Economic News Articles in the Great Recession — Archive for the week of 04/15/2012

None of the many reversals of fortune in the past week’s economic news was unexpected by readers of The Great Recession Blog. So, stay tuned, and you’ll continue to read the headlines before they happen! In the meantime, here are the headlines after they happened with a little commentary to make sense of them:

Last week’s summary can simply be told like this: Stocks ricocheted all over the place like Quickdraw McGraw’s shooting — exhibiting the very kind of volatility to be expected when bounding along the rocky bottom of a great depression. Housing, which had been up in the early part of the year, fell back down this week … as predicted (yawn). Europe constantly stuck its head back the news — at one moment lifting the stock market because of faint mirages of hope, at another causing the increasingly fickle market to drop because Europe was clearly “back in full crisis mode.” The U.S. stock market, in a sign of true desperation, repeatedly took bad news as good news simply because it wasn’t worse news! U.S. manufacturing slid. Joblessness returned to getting persistently worse.

All the euphoria of the early part of the year started last week to quickly melt away, creating room by the end of the week for the headline, “Fears Rise that Recovery May Falter in the Spring.” Sometimes a short word says it all: “duh.” That “recovery” will falter in the spring, of course, would be due to the fact none of this was a recovery in the first place. One Stanford professor lent his credentials to declaring exactly that in the news last week (Stanford Economist Says, ‘This Is Not a Recovery at All’), but that is what I’ve been saying all along … albeit without the luminous letters after my name that many people require in order to believe writing that goes against the massive flow of mainstream thinking.

China’s move to make the yuan more convertible last week by unhitching it a bit from the U.S. dollar was a step in the direction that the U.S. government has asked for, but could it also be a step toward making the yuan a global currency that would rival the dollar. To become a global currency, the yuan will have to be as fully tradable on the global market as other currencies. So long as it remains hitched to the U.S. dollar, the U.S. dollar would be primary. Meanwhile, China’s step back to buying U.S. treasuries indicates how bad Europe is. China has also probably stepped back from buying gold so quickly because China’s earlier buying of gold sent the price up to nearly $2,000 an ounce. China is like a forest fire — so large that it creates its own wind — and it has every reason to want to avoid driving up the price of gold now … in order to maximize its return on investment later. Chinas is capable of buying or selling so much gold that it can create gold prices.

Manufacturing and housing both slid toward the edge of the financial cliff during the past week. While I have not said anything about where manufacturing numbers would go, I have said throughout the first quarter of 2012 that the housing figures that many were feeling exuberant about were meaningless. The data on housing continues to reverse from last quarter’s trend in this week’s news, but I’ll have more on that in the recap of this week’s news that I’ll post during the first half of next week. For now, next last week’s news: Let it suffice to say that home sales only went up due to the lowest interest rates in the lifetime of most people now living. Once those rates changed, the rush went bust as there was no greater fundamental behind it. Also, note that the brief rush of sales did nothing to boost prices. No one was willing to pay more. They just wanted to get what they could while credit was cheaper than they’d ever seen it.

It takes awhile with their vast ability to take out more debt and their limited ability to try to take more taxes for municipalities and counties to start defaulting like homeowners on their rotting debt, but the long squeeze of the Great Recession is increasing the aroma of towns and counties that are on the brink of bankruptcy. At first, the debts of those that were going bankrupt were for follies like bridges to nowhere. Now, however, the defaults are increasingly due to more common costs, such as entitlements like retirement programs, which governments originally promised to lure in workers but then never properly funded in the first place. Now, they are using bankruptcy so that taxpayers can avoid paying their government workers the only thing that got those workers to put up with working for taxpayers in the first place — good benefits. America is beginning the serious moral decline of reneging on its promises just to avoid raising taxes. Rather than the many making good on what was promised, it is better, apparently, that a few should go with none of what was promised.

The delay between the onslaught of the Great Recession and the collapse of entire small governments within the U.S. into bankruptcy mirrors the Great Depression. I have said from the very beginning of this economic collapse that it is not a recession, but a depression — a long-term economic collapse with the banking and monetary system (our financial spine) at its core. This is not a recession, which could be defined, in terms of cause, as a market correction. This is spinal failure! A depression is made up of more than one period of recession with each dip into recession coming from the same original cause.

