Economic News Articles in The Great Recession Blog, week of 06/24/2012
How long was it after Italy’s PM, Mario Monti announced that the euro crisis was “almost over” until it became a bigger crisis than ever? Within a month he found himself embroiled in the battle of his career against “Frau Nein,” Germany’s Chancellor Merkel, as the world watched the daily economic news articles out of Brussels in fear of eurozone catastrophe. So much for European leaders thinking things are over.
It is in that light that one should regard the global stock markets’ flights of ecstasy over some actual progress made at last week’s EU summit. A plethora of previous summits had failed to produce more than talk from leaders and yawns from everyone else. The German Chancellor repeated her warnings leading up to this summit that she’d veto every idea on the table that could bring immediate reprieve to Spain and Italy. Naturally, this accumulated into pessimism that lay like an iron lid on markets all of last week. It’s just as natural, then, when Merkel caved on Friday and gave in on the things she said she’d essentially veto, that the lid came off, and the pot boiled over.
That led one fool to predict this “bull market” is going to last all year. What bull market? The only bull in this market is the stuff that came out of his mouth. The froth from the market’s boiling over will quickly dissipate as reality sets in, and people start to wake up this week to the awareness that nothing has changed for Greece, and the solutions resolved for the rest of Europe will take months to actually start working. By then, all will seem too little, too late.
The deal lacks details and [Spain’s P.M.] Rajoy, who struggles at the EU negotiating table, will face long and difficult talks to finalise the rescue, while the recession deepens, the public deficit rises and one in four of the workforce has no job….
Investors and officials say the steps may not be in place quickly enough to stop the country needing more cash to keep the state afloat.
Finland said it would block the euro zone’s permanent bailout fund from buying government bonds in the open market, while the Netherlands also indicated opposition to the bond-buying idea.
Many national parliaments, including Germany’s Bundestag, are also expected to approve on a case-by-case basis any bond-buying, meaning it may not be as flexible as initially expected. (“Spain May Need More Aid Despite EU Summit Steps“)
So, already the news is gathering, as I said it would in an article on the European crisis last week, that the plan is far from complete, while the landscape is worsening quickly. Meanwhile, everyone seems to have forgotten that the Greek problem exists as big as ever with Greece determined to renegotiate it’s latest bailout agreement.
U.S. economy continues down
The winter rose lost its bloom. A quick recap of this week’s economic news for the U.S. looks like this: Durable good orders showed their first gain in three months. It was a slight rise, but could indicate the late spring decline is stabilizing. Fear over the Supreme Court’s decision on President Obama’s health care act brought sent the stock market into a nose dive. The job market, which has turned south in the last few months, refused to improve. That it remained the same as the previous week, could indicate that it has found a new bottom. Consumer spending flattened out to its weakest level all year, and consumer fear began to rise.
We learned that the economically warm winter was not so warm as we thought it was. First quarter GDP growth dropped from an annualized 3% in the final quarter of 2011 to 1.9% in the first quarter of 2012. Much of the growth that was there was in auto sales, which have since fallen off, meaning the second quarter could come in worse. Winter was not as rosy as many thought.
The stock market was mostly about Europe, not about the U.S. economy. Stocks were taken down globally because of pessimism over the euro crisis, which gave rise to euphoria at the end the of week when things did not turn out as badly as everyone expected. European leaders finally did something that has the potential for significance. I say “potential” because their decisions are not law yet, and there are many hurdles in the way. Most of all time is in the way of these plans as the important parts won’t begin for half a year. (See “European Summit Debt Crisis.”)
The Great Recession is the Second Great Depression
It’s almost official now. Several major economists finally began to speculate last week that we are going into a depression. I’ve argued all along that this IS a depression. It’s what a depression looks like in its early years until things become so economically week all around the world that a minor trigger is capable of sending the global economy off a cliff. Global economies don’t break with their first fall. They have to be softened up for awhile.
