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Economic News Articles Tracked Daily in The Great Recession Blog, Week of 07/29/2012

The stock market holds firm to its bullish trend during an onslaught of mediocre to bad economic news headlines because most investors are investment banks, betting that bad economic news means the Fed will deposit within those same banks more free money, which will fuel the stock market until the money is fully invested. The stock market is, in other words, now just a casino for big banks betting on what other big banks will bet on when they are given more free money from Big Ben Bernanke, head of the U.S. Federal Reserve System.

 

With manufacturing in the U.S. having unexpectedly contracted a second month in July and having contracted for some time in most other parts of the world, it seems unlikely to me that the little surge in new U.S. jobs reported for July amounts to a change in the economy’s downward trend.

Of course, Obama will do anything he can to prop the economy up until U.S. elections are over, but I’m not sure there is much he can do on a quick basis. Even if he were to persuade Gentle Ben to issue more quantitative easing, I doubt the effects of more Q.E. would last more than a couple of weeks.

The housing market has shown some good signs that might give Obama hope, but just as many bad ones. High-end homes, for example, are now in free-fall on the U.S. market, having come down 20% over the past year.

 

Euro crisis update

Nothing happened with the euro crisis in last week’s economic news, except talk. No decisions were made, and not much is likely to happen toward a solution in August. Policy makers continue to act as if time is on their side, so they are taking their summer holidays! That makes September the month of reckoning unless the crisis busts open and requires them to come running back from vacation. (Smokey the Bear says the danger of such a fire is high.)

The head of the European Central Bank said last week that he will do whatever it takes to save the euro, but then started talking at the end of the week about the things he wouldn’t do. No one seems to know what the central bank “doing whatever it takes” means; but Mario Draghi seems to think he has all the time in the world to do whatever it is he’s going to do because he hasn’t done it yet. Might as well wait, I guess, until the crisis gets worse before taking action.

A poll last week revealed that most Germans believe Germany would be better off if there was no euro.

 

What’s the plan for U.S. economic recovery?

I think one financial advisor summed up where we are quite well last week. I’d put his statement down as the words for the week: “It’s interesting to use the phrase they’re going to stimulate their economies because, so far, we’ve had QE1, QE2, LTRO this, LTRO that, Operation Twist and it hasn’t stimulated the economy. In fact, we’re probably in a recession right now.”

This raises a straightforward question: If none of those things has helped much up to now, why should we think they will help much in the future?

Republicans and Democrats avoid working on a solution because each party hopes they will gain more power in the elections so they don’t have to compromise as much. The problem I’m having is with seeing what great vision either party has that would cause them to want more power so they can enact it. What clear vision of new ideas has either party mustered up that give us a reason to keep them in office?

Republicans claimed last week that Obama was MIA just when they needed his help to get legislation through to save the country, but it remains unclear to me what legislation Republicans have that they think Obama can help them with. It was an odd comment from Boehner … as if the Republicans were saying they cannot save the economy without Obama. “Get back here. We need you!” Obviously, it was intended solely as a pot shot at the president while he’s on the campaign trail, but it does imply that congress needs the president’s help to get the job done … even in a crisis. None of them are big enough, I guess, to put on their pants and get the job done.

Nevertheless, WHERE IS OBAMA? Where is the great change Barrack Obama promised in his first presidential campaign? Why was he selected for the Nobel Peace Prize, having done nothing but run for president? Obama has had four years with Democrats in the Senate willing to give him whatever he wants, yet he’s accomplished nothing outside of health-care reform. (Where it remains to be seen whether the plan will bankrupt the country or get us all healthier.)

The Republican economic recovery plan, however, can be summed up as: 1) Save ourselves by keeping taxes exactly where they’ve been for years prior to the economic collapse and where they’ve remained ever since; 2) Don’t pay any retirees that we’ve made promises to now that we’ve gotten a lifetime of work out of them based on those promises (cut entitlements); and 3) keep the finance industry as unregulated as it was because laws don’t prevent bad activities; they just create illegal ones. I have to scratch my head and wonder why any American would vote for a plan that summarizes even more simply than the above: just keep doing everything exactly as we were prior to the crash, except don’t pay retired people what you promised them.

Congress is in the worst gridlock I’ve seen in my lifetime, yet neither side has any inspired ideas of a new economy reshaped from the ground up to be more sustainable. You cannot expect them to be the most creative people on the planet, but you can expect them to know or find the most creative people on the planet, given nearly unlimited resources to do so.