In other words, a depression plays out like this: the government tries to pick the economy up from its initial collapse, causing a lift from the initial recession, but the nervous system is dead; so the economy collapses again as soon as the government’s temporary crutch falls away. The middle of this depression has been propped up with quantitative easing (a cooperative effort of The Fed and the U.S. Treasury — i.e., the banking industry and the government). Mainlining money into the nation’s veins created a completely unsustainable buoyancy that made it feel like the economy was amping up into slow recovery. But stop the Q.E., and the economy settles right back down again because nothing was fixed. The pain was merely masked with lots of money.

The pattern in the news continues to bare this out. This past week was a prime example, and I’ll have even more on that when I recap the current week’s news next week!

For now, last week’s news in review this week:

China syndrome — following the Great Recession to the Great Wall

  • 04/16 China unhitches currency a little more from the dollar. China took a milestone step in turning the yuan into a global currency on Saturday. The People’s Bank of China said it would allow the yuan to rise or fall 1 percent from a mid-point every day, effective Monday, compared with its previous 0.5 percent limit.
  • 04/17 China Adds U.S. Treasuries for Second Month on Reserve Growth China remained the largest foreign U.S. creditor in February amid a rebound in the country’s foreign-currency reserves. China’s holdings rose for a second straight month, increasing by 1.1 percent to $1.18 trillion. The Fed is now the largest U.S. creditor.
  • 04/17 Why is China Returning to U.S. Treasury Holdings? Tao Dong, chief regional economist at Credit Suisse AG in Hong Kong, explains why China has returned to buying of U.S. government debt. It has more money to invest than one can find gold to buy, and it is shifting away from Euro treasuries.

Economic indicators seen in the news this week

  • 04/16 US stocks are mixed despite strong retail sales Americans might still be shopping, but not enough to propel the market out of the doldrums. The mixed results were due to competing economic indicators: surprising U.S. retail sales on one side, and worrisome signs about Europe’s economy on the other.
  • 04/17 Housing Starts Drop, But Building Permits Are Up Housing starts dropped 5.8% to a five-month low, but the bad news was tempered by a 4.5% rise in building permits and by the fact that housing starts were substantially higher than this time last year.
  • 04/17 Manufacturing in U.S. Cools After Biggest Surge in Three Decades Production at U.S. factories dropped in March for the first time in four months as the industry cooled following the strongest surge in three decades.
  • 04/17 U.S. Stocks rally: Dow back above 13,000 U.S. stocks rallied Tuesday, putting the Dow back above 13,000. Worries about Europe eased due to high demand on Spanish notes, and the latest housing data signaled more construction on tap, even though new home construction was down.
  • 04/18 More U.S. cities set to enter default danger zone Bond defaults in 2011 were nearly five times the value of defaults in 2010. In 2012′s first quarter, defaults dome than double last year’s first quarter. “This is a lagging process. In the crash of 1929, the defaults did not come until 1934 or 1935.”
  • 04/18 US Stocks – Wall St slips U.S. stocks declined on Wednesday after uninspiring earnings from IBM and Intel. The lackluster reports from the two technology heavyweights came after the S&P 500 had its best day in a month.
  • 04/19 Home sales fell in March, demand remains weak The National Association of Realtors says home sales fell 2.6%. Sales remain far below the 6 million per year that economists equate with healthy markets.
  • 04/19 Jobless claims data remain weak The American labor market showed further signs of weakening as jobless claims went back up to their highest level in nearly three months. Although the count was down 2,000 from the prior week, more reliable four-week moving average went up.
  • 04/20 Fears Rise That Recovery May Falter in the Spring Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter’s economic strength might dissipate in the spring.

