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Economic News Articles in The Great Recession Blog, week of 07/01/2012

If the Eurozone’s leaders walked away from their summit thinking they had accomplished some bold plan that would start to solve their problems, they’d better get out some starting fluid to accelerate the start of their plan. Old political realities reappeared in economic news articles the next week like Hydra’s heads to bite off every bud of new hope before it could sprout. Even economists were able to see where this plan would fall apart!

 

Euro plan unravels in last week’s economic news articles

The euro crisis unfolded in last week’s economic news articles in precisely the manner I said it would. As soon as June’s summit was over, I wrote the following prediction in one of my own articles:

 

Has this “kicked the can down the road” for a few more months … or only for a couple more days? I’m betting my predictions on the latter. Every time you cut off one of this Hydra’s heads, it grows two more in the same place. Europe never gets ahead of the blaze far enough to create a fire break. Its leaders just scurry from one brushfire to the next as the overall blaze gets larger.

 

Indeed, Europeans and members of the press who had, once again, become almost euphoric about a European summit plan on Friday, woke up over their coffee on a Monday that started an entire week of unraveling, much like I had described:

 

[The summit plan] will not unfold as in “come about.” It will unfold as in unravel, for it still has many hurdles to face. In the very least, it will be far short of what is needed by the time it is in place….. Greece remains just as big a problem as it was going into the summit. The press, being quick to euphoria, didn’t notice that the summit glossed over the Greek problem entirely. It’ll take a couple days (as in over this weekend) for the markets to realize nothing has changed with respect to Greece, which is where a major part of their fear lay last week. That fear will quickly raise its head as the euphoria of a eurozone deal fades faster than paint can dry. Investors will wake up to find themselves staring down Greece — as big, bad and ugly as ever — over their Monday morning coffee.

 

Only the immediate problem was not Greece. Rather, last week’s economic news articles turned into a list of all of the flaws that I predicted would cause the euro crisis plan to fall all too quickly into into tatters … once again. Markets swelled at the beginning of the week, then dropped by the end as analysts came online to describe these problems with the European summit deal. That list looked like this in my article reference above, and played out like this in the economic news articles of the past week:

 

  • The brief release of pressure on Spanish debt was even more short-lived than I expected, lasting about one day. (Though I was not specific and only said relief would be “short.”)
  • Germany took the summit plan to its highest court where it is currently delayed as predicted.
  • Pimco’s CEO wrote that the timetable is too timid and the operational procedures too cumbersome.
  • He also wrote that the amount of bailout money approved was inadequate.
  • Other nations made it clear they would not support the deal, with Finland suddenly threatening to pull out of the Eurozone if the deal would cause Finland to have joint liability for other nations’debts. (It is unclear yet whether or not the deal would do that, but that is clearly a deal-breaker for Finland if it does, so that limits how far the deal can go and still get ratified.)

 

Even the head of the European Central Bank brought out the tired refrain at the end of the week that the summit once again “kicked the can down the road.” A better metaphor, I find, is that most nations are plowing the snow down the road, rather than off to the side, resulting in a problem that gets bigger and bigger the farther they push it. One day, it will become impossible for the plows to push it at all. We must be close to that day, for efforts are losing traction rapidly. This Euro summit deal was the boldest to date, and yet its effect on the market was the most brief to date.

I wrote my assessment while the markets were soaring, confident the markets would wake up by the next week, which is the one this recap covers.

 

The tragic Greek head of this Hydra will come off

My predictions for Greece’s role, while not central to the last week economic news articles, did, however, begin to play out more quietly behind the scenes. Economist Megan Greene of Roubini Global Economics and Greece’s opposition party leader both warned at a Greek economic conference that austerity is leading nowhere for Greece: “We see 85 percent probability to have Greece and Portugal … exit the eurozone.”

The Greek problem remained largely beneath the stormy seas last week and this, but the monster is still just as untamable as ever. The new Greek government was approved by the Greek parliament, and the new government continues to say it will renegotiate the Greek deal for more favorable terms. The rest of Europe, meanwhile, seems to be ignoring Greece, as all news and activity focused on Spain and actualizing the summit deal.

Greece is scheduled to resurface later in July.

 

A bull market to nowhere

In my previous recap of economic news articles, I noted that the European summit’s ability to come up with a plan…

 

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.