As we have not reattained the heights from which we fell, we are in a depression between the last high point and the next one that is capable of matching that high point, which will be several years long and will consist of more than one recessionary period — a depression.
Our present economic depression just doesn’t look like a depression to many because they don’t see the bread lines, but that’s only because the bread is now in the mail. We have government bread to feed the unemployed that we did not have in the 30’s, and it arrives electronically or by check in the mail.
A word about the housing market collapse
The one bright spot in the U.S. economy last week was housing. New home sales reached a two-year high, while pending sales climbed six percent. Home prices also started to rise on a broad enough geographic scale to have possible significance. While that sounds promising, one of the founders of the Case-Shiller index, which tracks house prices, said it’s too early to have any idea whether or not the change in price directions will hold. He noted that housing usually rises this time of year. So, a rise might now may be nothing more than the annual cycle as most people do their home buying at the beginning of summer when the kids are out of school.
It could also be that house sales improved in the early months of the year because the economy appeared to be improving. In other words, people thought the economy was doing better, so they started to take risks on buying a home. Now that the economy has turned the other way, sales may follow the same trajectory. That still would indicate that things have, at least, changed to where home sales are now following the economy, rather than driving it.
The most significant fact to bear in mind here is that housing is still likely to face headwind from pent-up foreclosures.
I’m hoping that, after the Fourth of July, I’ll have time to start writing an audit of all my 2012 economic predictions, which will summarize all of them, as they have appeared in various articles and give a straightforward appraisal of where they went right and where they went wrong. I think you’ll find it quite revealing. Wherever I was wrong, I promise to be direct about it. The last thing we need is more economists or commentators on the economy who couldn’t tell a train was coming if they were staring it down in a tunnel.
Recap of economic news articles on The Great Recession Blog last week
(Current week’s news is posted in the right sidebar each day.)
Economic indicators and stock market responses in the news of the week
06/25 New Home Sales Reach Two-Year High As U.S. Rates Fall Demand for new U.S. homes rose more in May as loan rates dropped, bolstering the residential real-estate market while other parts of the world’s largest economy cool. Purchases climbed to their highest since April 2010, up 7.6% from the month before.
06/25 Stocks dive globally as Spain seeks help for banks Europe’s latest efforts to quell its financial crisis left investors exasperated Monday, causing steep losses in stock markets on both sides of the Atlantic. All three U.S. indexes fell sharply by midday. Traders have doubt Europe will find a solution.
06/25 These 3 Charts Prove We’re Living In A Modern-Day Depression Nobody considers this to be a modern-day depression because nobody can see the soup and bread lines that were so visible during the 1930s. That’s only because these days, you receive your bread and soup from Uncle Sam either electronically or in the mail.
06/26 Case Shiller: Home Prices Showing Signs of a Turnaround U.S. single-family home prices picked up for a third month in a row in April, suggesting the recovery in the housing market is gaining traction. The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7%, topping economists’ expectations.
06/27 Is this 1931 all over again? Paul Krugman, Nouriel Roubini, Niall Ferguson and more think so Suddenly normally calm economists are talking about 1931, the year everything fell apart. The parallels today are stark, striking, and increasingly frightening. The collapse of a single bank was the trigger that brought down Europe in ’31.
06/27 Pending Sales Of U.S. Homes Climbed More Than Forecast More Americans than forecast signed contracts to purchase previously owned homes in May, indicating real estate is firming up. Pending home resales climbed 5.9% [But how many of those are due to record-low ARMs that will go way up and repeat history?]
06/27 U.S. Durable Goods Orders Rise 1.1% Orders for long-lasting goods posted the first gain in three months in May, suggesting that the manufacturing sector stabilized a bit after an early spring slowdown. May’s gain was led by stronger demand for machinery, defense equipment and cars.
06/28 Jobless Claims Barely Dip None of the datum this week change the nation’s unemployment picture much if at all: First-time claims for unemployment last week, down 6,000 from the week before to 386k. Almost all the drop is accounted for by an upward revision of last week’s data.