 

Next year’s economic news will be about falling off the fiscal cliff

It is the worst of times in my lifetime, yet congress doesn’t have the courage or the ability to even pass a budget! As has become so common throughout the Great Recession, they passed another stop-gap budget that will allow the country to keep running on overtime until well after the “fiscal cliff” we keep hearing about — the one the nation will fall off of at the end of December. Both parties have said they’re willing to let us all go over this cliff, but that is not likely to stop Americans from voting for their favorite incumbents.

Republicans are convinced they can solve the problems with their retreaded tax cuts, even though they haven’t solved the problem so far … and likely helped create the problem by fueling a speculative stock market. It might be true that this is no time to end those tax cuts, but it is obviously true that they will also do nothing to revive the economy. They haven’t done so in twelve years; why would they do so now? But, when you have no new ideas, all you can do is warm up leftovers.

Last summer, I predicted Republicans would take us right to the brink of not paying our bills during the battle over the debt ceiling. They did. I said they would do this because THEY knew they would compromise at the very last second to make whatever deal was needed. Thus, they were not afraid of taking us over the cliff. I predicted this would prove to be blindness on their part — that they’d think they could keep the nation’s credit from receiving its first downgrade in its history because they knew they would strike a deal when they had to. That was blind in that they were acting like European leaders — as if the markets would give them all the time they needed up to that last minute. I said, to the contrary, that our credit would be downgraded simply because of the game of brinksmanship they were willing to play with the nation’s good credit, and the nation’s credit was downgraded and remains downgraded to this day.

Now, I see them marching us all toward the brink of destruction again. They think they can let the country go over the fiscal cliff  at the end of the year and make retroactive corrections in January when they have consolidated their power. Once gain, I’m predicting what would be obvious to them if they were not blinded by their ideology: the markets will never let them get TO the brink before the markets react in very negative ways. In fact, I believe that reaction can already be felt as barely noticeable tremors.

It’s felt in the form of a stock market that no longer makes sense and goes up when the economic news is actually bad. It’s felt in the form of consumer sentiment slip-siding away. It’s felt in the form of large corporations holding back on hiring and holding back on purchases of heavy machinery (durable goods) because they have no idea what’s going to happen at the end of the year.

I call those “barely noticeable tremors” only because it is not clear that the United State’s fiscal cliff is the reason companies are seeing their orders fall and are holding back on hiring. It may have much more to do with the second dip of this recession that has hit Europe, but some commentators are speculating that there is, at least, some connection. In that case, those tremors will slowly grow worse and could be quite damaging before the end of the year gets here. Congress, in the meantime, is leaving all the heavy economic lifting up to the Fed, though the Fed has no new tools to try and has already said it is not up to the job.

 

Take economic action yourself before you become part of the bad news

As far as I’m concerned, congress has abandoned its post. Vote out both parties. Vote for independents wherever you can. Vote Libertarian if you have to. Voting against all incumbents on the basis that none has managed to pull off anything that even resembles a good future is the only true vote for change. Why vote for two parties that have been in power for more than a hundred years and who voted for all the economic policies that got us here? If it is insanity to keep trying the same thing while expecting a different result, it is mass delusion to keep voting for the same people and expect new solutions. Shake things up.

You’re only throwing your vote away if you vote for a party that has not managed so far to get us out of the mess it created. Republicans and Democrats all agree with me! I mean, who do they point to you when you ask them whose fault this mess is? Each other and only to each other. They don’t blame independents or Libertarians. So, take them at their word: It’s their fault; vote them out.

 

Rumors of war and the sound of battle drums continue to build in the news

According to one un-comfirmed news article, American officials are now saying that an Israeli strike against Iran is a “foregone conclusion” in October. I put that idea forward just a couple of weeks ago, as everyone else was saying president Obama would do all he could to make sure that war does not start before the elections. My  opinion was that an economy in the summer doldrums is a strong argument against another term in office for Obama.

So, is this unconfirmed talk by officials of and attack by Israel another intentional slip? Is it a first move to start shifting the topic toward war as now becoming inevitable (“a foregone conclusion”) in order to gradually prepare the public with the case for war? Will this talk of not being able to hold Israel off evolve into the reason the U.S. must take action in October.

 

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

07/29 Japan Industrial Output Falls As Korea Confidence Sinks Japan’s industrial production unexpectedly declined, and South Korean manufacturers’ confidence dropped to a three-year low. Production fell 0.1% in June from May. The median estimate of 29 economists surveyed by Bloomberg was a 1.5% gain.

07/31 Home Prices In U.S. Fell Less Than Forecast In Year To May Residential real estate prices declined less than forecast in the year ended May, another sign that the housing market is on the mend. The S&P/Case-Shiller index of property values in 20 cities decreased 0.7 percent from May 2011 [still a fall].

