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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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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.

06/30 Video of this year’s violent protests in Greece

 

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.

 

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Economic News Articles in The Great Recession Blog, week of 06/17/2012

Greece came together and fell apart in the same week; Spain went into free-fall; Germany’s Merkel dithered as if she owns time, itself … all while U.S. politicians did nothing but complain and campaign. While politicians all over the world could not agree on solutions, many of the world’s largest banks were substantially downgraded.

 

Economic news articles about the China Syndrome were in short supply

Economic news about China have been relatively sparse in the headlines over the past few weeks. That is partly because the rapid rise and fall of the European empire has dominated the news — especially last week after the election of a Greek government committed to tearing apart the Eurozone’s Greek bailout agreement, which took months of faltering meetings to come together in the first place.

I’d like to point out, though, that this short supply of headlines made in China is because China is not the critical news story that some hand-wringers have claimed it to be. To illustrate that, I need only point out the two headlines about China that did cross my radar last week. They underscore what I’ve said about China as a response to those who fear its fall.

One headline noted what everyone should be saying, which is that China intentionally put the brakes on its economy to get its runaway housing inflation in check. Apparently, the memory banks of economists run out of juice when they try to access anything further back than a few months because many of them have forgotten entirely that the slowdown of the Chinese economy was, I quote, a “desired effect.”

This time last year, news on China’s economy abounded with talk about China’s plan to slow down its economy in order to keep skyrocketing housing prices from going any higher — a completely opposite problem to what the Western world faces where all leaders are trying to prop housing prices up, rather than let the market correct itself to sane prices that no longer exceed one’s ability to pay off within a lifetime. Even with this planned slowdown now proving effective, the Chinese economy continues to cruise at a speed the U.S. government would have envied any time in the past fifty years.

Well, that is IF you believe Chinese government statistics, which I have always doubted. For as long as China has been paraded around as the economic wunderkind, I have said that all statistics about the growth of the Chinese economy are probably inflated. I mean, why would anyone trust a dictatorial communist government in anything it says to the world at large about its economy?

I have always felt that business leaders were absurdly enamored with China. Already, many who moved factories there for cheap labor are moving them back out. What fools to make such major (and socially upsetting) moves for such short terms.

An article last week mentioned a number of Chinese business executives who are now reporting that they are told to keep double sets of books in order to give inflated figures to the government for statistical purposes. Shocking! They say that is because the government wishes to keep the Great Recession from appearing so bad. Really??? (Hand over mouth in feigned shock.) Of course that is true!  Double books have been the standard business practice throughout China for generations! Shame on anyone who found that story to be news!

 

The rise and fall and rise and fall of Europe in last week’s economic news articles

Stock markets breathed a heavy sigh of relief upon last week’s opening when they learned that Greece had finally put a new government in place, then they went right back to worrying because the new Greek government made it abundantly clear that it is determined to renegotiate the Greek bailout agreement. In other words, it turns out nothing was settled in the meetings that finally settled the current plan. It’s back up for grabs.

The agreement fell apart, even though the most bailout friendly party was elected and even though Greece gets 70% of its debt wiped off the balance sheet on the present agreement. Germany, as Europe’s apparent loan (and lone) task-master, made it clear that it will not budge on the required austerity measures and will not offer any other forms of desired help that other European nations are asking for. It is clear that Angela Merkel wears the pants in Europe. Nothing the Eurzone needs happens without her consent, and no one in Europe has been strong enough to wring that consent from her hands.

As a result of last week, everyone from George Soros to Italy’s prime minister is saying that Europe has only one week (the current one) to get its house in order. That falls on deaf ears with Merkel who continues to talk about five and ten-year plans as if the Eurozone will continue to exist that far out if she does not agree to a plan right away. She apparently believes that time is on the side of the righteous as she seeks to get people to live within their means as every good German knows people should do. Her noble plans require establishing all the right checks and balances and political structures to make sure that Germany has control over European finances if German funds going to be used to save the Eurozone. That will take years of ammending the treaties that create the Eurozone and the EU, itself, into a more homogenous structure, as such agreements must be voted on by every nation.