Euro crisis updates as the Great Recession goes viral

  • 04/16 Euro Debt crisis escalates as Spanish yield tops 6 pct Spanish yields broke above the 6% barrier Monday. Spanish yields were expected to continue rising towards the 7% level — beyond which debt costs are widely viewed as unsustainable. “We’re back in full crisis mode,” a Rabobank rate strategist said.
  • 04/17 IMF nudges up UK growth forecast but sees risk of global slump IMF stressed, “Various fundamental problems remain unresolved [and] …. recovery will remain vulnerable to several major downside risks.” A combination such as a euro panic and oil price spike “could … produce a major slump reminiscent of the 1930s.”
  • 04/17 IMF still won’t admit truth about the euro Like a bad penny, the eurozone debt crisis keeps returning. Yields on Spanish government debt are again above 6%. Crushed by repeated austerity programs, the big southern European economies compound their bond problems by sinking back into recession.
  • 04/17 Interest Rates Jump Again in Spanish Debt Auction Spain sold short-term debt Tuesday with demand strong but at interest rates that were more than 50% higher than its last auction of the same instruments, reflecting continuing investor concern over the country’s finances.
  • 04/17 Opinion: Euro is “unsavable” Telegraph columnist Ambrose Evans-Pritchard says the euro has to be dismantled to prevent economic catastrophe because the imbalance between northern euro countries and southern have greatly different monetary needs that cannot be reconciled.
  • 04/17 Renewed euro zone worries prompt investor caution: BofA Merrill Lynch Poll Due to the weaker growth outlook, tmany more investors predict the U.S. Fed. and the European Central Bank will use quantitative easing, known as QE. “The more the growth fear factor rises, the more that people expect QE to come along to solve all ills.”
  • 04/17 Spain, Italy Slide Further into Euro Zone Crisis Spain and Italy officially acknowledge being in full recession while yields on Spanish 10-year bonds have climbed over 6.1%, Those levels caused general market panic when Italy hit the same mark last year. Italy is now back up to 5.6%.
  • 04/18 Italy slashes its 2012 growth forecast Italy was previously predicting a 0.4% contraction in the economy, but is now expecting a larger contraction of 1.2%. The government has also admitted that it will not be able to meet its target of balancing the budget by 2013.
  • 04/19 German tempers boil over back-door euro rescues Professor Hans-Werner Sinn, head of Germany’s IFO Institute, said German taxpayers are facing a dangerous rise in credit risk from a plethora of bail-out schemes. “The euro-system is near explosion.”
  • 04/19 Spanish Bonds, Good Demand, Mixed Interest Results The 10-year bonds were sold at a yield of 5.743%, up from 5.403% when the bonds were last sold in February. But the rate for two-year bonds dropped to 3.463% from 3.495% in October. International investors stayed clear.
  • 04/20 Europe Central Banks May Be Forced to Print More Money Central banks in Europe are increasingly reluctant to pump more money into markets after already massive liquidity injections intended to kick-start economic growth but, according to analysts, they may have no choice.
  • 04/20 Spanish Bond Yield Above 6% Again Spanish 10-year bond yields rose above 6 percent and German yields sank to a record low Friday after Spain’s debt auction in the previous session failed to ease doubts over the country’s fiscal health. Equivalent Italian and French yields also rose.

Federal Reserve actions tracked in the economic headlines

  •  04/20 ‘Bad Goldilocks’ Economy Puts Fed, Markets in a Box In the era of historically large central bank interventions, the economy must now deal with “Bad Goldilocks,” a condition in which the recovery is too little to make a pronounced impact but remains just strong enough to keep the Federal Reserve on the s

The Iranium Reaction as it makes and shakes the news

U.S. banking / financial crisis as it shapes the economic news of our times

U.S. government moves (and blunders) in articles about the economy

  • 04/16 Obama’s Buffett rule impact on taxes, jobsPresident Barack Obama’s proposal to impose a “Buffett rule” tax on the rich is generating enormous political wattage, but the plan itself would directly affect only a tiny fraction of Americans. Republicans claim plan will be a job killer, but will it?
  • 04/17 Senate Blocks Buffett Rule (30% Tax Floor on Top Earners) The 51-45 vote yesterday fell short of the 60 needed to advance the measure. Republicans derided the rule as a political stunt while a leading Dem. retorted, “We … cannot afford …tax cuts that the wealthiest Americans don’t need and didn’t ask for.”

Other economic updates / miscellaneous economic news articles

  • 04/18 Human-made earthquakes reported in central U.S says USGS The number of earthquakes in the central United States rose “spectacularly” near where oil and gas drillers us franking methods of extractions. “The seismicity rate changes described here are almost certainly manmade.”
  • 04/19 Does PayTag mean the end of cash? A new mobile phone device for small payments, PayTag, could kill off banknotes and coins. That’s bad news for our spending habits, but is it the end of civilization as some say?
  • 04/19 Stanford Economist Says, ‘This Is Not a Recovery at All’ Stanford University economics professor Ed Lazear said Wednesday. “We haven’t made up for the lost ground, and that’s unprecedented.” He quotes statistics showing this “recovery” is worse than the rise that happened in the middle of the Great Depression.
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