07/31 India growth forecast cut by central bank India’s central bank has cut its growth forecast for the country, which is one of the world’s fastest-growing, from 7.5% to 6.5% and is holding interest steady for the second month in a row.

08/01 Manufacturing in slump in US, UK, Eurozone and China Manufacturing in most of the world is in a slump, a raft of reports for July has suggested. China’s manufacturing is almost in contraction. Export orders in the U.K. took their hardest fall since February 2009. Germany posted one of the largest declines.

08/01 U.S. auto sales remain soft in July GM sales dropped 6%; Ford, 4%. Sales fell slightly short of analyst estimates. Analysts had expected better financing deals, pent-up demand and increased construction to offset the sluggish U.S. economy. “It’s the economy. There is no way around it.”

08/01 U.S. Manufacturing Unexpectedly Shrinks for Second Month American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery. Many economists had expected an improvement. Various reports indicate factories were retrenching.

08/02 Summary of other reports this week: Economic data underscores weakening activity Jobless Americans filing new benefit claims rose last week, though figures are still distorted. Manufacturers suffered an unexpected drop in orders in June. “The data evidence has been disappointing on a lot of fronts. There aren’t too many bright spots.”

08/03 For Luxury Real-Estate, the ‘Year of Capitulation’ Prices for homes priced at $1 million or more have fallen a 20% this year. The average sale price for top-tier real estate has fallen to just over $2 million, from $2.5 million in 2011. So, now high-end homes are taking the biggest hit.

08/04 Wall St Week Ahead: Positive momentum in the face of headwinds Despite a ho-hum earnings season and central banks’ disappointing news on economic stimulus, US stocks held firm. After four days of losses, S7P’s 500 index finished the week in the positive for a fourth straight time, reaching three-month highs.

 

Euro crisis updates as the Great Recession goes viral

07/29 ECB President On Offensive As He Must Now Live Up to Game-Changer Role Berlin, Paris and Rome have already endorsed Draghi’s approach, saying they will do what’s needed to protect the euro. Draghi must now deliver or face a renewed sell off on bond markets, where interest and yields have soared.

07/29 Germany must decide if it really wants to save the euro The majority of Germans believe the country would be better off without the euro, a poll suggested on Sunday, as the economy minister reiterated doubts over whether Greece can stay in the single currency.

07/29 No more concessions for Greece, says German Finance chief ahead of Geithner meeting Germany is standing firm despite increasing pressure to relax its stance on using the ECB to buy bonds or act as a lender of last resort to help stem the crisis in the single currency, particularly in Spain where borrowing costs are unsustainable.

07/30 Geithner, Schaeuble Hail Euro Efforts as Greece Merits No Word “We have reached a decisive point,” said Jean-Claude Juncker, who heads the group of euro-area finance ministers. “The world is talking about whether there will still be a eurozone in the next few months.”

07/30 No respite for euro zone as economic sentiment falls to near 3-year low Economic sentiment in the euro zone fell to near a 3-year low in July as the bloc’s economy deepened its slump and businesses became more pessimistic.

07/30 Krugman: It’s Doubtful Euro Can Be Saved, But It Must Be In spite of what European Central Bank President Mario Draghi says, the euro, a deeply flawed financial instrument, will last only if the European Union becomes more like a single, unified country. And that won’t happen any time soon, if ever.

07/31 Draghi Reshapes ECB Crisis Management toward Pragmatism As the crisis rages on nine months after his first meeting, Draghi is shaping the European Central Bank more and more in his own image. He has promised to resolve the problem of high interest on Spanish debt.

07/31 Euro crisis: Eurozone unemployment at record high; hope fades for quick ECB cure With average unemployment across the seventeen nations of the Eurozone hitting 11.2% in June, economic desperation is eroding hopes that the euro bloc will be saved by its central bank this week. Spain is nearing 25% with capital fleeing banks.

07/31 Euro zone crisis heads for September crunch Europe has muddled through a long series of crunch moments, but September is shaping up as a “make-or-break” month as policymakers run desperately short of options to save the euro. That isn’t stopping them from “taking holiday” in August.

07/31 Euro-saving operations due within “days,” says European Central Bank Chief Juncker blamed Germany for treating the eurozone “as its subsidiary” and basing eurozone decisions on internal political interests. “If all 17 governments would do this, what would be left of that which is common? Why is it like this?” he said.