This illustrates what I (and apparently the wiser leaders of the United Kingdom) have said all along. The Eurozone is destined for self-destruction precisely because it does lack the complete integration of societies that is necessary for them to all operate off a common currency. It is only natural that Germans are unwilling to put their entire economic security at risk to bail out the profligate Greek government that lied in order to gain entrance in the E.U. in the first place. It is only natural that German people are unwilling to stake Spanish banks that are certainly failing because Spanish people took out so many home loans they couldn’t afford while German people apparently lived within their means. It is only natural that they do not want to go down together for each other’s sins. That has been the obvious flaw in the euro from day one.

At the end of the day European nationalism is far greater than euro-centrism. If it comes down to be a European or being a German, Germans will pick being German. Greeks will not.

 

The rise and fall and rise and fall of global stock markets in economic news articles of the week

The U.S. stock market runs on laughing gas because no real economy fuels it. Instead, the stock market is fueled by speculative fiat money created out of thin air by the Fed. In other words, the U.S. stock market now runs on the fumes money. It is nitrous oxide injected. That is why it is so volatile. Purchases are not being made by long-term traders who base their decisions on the long-term health of companies to grow in a stable economy. They are made on the basis of guesses about what folly the Fed will try next or what nation will be next to print more money … or whether Greeks will choose to act like Greeks or like Germans.

Stock markets have become a game of guessing about government intervetions. There has always been some of that, but now that’s all that’s left — fumes. When investors foolishly thought over the past couple of weeks that the Fed would juice the economy, they bid the market up into a rally, but the rally faltered in just a few days because the Fed announced it has nothing new up its sleeve and is going to do as little as possible. The entire rally was about nothing more than baseless hopes that superman would save the day. Since the market gets its fuel now days from the Fed’s funny money, it rises or falls on the Fed’s word.

In the markets of this world that actually do matter, U.S. manufacturing was down, jobs were solidly down, CEOs announced diminishing profit expectations due to Europe, the largest banks in the nation were significantly downgraded (seriously compounding their troubles), and used housing purchases were down as were new home starts, but new permits were up. I expect housing to continue to rock up and down on the waves because prices want to fall more, and there are many foreclosures to come, but the economic dinosaurs of this world are doing all they can to re-inflate the old housing bubble with record-low loan rates.

 

In short, the U.S. economy entered the summer doldrums exactly with the timing I have been predicting all year long, and Europe appears right on the cusp of the summer from hell as no one believes its summit this week is likely to bring a significant enough change to turn around the rapidly disintegrating European financial crisis. All of this bad news has pushed consumer confidence down to a minus eleven in Bloomberg’s poll. The doldrums are here.

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

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

 

China syndrome — following the Great Recession to the Great Wall

06/18 China property prices drop further raising growth fears Property prices in China fell further in May, indicating that government policies put in place to curb speculation are having the desired effect.

06/23 Chinese Data Mask Depth of Slowdown, Executives Say Prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of China’s troubles.

 

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

06/18 Market Rally Fades As Investors Turn Attention From Greece To Spain It hasn’t taken long for financial markets to heave sighs of relief about Sunday’s vote in Greece and then get back to worrying: “An early risk asset rally has faltered as traders turn their attention away from Greece and to rising Spanish bond yields.”

06/18 Oil off day’s high above $99 as Greek relief ebbs “The market is going to digest the Greek elections and once the initial euphoria dies down, we will see the market rebalancing and turning their attention to Italy and Spain,” said Jim Ritterbusch, president of trading consultancy Ritterbusch & Assoc.

06/18 Wall Street to open lower as Greek vote euphoria fades US stocks were poised for a lower open on Monday as initial enthusiasm over a victory for pro-bailout parties in Greek elections was overshadowed by rising Spanish and Italian bond yields.

06/19 Building permits at 4-year high, single-family housing starts up Builders broke ground on fewer homes in May, due mostly to plummeting apartment construction, but requested the most permits since September ’08. Housing starts last month dropped 4.8%. However, compared with May 2011, new construction is up 28.5%.

06/19 Employers Post Fewer Job Openings in Sign Hiring Will Remain Sluggish Employers in April posted the fewest job openings in five months, suggesting hiring will remain sluggish. Job openings can take one to three months to fill. The decline in openings coincided with a major plunge in hiring for both April and May.

06/19 Foreclosure activity remains muted in U.S. Few signs of any looming foreclosure wave emerged in May, although filings edged up 9% from a month earlier, but were down 4% from May 2011, the 20th consecutive month of year-over-year decreases. “It’s going to be a bumpy ride,” said RealtyTrac’s CEO.

