Economic News Articles in the Great Recession — Archive for the week of 03/25/2012
Here are the points you might want to take home with you from last week’s news. First, the stock market is not indicative of where the economy is going. For part of the week it was jumping up, and for part of the week, it was stomping down. Which part would indicate where the economy is going?
The stock market is always a baby throwing a tantrum or rallying in glee. No corporate wisdom is found there. Because so many trades today are short-term speculation, the market amounts to the collective guessing of what other people are going to do in the next few days. So, to see where the economy is likely to go, focus on the fundamentals. That should probably become my mantra: “Focus on the Fundamentals.”
If investment advice were the concern here, looking at the stock market would be a different matter, but I’m talking understanding the mid and long-term picture for the economy. For that, the stock market is of little value. Those long-term events play out in the stock market eventually, but the stock market does not predict them.
The housing market has also been up and down recently. Over the past two months, we heard that housing data was improving. Then last week a little cloud came in over housing data. All the political gurus were happy to see the improvement and are currently ignoring the cloud as best they can.
To know what the housing market is going to do, the fundamentals are best shown in this week’s news: “Wreckage of the Foreclosure Crisis Far from Over.”
That story tells you about the log jam that is just up-river from us. And THAT single fact, not the stock market this week (or last), is going to affect what comes down river next week and the weeks after that.
What I found most interesting last week were the brash economic predictions by J.P. Morgan’s CEO and the prime minister of Italy. Morgan claimed that the likelihood of the recession being a double-dip recession has almost faded out while Italy’s PM claimed the same for further euro troubles. I’m sure the PM is talking up the euro zone to save his own country from higher interest rates on their unwieldily debt, thinking a little good P.R. might help. It won’t be to much avail. J.P. Morgan’s Jamie Dimon, however, reminds me to ask again, why do these CEO’s get paid more than I do? Why do they get paid more than 99.9% of the planet? Why do they get paid at all?
No sooner did Captain Finance say the housing sector had turned around, than the current started running backward on him with reports of pending home sales flowing backward. Further news came in today that new construction is also backflowing. No surprise to me. If you think about the scenario in the news article above, as I have been doing for months, you will wonder how captain in the banking business could have thought the Great Recession was nearly over. Clearly, the housing collapse that caused this recession has a tremendous amount of jammed up stuff, still waiting to come downstream.
Banks will do all they can to soften the blow of these foreclosures because it is finally becoming clear to them that solutions other than foreclosure are in their best interest when there are far more houses in foreclosure than there are potential buyers. After all, they have to rewrite their books as fast as the values of their inventory falls. (Well, theoretically, they do. In reality they’ve been given a lot of leniency because writing honest values would make the crisis looks as bad as it is and would mean banks were and are doing worse than we think they are.) The question remains as to how much banks diminish the gully washer that would happen if this jog jam broke loose, and all these houses washed downstream at once?
To think we are free of concerns about a second dip in this long recession with so much bad news hanging above us is absurd.
The Federal Reserve was the other thing of note to me in the news last week. We finally have members of the Federal Reserve System, itself, speaking warnings against the Fed’s near-infinite money-printing operations. For a long time, it appeared all its members were in lockstep. Voices of dissension are slowly finding courage.
Second, news is finally coming out that agrees with what I’ve been saying for nearly a year: the Fed is buying most U.S. debt. That’s not news if you’ve been reading The Great Recession Blog. But now we have a number — 61% of all U.S. debt issued last year. This article hints at something else I’ve been saying but does not say it as outrightly as I have — that the low interest the U.S. is paying on its debt is completely artificial … as in contrived by a rigged market. It is only maintained by the Federal Reserve providing two-thirds of financing for the national debt. The United State’s biggest financiers — China and Russia — have already run the other way.
So, here is another major fundamental to think about: What happens when the Federal Reserve stops buying U.S. bonds and the government has to sell all its bonds to only 1/3 as many buyers? How much will the U.S. government — still on an enormous spending spree to juice the economy — have to raise interest to triple its number of interested buyers so it can continue to roll over the present amount debt?
What’s the Fed’s and the government’s end-plan for getting out of this trap? I’m guessing that we think they have one, and they don’t. All of these leaders have repeatedly proven to have a lot less smarts than we think they have. Their big salaries and credentials beguile us to believe the Illuminated Ones have a master plan. I say it is clear enough that they are flying by the seat of their pants.
What does it even mean for a nation to buy its own debt? Isn’t that financial incest? The short answer is that it clearly means we are printing money like Zimbabwe and like other third-world nations we once scorned because our leaders cannot think of any better solution to the economic crisis. Like all those leaders they once derided, when caught in the clutch, our leaders find they can’t stand the austerity required to balance the budget or cannot face the economic stall such austerity would create; so, they start printing their way out of the problem.