 

It was a short bull run that lasted all of a couple of days. The end of last week and all of the present week were and are days of a faltering market. Ironically, the one time the market went up it was because economic indicators were so bad that investors thought they would surely lead to more quantitative easing by the Fed.

News last week for the U.S economy can be summed up like this: Our weather during the Great Recession has turned to match the weather of the Great Depression with two years of drought that are beat only by the Dust Bowl years. The nation’s food supply is dwindling and prices are rising rapidly as a result. China’s recession and Europe’s are cutting seriously into U.S. manufacturing, which has been the only strong point during this recession. Jobs have dropped off for the past quarter and have stalled a low point that does not even keep pace with population growth. Retail sales have fallen off, and Economists are cutting back their earlier rosy predictions of a continuing recovery. (They are now starting to sound like me.) Service company’s also saw their slowest growth in two and a half years. Government jobs continue to be the biggest losers at present. That’s a decline in all areas of the economy — manufacturing, retail, service and government.

And the year as a whole can best be summed up like this bit of economic news: “Each of the past 3 years, hopes for job-market recovery were lifted by robust gains early in the year. But in each case, those hopes fizzled as hiring slowed by spring or summer.” And that is how I summed up the year at the beginning of the year.

As another article says below: ““We had confirmation [this week] of what all … other economic indicators have been signaling for some time, and that is a marked deceleration of the U.S. economy. This is not an outlier month. We’ve seen a deceleration in job growth since the beginning of the year.”

 

Nuclear Iran reacts

Another article reinforced what I wrote about Iran’s tactics around its nuclear build-up:

If they [Israelies] attack, ‘they will hand us an excuse to wipe them off the earth,’ [and Iranian] general says of Israel.

Many Muslims say that jihad must be defensive in terms of how it begins. Last week I suggested that Iran is stalling for time to create nuclear war head, while all the while increasingly baiting the U.S. or Israel to be first to attack. This comment seems to confirm that kind of a stance. Of course, if Iran is hurt enough by economic sanctions, it can use that claim it is acting defensively; but a first strike by the U.S. or Israel would make its defensive posturing all the more complete.

 

Recap of economic news articles on The Great Recession Blog last week

(Current week’s economic news is posted in the right sidebar each day.)

 

China syndrome — following the Great Recession to the Great Wall

07/02 China’s non-manufacturing sector growth picks up pace China’s services sector, which includes construction, picked up pace in June, helping allay some fears of a sharp slowdown in its economy.

 

Economic indicators and stock market responses in the news of the week

07/02 CEO of Berkshire’s Furniture Business Says U.S. Businesses Scaling Back Demand is “simmering compared to where it was at the beginning of the year, when it looked like the recovery, at least from our perspective, would have been pretty robust,” said CEO of CORT Business Svcs, which Buffet used earlier as evidence of recovery.

07/02 Manufacturing In U.S. Unexpectedly Contracted In June Manufacturing in the U.S. unexpectedly shrank in June for the first time since the economy emerged from the recession three years ago, indicating a mainstay of the expansion may be faltering. It fell to a level worse than the most-pessimistic forecast.

07/02 Wall Street starts slightly down as data raise global growth concerns Last Friday’s rally on Wall Street, boosted by hopes that the euro zone was a step closer to solving its debt crisis, ran out of steam on Monday as a leading manufacturing index showed the U.S. factory sector suffered its first contraction since July 2009.

07/03 Boeing raises forecast for airliner demand by $500 bn “The world’s aviation market is broader, deeper and more diverse than we’ve ever seen it,” said Boeing’s VP of marketing. “It has proven to be resilient even during some very challenging years and is driving production rate increases across the board.”

07/03 U.S. Corn Crop Withers Away: ‘Thought It Was Onions’ Crop conditions continue to worsen, to levels not seen since the drought of 1988, threatening the size and quality of the U.S. corn crop as it enters a critical developmental stage.

07/03 Wall Street eyes best 3-day run this year [Ironically, the stock markets have gone up precisely because of bad economic data. The market is now so dependent on money from central banks, that bad economic data is seen as a sign that central banks will step in with more free money.]

07/04 Asian Shares rise on hopes of more monetary stimulus Asian shares rose to a seven-week high on Wednesday as investors kept hopes high for more monetary stimulus, starting with a likely rate cut by the European Central Bank. “The market seems to be riding high on a wave of central bank easing expectations.”

07/05 “Stagnant” economy takes toll on June retail sales Stubbornly high unemployment and anxiety about the economy in June took a toll on top U.S. retailers’ sales last month, raising concerns shoppers are returning to penny-pinching.