06/19 U.S. Stocks Advance to One-Month High U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as the Federal Reserve begins a two-day meeting to decide whether more monetary stimulus is needed to boost the economy.

06/19 Why stocks may be even riskier than you think There’s nothing to worry about if you ask Wall Street analysts who give advice on which stocks to buy. This famously cheery group says earnings, which appear at a standstill today, will start growing this summer, then leap 15%. [They’re dreaming.]

06/20 Oil Extends Decline As Inventories Reach Most Since 1990 Oil fell after the Energy Department said U.S. crude stockpiles rose to the highest level in almost 22 years and as investors awaited a Federal Reserve announcement on whether it will act to bolster the economy.

06/20 Public Workers Face New Rash of Layoffs, Hurting Recovery Since its peak in April 2009, the public sector has shrunk by more than half a million jobs. The losses appeared to be tapering off earlier this year, but have accelerated for the last three months, creating the biggest drag on recovery in many areas.

06/21 Big-name Profit Warnings Worsen Earnings Outlook Many bellwether companies, including two components of the Dow Jones Industrial Average, have come out in recent days with profit warnings, and the slowing in Europe has been cited as a major factor for those outlooks.

06/21 Bloomberg Poll: Americans’ Economic View Dims The fewest Americans in five months said the economy was improving in June, signaling the slowdown in employment is seeping into consumer psychology and pushing the Bloomberg monthly expectations gauge to minus 11 from minus 1 in May.

06/21 Home Resales Decline Sales of previously owned homes in the U.S. fell in May, suggesting that economic headwinds and a lack of available lower-priced properties may be holding back housing market’s recovery.

06/21 Manufacturing, Jobs Reports Add Up to More Bad News U.S manufacturing grew in June at its slowest pace in 11 months and hiring in the sector slowed as overseas demand for U.S. products waned. The number of Americans filing new claims for unemployment benefits was also little changed last week.

06/21 Mortgage Rates in U.S. Fall With 30-Year at a Record-Low 3.66% U.S. mortgage rates for 30-year fixed loans declined to a record low to an average rate of 3.66 percent from 3.71 percent last week. Low borrowing costs are combining with decreased home prices to lift demand and prompt builders to take on new projects.

can i order ambien online route of the year as bad news piled up. Economic readings in the U.S., Europe and China triggered a bearish recommendation from Goldman Sachs. “The news has been horrible out there.”” href=”https://www.idahopress.com/news/national/stocks-plunge-after-weak-manufacturing-reports/article_7c45d4cb-2ca9-5f04-b3e2-484f95f7db1c.html” target=”_blank”>06/21 U.S. Stocks plunge after weak manufacturing reports and Goldman call A quiet start on Wall Street quickly turned into the second-worst route of the year as bad news piled up. Economic readings in the U.S., Europe and China triggered a bearish recommendation from Goldman Sachs. “The news has been horrible out there.”

06/21 Why did home sales cool during key spring season? News delivered by the National Association of Realtors means the housing market was not as robust during the important spring season as forecasters had predicted. Sales of previously owned homes fell by 1.5%. Foreclosures have just begun to rise again.

06/22 Oil, U.S. stocks bounce back from Thursday’s losses Oil bounced from 18-month lows on Friday as investors shifted their focus to efforts to resolve Europe’s debt crisis, while U.S. stocks rebounded from the second-worst decline of the year.

 

Economic predictions / forecasts that made news headlines

06/23 Bad news: World is sliding into a new recession Many nations have struggled to emerge from the Great Recession of 2008-09; yet the world is slipping into a new recession. No global authority has dared say so, but the writing is on the wall. Today’s commodities crash is a classic indicator.

6/23 Target: 2015 Get ready for 2-1/2 more years of slog – and that’s the optimistic view. That’s the message in increasingly definitive tones from central bankers, politicians, and economists. It won’t be until 2015 – if then – that the world emerges from the long slump.

 

Euro crisis updates as the Great Recession goes viral

06/18 Economic week ahead: Postponing the reckoning Markets breathed a collective sigh of relief on Sunday as Greece’s pro-austerity New Democracy Party placed first in parliamentary elections — likely to reassure markets now, but does little to change the fundamental problems confronting the eurozone.

06/18 European banking stocks fall despite Greek vote result Bank stocks fell sharply all across Europe, despite the victory of the pro-bailout New Democracy party in Greece’s elections on Sunday, and Spanish bond yields remained volatile, rising through the 7% danger level.