The only end I’ve seen for that scenario is that the “presses” eventually overheat and seize up. The analogy I’ve used in the past is that we keep pushing the problem ahead in the form of greater and greater deficits and a higher and higher pile of debt until we cannot push the pile anymore. I like that analogy better than the often-sung “kick the can further down the road” because it shows that each time we push this problem further down the road, it only becomes greater. Can’s don’t get heavier as you kick you them.
The political leaders of this world — U.S. and European both — will continue to run the presses at full velocity because the cost of admitting they are money-printing and that they are on a bad course is too high politically. They will stay with their present plan, hoping they are buying enough time for an exit to emerge.
All of this means the second dip not only happens, but that the next “dip” is to dips what Grand Canyon is to ditches.
Now, last week’s news:
China syndrome — following the Great Recession to the Great Wall
- 03/26 Asian shares struggle as growth worries linger Asian shares mostly fell on Monday, with materials and technology stocks losing ground amid concerns about the impact on profits of a slowdown in the global economy.
Economic indicators seen in the news this week
- 03/26 Dow jumps 100 points Ben Bernanke’s comments on the job market gave investors reason to believe interest rates will stay low. The gains were broad based. “better jobs numbers seem somewhat out of sync with the overall pace of economic expansion.”
- 03/26 Pending Homes Sales Fall, Raising Questions About Recovery Economists polled by Reuters had expected signed contracts, which lead existing home sales by a month or two, to rise; but they fell. Nevertheless, the chief economist for the National Assoc. of Realtors opined it will be a good spring.
- 03/27 U.K. Households face biggest squeeze since 1977 Households facing the biggest squeeze on their disposable incomes for more than 30 years, and Britain’s economy is even weaker than expected. Real household disposable income fell by 1.2 per cent last year, and GDP fell more than previously thought.
- 03/28 Durable goods orders hint at weak first quarter New orders for long-lasting U.S. factory goods increased only modestly in February, supporting the view that economic growth in the first quarter could be lackluster. Data suggested the factory sector might not be growing as fast as analysts expected.
- 03/28 S&P slides 1% on economic jitters U.S. stocks ended slightly lower Tuesday after news that home prices in 20 major cities fell to the lowest levels since 2002. A disappointing report on consumer confidence further rattled investors as did lackluster data for durable goods orders.
- 03/29 Global stocks dip on U.S. jobless data, debt rises A higher-than-expected number of Americans filing jobless claims dampened investor sentiment. Some said revised jobs numbers showed worrisome signs of stalling. “Today is evidence that we’re not going to have the robust recovery we had been expecting.”
- 03/30 Jobless rates fall in 29 states Unemployment fell in 29 states in February and rose in only eight, the government reported Friday. Now there are more states with unemployment under 5% (considered full employment) than states above 10%.
- 03/30 Stocks on track for big quarterly win U.S. stocks rose Friday, the final trading day of a strong quarter, as investors weighed mixed economic reports and a boost in the eurozone bailout fund. It’s been a stellar three months for stocks. Stocks buoyed by news of increased consumer spending.
- 03/30 US consumer sentiment highest in over a year US consumer confidence rebounded to its highest level in just over a year. Optimism about jobs and income overcame higher prices at the gasoline pump. [Optimism was higher in February of last year, just before the economy took a downhill turn.]
Economic predictions / forecasts that made news headlines
- 03/28 Italian PM Monti predicts euro area’s woes “almost over”; Bernanke warns “no victory” in the US yet European leaders signaled rising confidence that their region’s crisis is near an end (famous last words), while Fed Chairman Ben Bernanke warned that a U.S. recovery isn’t assured, citing anemic employment growth.
- 03/29 JPMorgan CEO Dimon Claims Threat of Double-Dip Recession Has Faded The threat of a double-dip recession is a thing of the past, and even the ailing housing sector is starting to turn around support the overall economy, says Jamie Dimon, CEO of JPMorgan Chase. (More famous last words.)
Federal Reserve actions tracked in the economic headlines
- 03/26 Bernanke Says Accommodative Policy Needed to Cut Joblessness Reducing the jobless rate further will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,” Bernanke said.
- 03/26 Critics Inside The Fed Speak Out “Financial markets have become hooked on the monetary morphine we provided after the 2008 financial crisis.”
- 03/29 Stanford’s Taylor: Fed Interventions Are Dangerous Taylor says the Fed’s discretion is now virtually unlimited. To pay for mortgages and other large-scale securities, all it has to do is credit banks with electronic deposits. “The result is the explosion of bank money.”
- 03/29 WSJ: Fed Buying 61 Percent of US Debt! The Federal Reserve is propping up the entire U.S. economy by buying vastly greater amounts of U.S. debt than ever before. “This not only creates the false appearance of limitless demand for U.S. debt but also blunts …urgency to reduce … budget deficits.”