06/28 Stocks drop deepens after health care law is upheld Stocks dropped sharply Thursday after the Supreme Court upheld Barack Obama’s health care overhaule. Already down a hundred points before the ruling, the Dow dropped another sixty points after the ruling as of 11 A.M.
06/28 Weak first quarter growth in U.S. bodes ill for economic outlook The U.S. economy grew only 1.9% in the first quarter, the government confirmed, underscoring the economy’s vulnerability. That’s a drop from 3% in the final quarter of 2011. Most of that was in the auto sector, which has, since, seen its own decline.
06/29 Consumer Spending Falls to Weakest Level in Six Months Consumer spending was flat for the month in May for the first time in six months as demand for motor vehicles waned. April’s consumer spending was also revised down to a 0.1% rise, instead of the previously reported 0.3% gain.
06/29 Japan’s Industrial Output Falls Most Since 2011 Quake Japan’s industrial output fell the most since the March 2011 earthquake and consumer prices declined, bolstering the case for extra stimulus to sustain the nation’s economic recovery. Production declined 3.1 percent in May from April.
06/29 Yale’s Shiller: Home Prices Could Plunge Even Lower Home prices have risen lately but nothing suggests a concrete recovery, and prices could fall even lower, Yale economist Robert Shiller said. The recent rise, after seven months of decline, comes at the beginning of summer when housing typically rises.
06/30 U.S. stocks rally to finish down quarter U.S. stocks leapt on Friday, with the Dow Jones Industrial Average (US:djia) tallying its best month of the year and the Nasdaq Composite (US:comp) posting its best day for 2012, after Europe moved to bolster the economies of its troubled nations.
Economic predictions / forecasts that made news headlines
06/27 Former Obama Adviser Bernstein: US Can’t Avoid Falling Off “Fiscal Cliff” The U.S. economy won’t avoid falling over the edge of the fiscal cliff at the end of the year, says Jared Bernstein, a former adviser to President Barack Obama. No matter who wins as president, this congress is incapable of compromise.
06/29 Experts: Bull Market to Last All Year, Along With Volatility The price of Brent crude oil has fallen from a high of $128.40 a barrel in March to $88.49. The Case-Shiller home price index showed increases. Soon there will be political will to cut the country’s “really excessive indebtedness.”
06/30 Wall Street ends weak quarter with a bang, “Going to see a nice summer rally” “You are going to be see a nice summer rally out of this. Think of where this market would be if it hadn’t been for the euro crisis. The market is now looking at least six to eight months forward on … an improving European growth environment.”
Euro crisis updates as the Great Recession goes viral
06/24 Some in US See Shades of 2008 Debacle in Euro Crisis There is a mounting sense among the financial community that politicians and markets are operating on completely different timelines. A fractured Europe talks about solutions on a five-to-ten-year timeframe. Investors believe only weeks or months remain.
06/24 United Euro Bloc to Confront Germany at EU Summit Germany will confront an increasingly united bloc of euro-area nations demanding decisive action to save the currency union this week. Spanish and Italian leaders have added their voices to those countering Germany’s slow incremental approach.
06/25 Europe’s Tower of Babel Hampers Euro Solution In Germany, it is about making profligate “deficit sinners” atone and instilling a “stability culture.” It is no accident that “Schulden”, German for “debt,” doubles as the word for “guilt”. In France, it is all about “saving the euro” with “solidarity.”
06/25 Greece’s Key Leaders Unable to Attend EU Summit In a worryingly chaotic start for its new government, Greece’s newly appointed finance minister resigned due to emergency bad health and the new prime minister just emerged from the hospital after retina surgery; so neither will attend the EU summit.
06/25 Greek Euro Crisis Engulfs Cyprus, Latest to Seek Bailout Cyprus on Monday became the fifth eurozone country to request financial aid from its partners in the European currency union, claiming “negative spillover effects through its financial sector, due to its large exposure in the Greek economy.”