06/18 Greece’s New Democracy seeks bailout coalition Greece’s conservatives are close to forming a new coalition government following a narrow election victory, a party official said on Monday, after their leader promised to soften the country’s punishing austerity program despite German opposition.

06/18 Hollande’s socialists storm French Parliament Francois Hollande’s party has won an absolute majority in Parliament, giving him a free hand to implement a socialist solution to France’s woes. The left now holds a historic concentration of power as it controls both the assembly and the senate.

06/18 Pro-euro Greek right tries, again, to form government Antonis Samaras has three days to cobble together a government after parliamentary elections Sunday put his party in first place. The party that came in second, the radical left group Syriza, said Monday it would not back him.

06/19 EU Will Renegotiate Bailout Terms With Greece, Official Says The Greek debt deal is back on the table for renegotiation by all parties because circumstances have changed greatly, though German Chancellor Angela Merkel has said loosening Greece’s promises would be unacceptable. Proof the Greek deal is never done.

06/19 Germany Resists Concessions To Greek Bailout Terms At the G-20 summit, German Chancellor Angela Merkel reiterated her tough line that bailout terms for Greece are not negotiable. After the summit, Merkel returns to a German electorate that is now fed up with a debt crisis that only seems to grow worse.

06/19 Spanish borrowing costs jump at debt auction While Madrid raised its intended 3.04bn euros, the interest rate payable rose from 3% at a similar debt sale of 12 and 18-month bonds on 14 May to 5.1%. Spain also announced Spanish bank audit reports will be delayed in their release by 2-3 months.

06/20 Europe muddle thickens as leaders fail to step up “I think [Merkel] will remain an incrementalist: we have not yet reached the point where it is obvious … we are hanging over the precipice…. What is going to come out is going to temporarily pacify markets until it is clear that it is not … sufficient.”

06/20 Greece clinches coalition deal to battle bailout Conservative leader Antonis Samaras was sworn in Wednesday as prime minister of a new Greek coalition, taking up the challenge of trying to revise the Eurozone’s unpopular bailout deal. His coalitions partner pledges to “carry out a major battle.”

06/20 Spain Sees No Need for Bailout as Rates Ease a Bit Spain’s Finance Minister says Spain “does not need to be rescued.” However, after years of insisting its banks were among the healthiest in Europe, Spain recently acknowledged it will need a rescue package to protect banks from a property boom that went bust.

06/21 Debt crisis: EU leaders set to announce €750bn Spain and Italy bailout deal Pan-European Government funds may buy Spanish and Italian bonds. “We must show a much faster capacity for action,” Mr Hollande said. Under the proposed deal, two European rescue funds will be able to buy bonds issued by beleaguered European countries.

06/21 Fragile Dutch economy at mercy of euro crisis The Dutch economy, struggling to escape recession, will face years in the doldrums if Europe’s political leaders fail to put together a package of measures to contain the region’s debt crisis, a government advisory body said on Thursday.

06/21 New Greek government aims to revise bailout Having campaigned as the best leader to reassure European partners that Greece would be a reliable partner, Prime Minister Antonis Samaras has spent the days since Sunday’s election promising to revise a bailout deal painfully hammered out in March.

06/21 Spain’s long-term borrowing costs eased, giving short-lived rise to Euro stocks Euro stocks spent most of the day in positive after Spain succeeded in selling 2.2 billion euros of various maturities, exceeding its target range of €1 billion to €2 billion. Yields on 10-year Spanish bonds dropped 21 basis points to 6.52.

06/21 Spain’s medium-term borrowing costs soar as EU ponders bank aid Spain’s medium-term borrowing costs spiraled to a euro-era record at an auction on Thursday, hours before an independent audit was due to reveal how big a capital hole in Spanish banks needs to be filled by a euro zone bailout. 5-year paper rose to 6.07%.

06/22 Germany Continues to Hold Back on Euro Rescue Italy, Spain and France made no progress at pushing Germany’s Merkel toward mutualizing sovereign debts of the Eurozone nations or even toward using bailout resources more flexibly. France’s president voiced impatience with Berlin’s reluctance.

06/22 Italian PM: we have a week to save the eurozone Mario Monti warned about the risk of indecisive results at next week’s summit of EU leaders. Faced with creeping economic paralysis, “the frustration of the public towards Europe would grow,” creating a vicious circle inside and outside the EU.