The Iranium Reaction as it makes and shakes the news
- 03/26 Iran planned to bomb Israeli ship in Suez Canal Prosecution in an Egyptian court claimed that that two Egyptian citizens received instructions from Iranian agents to attack an Israeli ship in the Suez Canal, and offered a third man 50 million Egyptian pounds to carry out the act.
- 03/26 Israeli official: Iranian military experts operating in Gaza, Sinai Iranian military experts are active in the Gaza Strip and Sinai, according to a high-ranking official in Jerusalem, who added that some of the rocket-launching systems in Gaza were manufactured under Iranian supervision.
- 03/26 Obama: Still time for diplomacy with Iran Speaking of the Iran nuclear crisis, US President Barack Obama said on Sunday, “I believe there is a window of time to solve this diplomatically but that window is closing.” Obama has pressed Israel to hold off for a time to give diplomacy a chance.
- 03/27 World leaders warn of ‘nuclear terrorism’ threat Nearly 60 leaders have gathered for the two-day conference meant to find ways to keep terrorists from detonating an atomic weapon in a major city. Countries aim to completely secure their nuclear materials by 2014.
- 03/28 Israel says sabotage may stretch Iran atom timeline State officials play down prospects of Iran strike saying Tehran’s nuclear program could still be set back. “Sometimes there are explosions, worms, viruses,” Vice Premier Yaalon says.
- 03/28 Key players in upcoming Iran nuclear talks have different expectations Yukiya Amano, head of the International Atomic Energy Agency, the U.N.’s nuclear watchdog, says is preparing for the possibility of building a nuclear bomb. Iran’s ambassador, of course, denies this and says sanctions will never have any effect.
- 03/28 Warning Iran, and lacerating Mitt Romney, a former Mossad chief steps out of the shadows A former Mossad chief asserted bleakly that force will be the only remaining option if the April talks with Iran fail. Halevy also referred to an op-ed by Rep. candidate Mitt Romney as “disastrous,” saying it presses Iran more quickly to nukes.
- 03/29 Israeli Defense Forces (IDF) Cancel Passover Vacation For first time in years, all IDF units must be on full alert during Passover; army officials insist decision is not related to any planned military operations, but they offer no explanation for the change. Germany concerned about imminent attack.
- 03/30 Israel’s Secret Staging Ground Obama administration officials now believe that the “submerged” aspect of the Israeli-Azerbaijani alliance — the highly secret security cooperation between the two countries — is heightening the risks of an Israeli strike on Iran.
- 03/30 Opinion: Israel’s plan to attack Iran put on hold until next year at the earliest At 8:58 P.M. on Tuesday, Israel’s 2012 war against Iran came to a quiet end. Damning U.S. war simulation forces Ehud Barak to reconsider attack plans; Americans pledge more money for Iron Dome antimissile system.
- 03/30 U.S. moving minesweepers to waters near Iran Four Navy minesweepers will be on their way to the Persian Gulf within weeks as part of an effort to boost American military capability in the region amid rising tensions with Iran, a Navy official says.
U.S. banking / financial crisis as it shapes the economic news of our times
- 03/28 Bank of America CEO Brian Moynihan’s pay quadruples In a year when Bank of America’s stock plunged 58% and the company announced plans to lay off 30,000 employees, chief executive Brian Moynihan’s compensation package more than quadrupled to nearly $8.1 million.
U.S. government moves (and blunders) in articles about the economy
- 03/29 House poised to pass GOP budget with further tax cuts for the rich The Republican-controlled House of Representatives is expected to pass the GOP’s 2013 budget plan Thursday. It has no chance of becoming law but creates a clear contrast with Democrats over critical tax and spending issues before the election.
- 03/29 Senate Republicans reject Obama call to end ‘big oil’ tax breaks Senate Republicans voted to continue corporate welfare for Big Oil by blocking a Democratic measure championed by President Obama to end tax breaks for major oil companies, which enjoy breathtaking profits while the rest of the nation gasps for air.
Other economic updates / miscellaneous economic news articles
- 03/28 Don’t show me the money: Why eliminating cash may be the secret to prosperity Sweden’s push to become the first-ever nation to phase out physical bills and coins marks the next major evolution in the creation of the cashless society. The most innovative companies in Silicon Valley compete to launch new financial services.
- 03/29 How the privatization rendered parts of Eastern Europe and USSR bankrupt Cambridge/Harvard report carries a warning: Rapid and extensive privatization is being promoted by some economists to resolve the current debt crises in the West, but the same plan in the East brought widespread corruption and economic collapse.
- 03/29 NPR: Conservatives’ Trust In Science At Record Low Study says onservatives trust science less than other groups for political reasons: Science does not say what they want and expect to hear.