06/25 Moody’s cuts Spanish banks on sovereign downgrade Moody’s Investors Service downgraded the long-term debt ratings for 28 Spanish banks. Moody’s cut Spain’s sovereign rating to just above junk status after it nationalized some troubled banks. Now other banks are downgraded because of Spain’s downgrade.
06/25 Soros: Germany must change its “can’t do” attitude Germany must forge a consolidated fiscal and banking union, or become “the centre of an empire” responsible for its own collapse. Serving “Germany’s narrow self-interest … will … put the ‘periphery’ into a permanently subordinated position.”
06/26 Bank of England’s King says “pessimistic” about worsening economy Bank of England governor Sir Mervyn King has said he is “pessimistic” about the short-term prospects for the global economy and has been struck by how much the situation has changed in the past six weeks. “I cannot come up with a simple solution.”
06/26 Euro Zone Financial Plans Are Ambitious but Useless for Now Architects of euro plan show ambition but lack sense, proposing the Eurozone have its own finance ministry, that member states cede control of their budgets to a central authority and share debt. Only problem, the plan will not happen for years.
06/26 George Soros: Germany Has 3 Days Left To Save Eurozone Through Fiscal Union “Failure to come up with a way to overhaul the economy this week could be fatal. Europe’s leaders need to take bold steps at the EU summit on Thursday and Friday.” If the euro goes down, Germany becomes the biggest loser.
06/26 Germany’s Merkel: No Shared Debt Liability “as Long as I Live” German Chancellor Angela Merkel immediately stamped on the idea of mutualizing debt in common bonds in order to bury it once and for all, saying Europe would not share total debt liability “as long as I live.” Tensions are rising, rifts are forming.
06/26 Goldman’s Jim O’Neill: Global Economy Could Be ‘Taken Down’ by Euro Crisis “I think if this euro crisis gets worse, everyone is eventually going to get taken down. If Angela Merkel and her colleagues stood there together with the rest of the euro area and … behaved as a true union, the crisis would be finished this weekend.”
06/26 Spain Poised for Downgrade to Junk as Default Swaps Near Records Spain is poised for a downgrade to junk by Moody’s, according to investors who sent the cost of default insurance for the nation’s biggest banks and companies close to record highs. A one-notch downgrade could put the whole banking system at junk level.
06/26 World’s oldest bank put on state life support Italy’s Banca Monte dei Paschi di Siena, has received state help to bolster its finances. The aid was necessary because the bank admitted it was “impossible” to find private investors due to the “highly volatile … conditions” of the eurozone crisis.
06/27 Europe’s Worst Nightmare: What If Euro Can’t Be Saved? What is beyond dispute is that more and more economists and academics are asking whether the euro’s problems are so deep-rooted that the currency is beyond salvation.
06/27 Merkel to face down summit pleas for crisis action European Union leaders go into the two-day meeting in Brussels more openly divided than at any time since the debt crisis erupted in Greece in 2010 and spread over the euro zone. Merkel will pit herself against France and Italy on Thursday.
06/27 Rift between Eurozone leaders widens on eve of summit: Merkel rebuffs pleas On the eve of a crucial summit that could determine the future of the euro zone, German Chancellor Angela Merkel brushed aside increasingly shrill calls from Spain and Italy on Wednesday for emergency action to lower their soaring borrowing costs.
06/27 Spanish Officials Hailed Banks as Crisis Built As Spain edged closer to a real estate and banking crisis that led to bank bailouts, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrong. Their optimism echoed U.S. optimism in 2009.
06/28 Visa Europe Prepares For Possible Euro Zone Breakup Visa Europe is holding weekly meetings to discuss scenarios in the event the euro zone collapses, joining many other companies that are preparing for a potential breakup of the currency bloc.
06/29 Europe Agrees to Bond Support – Asian stocks and euro surge Euro zone members agreed to emergency action to lower borrowing costs of Italy and Spain, saying euro area rescue funds can be used to stabilize bond markets without forcing countries to comply with EU budget rules, and to create a single supervisory body.
