesman for the AFL-CIO. The IP address used to post the email was traced back to Georgia. The AFL-CIO isn't the only labor organization to be on the receiving end of threats of violence. During a day in which a woman called up its national office threatening to use her Second Amendment rights should her First Amendment rights be repressed, officials at the Service Employees International Union continued to be deluged with emails and phone calls with ominous undertones. Read the rest of the article Labels: AFL-CIO, health care reform, labor, public option, SEIU, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Unemployment continues to rise sharplyThe Economic Policy Institute came out this week with a succinct analysis of the latest unemployment figures, as well as comparisons with previous recessions.While the current unemployment rate - 9.5% in June - is not at an historical high, it has increased much more rapidly during this recession than in other post-war recessions. Table 1 shows the unemployment rate at the start of each recession over the last 50 years along with the unemployment rate 18 months later. The unemployment rate increased 4.5 percentage points in the first 18 months of the current recession, a far steeper increase than any of the previous recessions. In particular, in the eighteen months after the beginning of the deep recession of 1981/1982, the unemployment rate increased only 3.2 percentage points. In other words, while the unemployment rate was higher during the early 1980s than it is today, it was also much higher going into the recession. U.S. workers in the early 1980s saw a smaller increase in unemployment than what workers are experiencing today, and unemployment that peaked after 17 months and then began decreasing, unlike today's recession, where unemployment is still rising after 18 months. Read their analysis, study their charts and graphs, and hear EPI analysts present their findings to the media. Labels: Economic Policy Institute, underemployment, unemployment rate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Sick for ProfitRobert Greenwald's Brave New Films, which has produced hard-hitting documentaries like "Outfoxed," "Wal-Mart: The High Cost of Low Price," and the newly released "Rethink Afghanistan," has started a campaign to publicize health insurance industry profits and to counter the industry's campaign against reform.From the "Sick for Profit" website: Welcome to the American health insurance industry. Instead of helping policyholders attain the health security they need for their families, big insurance companies get rich by denying coverage to patients. Now they're sending lobbyists to Washington, DC to twist the arms of lawmakers to oppose reform of the status quo. Why? Because the status quo pays. Watch the video, read patients' stories, and see the obscene salaries of health insurance profiteers at the "Sick for Profit" website. Labels: Brave New Films, health care reform, health insurance, Robert Greenwald Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). New Focus on ChevronGlobal Exchange has launched a new program focusing on the ravages of Chevron:Riding on a 25% increase in revenues, in 2009, Chevron moved from the sixth to the fifth largest global corporation in the world. Only 36 countries on the planet had GDPs larger than Chevron's $263 billion in 2008 revenues. Chevron is the largest corporation in California, the second-largest U.S. oil corporation and the third-largest corporation in the nation. Global Exchange has hired Antonia Juhasz to direct their new program. She is the lead author and editor of The True Cost of Chevron: An Alternative Annual Report, which was released by Global Exchange and several other organizations in May 2009. Juhasz also authored a very insightful book last year, The Tyranny of Oil: the World's Most Powerful Industry--And What We Must Do To Stop It (HarperCollins 2008), among other books and articles. If you're in the vicinity of Richmond, CA, you can join Global Exchange and the West Coast Mobilization for Climate Justice on Saturday, August 15, for a rally and march on a Chevron oil refinery. Read more about Global Exchange's Chevron Program. Labels: Antonia Juhasz, Chevron, Global Exchange Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Drowning MortgagesFrom Reuters via the NY Times:About Half Of U.S. Mortgages Seen Underwater By 2011 Published: August 5, 2009, 3:48 p.m. ET NEW YORK (Reuters) - The percentage of U.S. homeowners that owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March as home prices continue to fall, Deutsche Bank said on Wednesday. ... Homeowners with the riskiest mortgages handed out during the housing boom have seen the greatest erosion in equity. They include subprime loans, of which 69 percent will be underwater in 2011 from half of them in March, Deutsche said. Of option adjustable-rate mortgages -- which could reduce payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said. Read the rest of the article. Labels: housing market, National Association of Realtors, underwater mortgages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Crime Pays For General ElectricFor years GE had a perfect record of earnings. Too good to be true? Apparently. According to the SEC, the company inflated savings and earnings through illegal accounting practices to the tune of $800 million. Although the profits weren't real, the executive bonuses were. But those are safe. Now the poor suckers who still own GE stock are left holding the bag for a $50 million fine.From the Washington Post: General Electric has agreed to pay $50 million to settle federal charges that it committed accounting fraud by reporting false financial results, the Securities and Exchange Commission said Tuesday. Labels: |