08/02 Deepening Crisis: Spain Reports Record Capital Flight Capital outflows from Spain quadrupled in May to €41.3 billion from May 2011. The outflow has resulted from domestic banks sending money abroad, foreign lenders pulling out cash and mostly non-resident investors dumping Spanish assets.

08/02 U.S. stocks, euro tumble as ECB disappoints markets After pledging to do “whatever it takes” to ease the euro crisis, the ECB president’s words rang empty when he announced that he will wait to see if the economy slows further before cutting interest rates. The Eurozone is already in a deep recession.

08/03 Eurozone companies ‘weak in July’ Europe’s manufacturing and service sectors both shrank in July, the 11th consecutive month of contraction. It is not just a case of slowed growth, but one of contraction. For manufacturing, it was the fastest shrinkage since May ’09.

 

Federal Reserve actions tracked in economic news headlines

07/30 Investors Are Counting Too Much on the Fed Fed tools jolt the economy from decline but don’t make fundamental improvements. “I worry that the constant hope for central bank action has given investors a false sense of security that recessions and deep market downturns can be made obsolete.”

07/30 Toronto Financial Advisor: US In a Recession, and Stimulus Policies Won’t Help “It’s interesting to use the phrase they’re going to stimulate their economies because, so far, we’ve had QE1, QE2, LTRO this, LTRO that, Operation Twist and it hasn’t stimulated the economy. In fact, we’re probably in a recession right now.”

07/31 Are Fiat Currencies Headed for a Collapse? As the investment world eagerly awaits more stimulus, a debate on a previously unthinkable topic has started to emerge – can fiat currencies survive round after round of debasement? Some say currencies have entered a race to the bottom.

08/01 Fed keeps monetary policy on hold, disappointing markets The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn’t show sustained improvement, but took no new action.

The Iranium Reaction as it makes and shakes the news

07/29 Netanyahu: US national security adviser did not share Iran attack plans with us The office of the prime minister of Israel’s denied a report that said an “American official” met with the P.M. one-on-one to present operational attack plans against Iran.

07/29 US fears major Iranian threat in Persian Gulf Security experts say Iran’s new retaliation capabilities are “giving people nightmares” as they plan for war in the Persian Gulf. Iran’s numerous fast boats, mini subs and anti-ship missiles can attack a carrier from all sides at once.

07/29 US sees Israeli strike on Iran in October A widely respected Israeli analyst said American officials are convinced an Israeli military strike in October is “a foregone conclusion” while an American official said the Obama White House is working feverishly on an attack plan.

07/31 Iran halts missile work over sanctionsSanctions and trade embargos on information technology components and knowledge, have prevented the Islamic Republic from accessing key propellant ingredients and components needed for the continued development of its missile program.

07/31 Iran’s Revolutionary Guard behind attack on Israeli embassy car in New Delhi, says India Police Five members of Iran’s elite Revolutionary Guard tried to kill an Israeli diplomat with a magnetic bomb last February. This is the first the militia close to Iran’s supreme religious leader has been directly linked to the failed attack.

07/31 Romney on Iran is just like Obama “Gov. Romney believes we should employ any and all measures to dissuade the Iranian regime from its nuclear course, and it is his fervent hope that diplomatic and economic measures will do so.” If that sounds just like Obama, it’s because it is.

08/01 Obama orders new sanctions on Iran President Barack Obama on Tuesday ordered new sanctions on Iran’s energy sector and on foreign banks in China and Iraq that the U.S. says help the Islamic republic evade international penalties.

08/01 Panetta, Barak: U.S.-Israel defense ties stronger than ever “The defense ties between Israel and the United States are stronger and tighter than they have ever been and the credit now has to go, most of it, to you, Leon,” Barak said. The leaders talk will focus on whether to attack Iran’s nuclear facilities.

08/02 80% of Americans think Iran’s nuclear program threatens the US An equal 80% believe Iran IS building nuclear weapons, despite its constant denial, and 67% believe it unlikely that sanctions and diplomacy will prevent Iran’s development of nuclear weapons capabilities. Both Republicans and Dem’s back sanctions.

08/02 Don’t overplay your hand on Iran, US officials reportedly warn Israel The message conveyed by the U.S. behind scenes is that the U.S. knows what it is doing on Iran, that an Israeli strike could only damage the Iranian program while an American strike would finish it; but, if Israel attacks Iran alone, it will remain alone.

08/02 Exclusive: Obama authorizes secret U.S. support for Syrian rebels A U.S. government source acknowledged that under provisions of the presidential finding, the United States is collaborating against Syria’s Assad regime with a secret command center operated by Turkey and its allies to support the rebels.