07/05 Anxiety Mounts as US Economy Limps Into 2nd Half A slew of weak economic data is casting doubts over expectations of growth in the second half of the year. From manufacturing to jobs to consumer spending, the numbers have been grim, and economists are wondering whether they need to dial down forecasts.

07/05 Jobless Claims Post Biggest Fall in Six Weeks The number of people seeking unemployment aid last week fell to its lowest level since mid-May, suggesting layoffs are easing and hiring could pick up. Weekly unemployment benefit applications dropped by 14,000 to a seasonally adjusted 374,000.

07/05 S&P 500 Snaps 3-Day Rally on ECB Ahead of Jobs Report U.S. stocks declined, halting a three-day advance for the Standard & Poor’s 500 Index, amid disappointment over Europe’s efforts to tame the region’s debt crisis.

07/05 U.S. Stocks Drop on Opening after Independence Day Stimulus measures from a trio of central banks and a pair of better-than-expected readings from the U.S. labor market failed to prop up stocks ahead of a key reading the U.S. service sector.

07/05 Unofficial Report: US economy added 176,000 jobs in June A private survey shows the private sector increased hiring in June. Payroll provider ADP says businesses added 176,000 jobs, up from 136,000 jobs it reported for May. ADP, however, has a poor track record of matching up the official gov’t report.

07/05 US service sector grows at slowest pace in 2-1/2 years U.S. service companies grew in June at the slowest pace in nearly two and a half years, yet another troubling sign for the economy. On the other hand, weekly unemployment benefit applications dropped by 14,000.

07/06 Drought hits 56% of continental US; ‘significant toll’ on crops Prolonged heat across the continental U.S. has not only set temperature records, it is also expanding and intensifying drought conditions — and relief isn’t on the horizon for most areas. That’s the most in the 12 years that the data have been compiled.

07/06 Jobs Data Force Delicate Balancing Act for Obama Each of the past 3 years, hopes for job-market recovery were lifted by robust gains early in the year. But in each case, those hopes fizzled as hiring slowed by spring or summer. 2012′s 2nd quarter added jobs at one-third the pace of the 1st quarter.

07/06 Jobs Report Revives Fears for Recovery “We had confirmation of what all … other economic indicators have been signaling for some time, and that is a marked deceleration of the U.S. economy. This is not an outlier month. We’ve seen a deceleration in job growth since the beginning of the year.”

07/06 U.S. Job Growth Remains Tepid The economy added 80,000 jobs last month, almost enough to keep up with population growth in June, but not nearly enough to reduce the backlog of 13 million unemployed workers. Economists now expect similarly poor job growth for the rest of the year.

07/06 US stocks drop 1% on jobs data US stock markets sank after a fresh batch of dismal employment data was released. The unemployment rate remained frozen at 8.2%. Economists had expected 10,000 more jobs. “It’s going to be an extremely difficult second half of 2012 for Americans.”

07/06 Video: Economy Is Just About Out of Fuel MarketWatch’s Rex Nutting checks in on Mean Street with a look at U.S incomes that are at record low rates for non-recession periods and how they are bringing the economy to a crawl.

 

Economic predictions / forecasts that made news headlines

07/03 IMF Lowers U.S. Growth Projections To 2 Percent The U.S. remains “subject to elevated downside risks, in light of financial strains in the euro area and uncertainty over domestic fiscal plans,” the IMF said. “Further easing” by the Federal Reserve might be needed “if the situation was to deteriorate.”

07/06 Video: Recession Now More Likely MarketWatch’s Rex Nutting checks in on Mean Street with a bleak outlook for the struggling U.S. economy: a recession is now much more likely.

 

Euro crisis updates as the Great Recession goes viral

07/02 Think 8.2% unemployment is bad? It’s a record 11.1% in Europe Austerity measures and weak demand due to the region’s debt crisis, exacerbated by a business environment smothered in red tape, pushed joblessness up from 11% in April and 10% in May 2011 to the highest since data were first collected in 1995.

07/03 France’s President Faces Major Test as France Enters ‘Danger Zone’ Francois Hollande is facing the first major test of his pro-growth election commitments after a warning from the national audit office that France’s economy is in the “danger zone” and risks falling into a “debt spiral.”