06/29 Eurozone agrees on bank recapitalisationEU leaders have agreed to use the eurozone’s bailout fund to support struggling banks directly, without adding to government debt. A eurozone-wide supervisory body for banks will also be created.
06/29 Merkel gives concessions, increasing Risk to Germany Time has been bought. The agreements reached here in Brussels exceeded expectations. In the short term, pressure on Spain and Italy will be reduced. The pain in the real economy will continue, however. The fundamental problem has not gone away.
06/29 Merkel welcomes euro compromise, Hollande hails impact Merkel said Germany had remained true to its position of “giving, taking in return, setting conditions and maintaining control.” In other words, she had not agreed to new measures to relieve pressure on indebted partners without obtaining control.
06/30 EU leaders rise to challenge Europe’s leaders finally rose to the challenge of a debt crisis that has hobbled economic growth and threatened the global financial system. Markets roared their approval Friday.
06/30 Europe Looking for Patient Bond Buyers As Europe slouches toward tighter monetary union, a crucial question remains: how to persuade investors to buy and hold the bonds of economies like Italy and Spain. Paul De Grauwe, a Belgian economist, believes the latest step will not be enough.
06/30 Italy’s Prime Minister Pushes German Chancellor Toward Growth At the summit of European Union leaders in Brussels early Friday morning, Germany’s leader, Angela Merkel, found herself facing a tenacious opponent, one who in the course of an exhausting night of bargaining finally forced the Iron Chancellor to blink.
06/30 Merkel seen as big loser in euro zone showdown Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts.
Federal Reserve actions tracked in the economic headlines
06/24 Central Banks Reaching Limit of Power to Fix Economies Central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed. Central bank policies can buy time, but their ability to buy some time has lulled politicians toward inaction.
06/27 Fed’s Fisher: “Operation Twist” has only minor effects The Federal Reserve’s recent move to push down borrowing costs by replacing its short-term securities holdings with longer-term ones is doing more harm than good, a said the president of the Dallas Federal Reserve Bank, who opposed the action.
The Iranium Reaction as it makes and shakes the news
06/25 Any attack will cause end of Israel, warns Iranian general “The Zionist regime cannot do the least against Iran but if the regime still considers any military attack against us, then it would cause its own end and collapse,” Iran’s deputy chief of staff said after negotiations with Iran failed last week.
06/25 Eyeballing Iran? US commissions 361 cruise missiles Most of the Tomahawk missiles are destined for Fifth Fleet destroyers based in Bahrain. The deal — inked on the backdrop of deadlocks in nuclear negotiations — may suggest the US is gearing for a possible military campaign with Iran.
06/25 Israel now entering ‘deeply problematic’ period in ties with Egypt, says ex-envoy Israel must brace itself for a deeply problematic period in its relations with Egypt, a former Israeli ambassador to Egypt said Sunday afternoon, responding grimly to the election of Muslim Brotherhood candidate Mohammed Morsi as Egypt’s president. [Not about Iran, but another source of tension building in the oil buckle of the world. Ditto below:]
06/25 New Egyptian President Advocates Violence “The Koran is our constitution, the Prophet is our leader, jihad is our path and death in the name of Allah is our goal,” Egypt’s new president said in his election speech before Cairo University students on Saturday night according to Voice of Russia.
06/25 Opinion: Gulf states hope for US action on Iran “A top official from Bahrain told me that ‘Saudi Arabia and Bahrain expect the U.S. to alter its policy and resort to steps which are required to remove the Iranian nuclear threat.’ Violence in the region could severely undermine the U.S. economy.”
06/25 U.S. Concerned Israel May Launch Attacks on Syrian WMD Sites U.S. intelligence agencies are closely watching Israel’s military for signs it will conduct strikes on Syria’s stockpiles of chemical weapons, amid concerns the deadly nerve agents could fall under the control of Hezbollah or al Qaeda terrorists.