06/23 Germany’s Merkel Parries Push for Euro Debt Plan It’s Germany first, euro second for Merkel who won’t boost Spanish banks with German funds. She won’t agree to common Euro bonds where Eurozone nations pool their debt. She resisted using the bloc’s bailout funds to buy bonds of struggling nations.

06/23 Greece seeks to extend austerity measures deadline by two years Greece wants tax cuts, help for the poor and unemployed, a freeze on lay-offs and more time to cut its deficit under a plan likely to stir strong opposition at the European Union summit. The plan would undo many of Greece’s agreed austerity measures.

 

Federal Reserve actions tracked in the economic headlines

06/21 Fed Expands Operation Twist by $267 Billion Through 2012 The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.

06/21 Fed takes path of least resistance with new stimulus plan Rather than doing nothing, the Fed decided to do as little as it possibly could. Bernanke said the large number new developments since the Fed’s last meeting were “disappointing,” and he offered assurance that quantitative easing is still on the table.

06/22 Bernanke’s Twist Sharpens Year-End Anxiety Over Stimulus Federal Reserve Chairman Ben S. Bernanke has repeatedly warned lawmakers that a fiscal cliff threatens the economy a the end of 2012. Now he’s created a precipice of his own by timing Operation Twist to end at the same time as “Taxmageddon.”

06/22 Opinion: Fed Easing Doomed to Failure “How it ends is anybody’s guess. But just in simple terms, I think by avoiding the ability to clear [asset] prices at a normal low level as has happened in the past, the Fed is trying to step in and manage risk assets to too great a degree.”

 

The Iranium Reaction as it makes and shakes the news

06/18 Iran nuclear talks “intense” with no breakthrough Experts said a breakthrough was unlikely, with the US, China, Russia, France, Britain and Germany wary of concessions that would let Tehran to gain time to develop nuclear weapons capability. “The environment is not positive at all.”

06/19 Iran slams world powers’ plan for limiting its nuclear program Iran on Monday offered up a blistering critique of a proposal by six world powers to rein in Tehran’s nuclear program, marking another setback in efforts to find a diplomatic solution. Both sides are now weighing whether further talks make sense.

06/21 As Iran nuke talks fail, stage set for tougher sanctions EU foreign policy chief Catherine Ashton announced an indefinite pause in talks with Iran, saying talks should only be resumed if a low-level meeting in July finds enough common ground to warrant more. Officials acknowledged huge differences.

06/22 ‘Iran could have enough material for bomb within 4 months’ If Iran decided to produce an atomic weapon, “it would take them 35 to 106 days to actually have the fissile material for a weapon.” The enrichment rate is now “three times the rate of production prior to the Stuxnet virus.”

06/22 Ahmadinejad calls for ‘new world order’ without nuclear monopoly Ahmadinejad seemed to confuse talking about the right to nuclear energy with talk about the right to nuclear arms.

06/22 Israel says clock ticking after Iran talks failWith diplomacy at an impasse, Israeli leaders are satisfied by with the tough line taken by the West. “By the third meeting, you know whether the other party intends to reach an agreement or, alternatively, whether he is trying to play for time.”

06/22 No light at end of Egyptian tunnel for Israel While not an Iranian situation, Egypt’s political upheaval is creating unease for its neighbor, Israel, who is not waiting for the outcome of Egyptian elections. Desert defenses are being strengthened and strategy revised as a once stable relationship splinters, bringing more potential for conflict to the worlds oil pump.

 

Articles of Justice during the Great Recession

06/19 Complaints Against Banks to Be Published Online The new U.S. consumer watchdog agency is launching a website where the public will be able to view complaints made by credit card customers against specific banks and other lenders.

06/20 Bank of America Largest Source Of New Consumer Bureau’s Complaints BofA accounted for almost 13% of the 13,210 complaints, mostly about credit cards, to the bureau between July 21 and Dec. 31, 2011. JPMorgan and Citigroup each accounted for about 11%. Complaints will be made available to a public website today.

 

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

06/21 Moody’s downgrades a dozen of the biggest names in banking Moody’s Investors Service dealt a fresh blow to the financial sector, downgrading more than a dozen global banks to reflect declining profitability in an industry rocked by soft economic growth, tougher regulations and nervous investors.

06/23 A Sober New Reality in Credit Downgrades for Banks When a consumer’s credit score drops, it is hard to recover financially. Wall Street firms could face the same extended pain. The downgrades of the nation’s largest banks reflect a new sober era for Wall Street. BofA was rated just two levels above junk.