07/03 Pimco’s El-Erian: Eurozone Crisis Can Still Supply Plenty of Fireworks Euro leaders are still falling short, El-Erian wrote. Their timetable is too timid, the operational procedures are too cumbersome, and emergency funding lines are inadequate. Plus, differing statements from national leaders are confusing the situation.

07/03 S&P warns that property bubble threatens small Swiss banks The international ratings agency Standard & Poor’s lowered Tuesday its outlook on nine smaller regional Swiss banks owing to what it says might be a growing real-estate bubble in Switzerland.

07/03 Spain May Need More Aid Despite EU Summit Steps to Help Banks Spanish Prime Minister Mariano Rajoy will face long and difficult talks to finalize the rescue, while the recession deepens, the public deficit rises and one in four of the workforce has no job and will find it tough to avoid asking for a full-scale bailout.

07/03 Spain’s jobless level falls by 100,000 in June June is generally a good month for employment as it marks the beginning of the tourist season. Despite the fall, the unemployment rate in Spain remains the highest in the eurozone where a quarter of the working population is unemployed.

07/04 Gloom and doom at Greek economic conference As Athens stares into an economic abyss, economist Megan Greene of Roubini Global Economics and Greece’s opposition party leader warn that austerity is leading nowhere. “We see 85 percent probability to have Greece and Portugal to exit the eurozone.”

07/04 No let up in gloom for Europe’s big economies All of Europe’s biggest economies are in recession or heading there and there is little sign things will improve soon, surveys showed on Wednesday, backing a growing view the region’s major central banks are poised to ease policy this week.

07/05 Bank of England pumps £50bn more into economy The Bank of England has announced it will pump a further £50bn into the UK economy over the next four months through its quantitative easing (QE) program to boost the economy by buying bonds. It will leave UK inerest at the record low of 0.5%.

07/05 European Central Bank cuts eurozone rates to record low of 0.75% The ECB also cut its deposit rate, from 0.25% to zero. The cuts coincide with similar actions by the Bank of England and Bank of China. Asked if the situation was as bad as in 2008, ECB’s president said, “Definitiely not. We are not there at all.”

07/05 Irish Republic ‘encouraged’ by successful bond auction Ireland auctioned three-month T-bills at a yield of 1.8%, lower than the equivalent Spanish debt. “We are encouraged by the strong demand, the competitive interest rate and the presence of significant international interest in today’s auction.”

07/05 Why the euro is breaking the European dream Euro disciples underestimated how abruptly and severely the crisis would fall upon the euro zone. It is overwhelming leaders, and it is fraying Europe’s politics. The hope of a common European identity has given way to greater national assertiveness.

07/06 Austerity haunts French president Franois Hollande, Europe’s chief critic of one-size-fits-all austerity measures, is facing the headache of inescapable belt-tightening at home. An audit confirmed France has a gaping hole in its budget and will struggle to meet deficit-reduction targets.

07/06 Banks’ debt lifeline for Spain starts to fray Domestic banks have backed Spain’s debt auctions with heavy buying but could be reaching a limit for absorbing sovereign bonds. If they reach their limit, Spain’s interest rates would soar to where Spain would have to seek a euro bailout.

07/06 EU Summit “Kicked the can down the road.” As dust settles from last week’s summit of European leaders, fear about Spain’s credibility in the bond market has returned. The European Central Bank president’s sobering assessment of eurozone economic growth prospects brought investors’ fear to a boil.

07/06 Is Italy Living on Borrowed Time and Money? Italy is back in the spotlight as the focus for market concerns. Bond yields higher than Ireland’s at 6.01%, reflect fears that European Union summit attempts to reduce soaring borrowing costs were not enough. Italy is the Eurozone’s 3rd largest economy.

07/06 More Problems for Euro Summit Deal: Finland could leave the euro Finland would consider leaving the eurozone rather than paying the debts of other countries in the currency bloc, Finnish Finance Minister Jutta Urpilainen has said. She insisted that a proposed banking union wouldn’t work if based on joint liability.

07/06 Running Out of Options, Euro Zone May Face a Stark Choice Last week’s EU summit measures to tackle the euro zone crisis failed to impress markets, and some economists believe the bloc still faces an existential threat. Nouriel Roubini said Italy and Spain will lose access to capital markets in 3-6 months.

07/06 Spain Re-Enters Danger Zone While Germany Borrows for Free New steps by three major central banks to boost global growth failed to impress investors on Friday, sending Spanish borrowing costs above the unsustainable 7% level and hitting European stocks. German bond yields actually turned negative for a moment.