08/02 Netanyahu: West hasn’t convinced Iranians it won’t let them go nuclear “Neither sanctions nor diplomacy have yet had any impact on Iran’s nuclear weapons program,” Netanyahu told Panetta, who responded that Iran must either accept limits on its nuclear program or face possible US military action to stop it from getting a bom

 

Articles of Justice during the Great Recession

08/03 Behind the Scenes in the Libor Interest Rate Scandal There have been plenty of banking scandals, but none quite like this: Investigators and political leaders believe that the manipulation of the Libor benchmark interest rate was the result of organized fraud. Possibly “the biggest financial scandal ever.”

 

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

07/29 30 Banks can no longer be ‘too big to fail’, says Sanford I Weill Weill, the creator of the largest financial conglomerate in the world, suggests that Citigroup and others should be broken up. What was most eye-catching, though, was Weill’s claim that his original conglomeration model “was right for that time.”

 

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

07/29 Republican Lawmakers Say They Need Obama’s Leadership to Get the Job Done! With the nation teetering on a “fiscal cliff” and no end in sight to the sluggish economy, President Obama is facing fresh and growing accusations from Republicans that he’s “MIA” on a looming catastrophe that “requires presidential leadership.”

07/31 Deal Struck To Avoid Possibility Of Government Shutdown In October Senate Majority Leader Harry Reid (D-Nev.) and Speaker John Boehner (R-Ohio) announced on Tuesday a stopgap agreement to avoid a government shutdown through March 2013, thus avoiding difficult decisions until after the lame-duck session.

08/02 60 Bills go through the House to Name Post Offices but Zero Bills to Fix the Postal Service In the 18 months, the House introduced 60 bills to rename post offices, wasting time on useless measures, while not a single bill has come to the House floor to reform a Postal Service bleeding billions of dollars because of congress’s own mandates.

08/02 House approves GOP plan to maintain tax rates for all after defeating Dem plan The House approved the Republican plan Wednesday to extend all the Bush-era tax rates for a year, in another vote that served to put lawmakers on record over the issue but did not appear to bring Congress any closer to a deal.

08/03 Simple Resolutions by Simple People Congress wastes time and money on hundreds of useless resolutions while the country’s economy burns.

Other economic updates / miscellaneous economic news articles

07/29 Election up for grabs with 100 days to go With 100 days until the election, President Obama has a tenuous lead, but the struggling economy hurts his bid for a second term. Polls show Romney leads when voters are asked who they think would do a better job on the economy.

08/01 US Stocks Waver, Scrambled by Possible Trading Glitches Traders’ attention was diverted to unusually sharp moves in a number of stocks after the opening bell. The NYSE said it was reviewing these trades. Volume was unusually high in the first half-hou, and some investors suspected technical glitches.

08/01 “Technical Issue” Shakes up Stock Trading Knight Capital warned clients of a “technical issue” and advised them to route orders elsewhere. Dozens of U.S. stocks swung erratically, spurring concern that computers were distorting trade for the second time in two weeks.

08/01 Chronic drought to become commonplace, scientists warn The four-year-long drought that affected western Canada and the U.S. at the turn of the century was the worst to hit the region in 800 years, say scientists who warn that dry spell was nothing compared to the “megadroughts” still to come.

08/01 Corn Ratings Worsen as U.S. Midwest Drought Expands The condition of the U.S. corn crop worsened for an eighth straight week amid the worst Midwest drought in a generation. Soybean ratings also fell. About 24% of the corn was in good or excellent condition as of yesterday, down from 26% a week earlier.

08/01 More than half of all U.S. counties now disaster zones, USDA says The U.S. Agriculture Secretarydeclared disaster zone designations for an additional 218 counties in 12 states on Wednesday. 37% of the nation’s soybeans were ranked from very poor to poor, 57% of the corn. Food prices next year could surge by 4.5%

08/02 Big losses from trading glitch send Knight Capital shares plunging Knight Capital Group, a major brokerage, said it lost $440 million in a trading glitch that rattled the stock market. Knight pinned the malfunction on newly installed software that sent “numerous erroneous orders” into the stock market.

08/03 Global Investment Firm GMO says We are in global food crisis “We are five years into a severe global food crisis that is very unlikely to go away…. Resource squabbles and waves of food-induced migration will threaten global stability…. This threat is badly underestimated by almost everybody

08/03 HSBC: Gold to Hit $1,900 an Ounce by End of 2012 One of the largest banks in Hong Kong where China does much of its gold trading says it anticipates gold topping $1,900 per ounce due to growing uncertainty about U.S. financial health. “Patience is the most important commodity” in benefiting from the rise.

 

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