06/26 Furious Turkey mobilizes tanks, troops to Syrian border The Turkish military mobilized large numbers of reinforcements from its eastern provinces to the Syrian border on Tuesday, amid rising tension with Damascus, after the downing by Syria of a Turkish Air Force jet on Friday, Turkish media reported.
06/26 “Netanyahu has Decided to Attack Iran Before the U.S. Elections in November” Netanyahu’s agenda is much broader than knocking out Iranian nuclear installations. His aim is to reshape the political landscape in the USA and Israel shifting everything toward more hawkish regimes. [Consider the source on this one.]
06/26 Putin: Don’t rush to strike Iran Russian president cautions Israel against hasty military action in Iran, says “look at what happened to the Americans in Iraq…. Iraq has a pro-Iranian regime after everything that has happened there. These things should be thought out ahead of time.
06/26 US and Israel to hold largest ever joint military exercise Focusing on stopping ballistic missiles and featuring thousands of soldiers, the October drill will simulate simultaneous rocket fire from Syria and Iran with potentially tens, if not hundreds, of rockets mid-air at the same time.
Articles of Justice during the Great Recession
06/29 FBI arrests Bernard Madoff’s brother Peter Madoff The arrest of Peter Madoff had been expected as he is due in federal court in Manhattan later Friday to plead guilty to charges related to his brother’s decades-long fraud. Peter Madoff had been criminally charged with participating in his brother’s fraud
Other economic updates / miscellaneous news articles
06/25 Gold rises on euro jitters as equities sell off Gold rose on Monday, breaking ranks with sharply lower equities and oil markets on signs of a worsening euro zone debt crisis as Spain formally requested a financial rescue. Investors sought refuge in gold as Germany dashed all hope for the euro zone.
06/25 Krugman: The Great Abdication “[The economic crash of ’31] started with a banking crisis in a small European country…. Austria tried to step in with a bank rescue — but the spiraling cost of the rescue put the government’s own solvency in doubt…. It’s happening again.”
06/25 State Pension Plans Face Big Accounting Wake-Up Call Decades of overstating expected returns while underfunding pensions is catching up fast to state retirement plans — and at the worst possible moment. New rules to be approved today could increase pension costs by a whopping 19% with the stroke of a pen.
06/26 American Dream Now a ‘Myth’ Thanks to Income Gap The American Dream of working hard to forge a better life is a myth thanks to a widening income gap, says Nobel economist Joseph Stiglitz. Today, a U.S. child’s life opportunities are more dependent on the income of his or her parents than in Europe.
06/26 Why Protesting Postal Workers Chose A Hunger Strike The dozen postal workers involved in the strike are protesting a series of measures they say would “starve” the beleaguered U.S. Postal Service. They want Congress to drop an annual mandate requiring them to prefund all healthcare benefits for retirement.
06/27 Stockton CA set to become largest US city to declare bankruptcy In opting to become the nation’s largest city to seek federal bankruptcy protection, this river port of 290,000 took a rare financial step of last resort after struggling with the economic downturn, soaring pension costs and contractual obligations.
06/28 Fox News poll: Voters say neither Romney nor Obama has plan for economy In a tight presidential race that will turn on the economy, American voters believe neither candidate has a plan to improve things. One third of voters believe Obama has a plan while only one quarter of voters believe Romney has one.
06/28 Supreme Court Upholds Health Care Law In one of the most widely anticipated decisions in recent history, the U.S. Supreme Court today ruled that the sweeping federal law overhauling the nation’s health care system IS constitutional. The law is within Congress’ power to impose taxes.
06/28 Yale’s Roach: US Is no oasis of prosperity, no safe haven for investors Since the Great Recession began, exports have accounted for fully 41% of the U.S.A.’s economic rebound. With export markets now in trouble, the U.S. could be quick to follow those markets down. Further drops overseas could slow the U.S. to stall speed.