 

The Iranium Reaction as it makes and shakes the news

07/02 Threatening Israel, Iran announces drill Monday to test missiles and new ‘radar-buster’ If they attack, ‘they will hand us an excuse to wipe them off the earth,’ general says of Israel. The test is referred to as the “Great Prophet 7″ war games.

07/03 Can Latest Sanctions Force Iran To Change Its Policies? Beginning sanctions against Iran targeted particular entities and activities. Now, the U.S. and its allies are aiming at the entire Iranian economy, and Tehran is pushing back. Iranian parliamentarians drafted a bill to close the Strait of Hormuz.

07/03 Oil tops $101 on Iran tensions, stimulus hopes Tension between Iran and the West escalated after heavier sanctions kicked in on Sunday. Iran said on Tuesday it had successfully tested missiles capable of hitting Israel. Iran is back on the market’s agenda. On Monday, it threatened to disrupt shipments.

07/04 U.S. Adds Forces in Persian Gulf, a Signal to Iran The US has quietly moved significant military reinforcements into the Persian Gulf to deter Iran from a possible attempt to shut the Strait of Hormuz and to increase the number of fighter jets capable of striking deep into Iran if the standoff escalates.

07/05 Iran rattles its sabres, US sticks to its guns In an apparent response to an increased U.S. military presence in the Gulf, the commander of Iran’s air force said missiles have been aimed at 35 U.S. military bases plus targets in Israel, and are ready to be launched if Iran is attacked.

07/05 Iranians try to disguise oil tankers Iranian ships are being given nautical makeovers in hopes this will make it easier to find buyers for the oil. For now they are nothing but floating tank farms for storing oil that is not selling, as stopping well production could injure the wells.

07/05 US sends floating base for special forces to Gulf to thwart Iran US officials say military build-up in the Gulf region includes deployment of warships, F-22 stealth fighters and a new amphibious base to launch special forces attacks. Any attempt by Iran to close the Strait of Hormuz will trigger military action.

 

Articles of Justice during the Great Recession

07/02 Investors Claim Morgan Stanley Influenced Ratings Firms Morgan Stanley successfully pressured Standard & Poor’s and Moody’s Investors Service Inc. to give erroneous investment-grade ratings in 2006 to $23 billion worth of notes backed by subprime mortgages, investors claimed in a lawsuit, citing documents.

07/02 U.K. Bank inquiry launched after Libor rate-rigging scandal Prime Minister David Cameron has announced a full parliamentary inquiry of the banking sector following the Barclays rate-rigging scandal. The U.K.’s Serious Fraud Office is considering whether to bring criminal charges.

07/03 Barclays not alone in U.K. bank rate-fixing scandal Barclays chairman Marcus Agius resigned Monday. CEO Bob Diamond followed suit Tuesday. Later, COO Jerry del Missier resigned. They may be just the first of many executives felled by a broader probe as seven additional banks are cited but not named.

07/05 Countrywide Gave Lawmakers, Officials Hundreds Of Discount Loans The former Countrywide Financial Corp., whose subprime loans helped start the nation’s foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and Fannie Mae executives.

 

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

07/03 Big Banks’ ‘Living Wills’ Promise Bankruptcy Instead Of Bailouts U.S. regulators, seeking to prevent a repeat of taxpayer-funded bailouts of the financial system, released summaries of plans for breaking up nine of the world’s largest banks in the event of an emergency as required by the 2010 Dodd-Frank Act.

07/06 Opinion: Modern banking’s fatal flaw Economic events around the globe over the past five years have revealed one important fact: the modern banking system is fundamentally dysfunctional.

 

Other economic updates / miscellaneous news articles

07/05 Video: Why Gold is not currently a safe-have asset The dollar is currently seen as the best safe-haven asset for the time being. India, typically the largest gold buyers for jewelry, is in a slump so Indian people are not buying much jewelry. China, however, is now the biggest buyer of gold.

07/06 Extreme Heat Breaks More Than 3,000 Records This Week More than 3,000 temperature records have been shattered in the U.S. this past week, from June 28-July 4, 2012, according to NOAA.

07/06 Gold extends loss to second day after jobs data Gold prices on Friday extended losses to a second day, pressured by a stronger dollar and as the U.S. employment report fell short of analysts’s expectations and pointed to a slowdown in the labor market. Gold settled at $1,578.90.

 

 

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