 

U.S. government actions and inactions in articles about the economy

06/21 G20 warns US over deficit amid fears it is the next crisis to hit America was given a rare warning from G20 countries not to botch its own deficit-cutting measures amid fears that the world’s biggest economy could fall off a “fiscal cliff” next year. The rebuke reflects increasing concern over America’s $15trillion debt

06/21 Pimco’s El-Erian: US Falling Behind On Policy Response “In continuing to act on its own, all the Fed will do is buy some time that will again be wasted by the country’s politicians. Meanwhile, collateral damage will mount, making the next policy steps even more excruciating.”

 

Other economic updates / miscellaneous news articles

06/18 Gold dips after pro-bailout parties set to win Greek vote Gold dropped early on Monday, with Greek’s pro-bailout parties on course to win a slim majority at Sunday’s election, calming fears of Athens leaving the euro zone and reducing bullion’s safe-haven appeal.

06/18 U.K.: More people plan to delay their retirement, says Saga Many people in their fifties appear to be planning to work past the current state pension age (SPA) of 65, research suggests.

06/19 Earth may be near tipping point, scientists warn Forty years ago, the Club of Rome caused a stir when it argued that there were limits to world growth. In 1968, Paul Ehrlich warned of the dangers of overpopulation in his book “The Population Bomb.” Where we are today “is what scientists saw in the ’60?s.

06/20 Schiff: I Won’t Apologize to Congress for FHA Comments “Congress wanted to replicate the very dynamic that helped create the bubble in single family housing, which ushered in the financial crisis of 2008, the great recession, and left taxpayers on the hook after the bubble burst,” says Schiff.

06/21 Gold prices fall more than 2.5 pct as Fed disappoints The Fed stopped short of unveiling more quantitative easing, disappointing gold bulls who hoped interest rates on U.S. treasuries would drop if the Fed started printing more money. Gold is on the brink of turning negative for the year.

06/21 Putin worried more about US dollar than euro “If we keep (half of reserves) in dollars … we would like to know what will happen with the dollar after the … presidential elections. [US] debt is 15 trillion! What will happen with the world’s main reserve currency? What should we prepare for?”

06/22 Bailouts Can’t Save Europe, Failures Must Go Bankrupt: Jim Rogers “This is how we got into World War II. Add debt, the situation gets worse, and eventually it just collapses. Then everybody is looking for scapegoats. Politicians blame foreigners, and we’re in World War….” His advice is to let failures go bankrupt.

06/22 Obama’s Approval in Freefall on Stagnant Economy President Obama’s approval ratings on his handling of the economy have taken a dip due to worsening economic conditions. Just 33% of Americans believe the president is doing a “good” or “excellent” job when it comes to the economy, sdown from 41% in May.

Economic News Articles in The Great Recession Blog, week of 06/10/2012

The euro crisis dominated economic news and set the stage for the summer I have been anticipating. Stocks fell; unemployment climbed; sales dragged; manufacturing sluffed off; consumer spending receded. Interest on the U.S. debt also ticked upward when the annual deficit soared over the trillion-dollar barrier for the fourth straight year. And that was just one week!  

 

Where have all the flowers gone?

The world fixated on Greece for the entire week in anticipation of elections that could take Greece out of the euro zone and risk the death of the euro. Even the good economic news in this present week that Greece voted for a pro-euro government had almost no effect toward lifting Europe out of its troubles, as Spanish debt prices continued to push above the 7% barrier that has been the level at which other European nations had their blossoms plucked.

Yes, all of the good news of the first quarter of 2012 — winter’s early blossom — fell apart like old rose pedals at the end of spring. Europe’s troubles took center stage once again just as summer is about to begin. Now, I’m not the only one whose predictions for 2012 warned of this exact scenario clear back when everything was looking rosy to most stock analysts and even most economists. One economist has been willing to stand apart from his colleagues. Here’s a quote from those days in February when most experts thought the economy was budding with promise:

 

Economist Nouriel Roubini believes recent actions by the Federal Reserve and European Central Bank will continue to make equities an attractive investment during the next few months, The Wall Street Journal reports.

Contrarian investors take note: Given that Roubini (also known as “Dr. Doom”) is one of the biggest investing bears on the planet….

“We’re a believer; we’re celebrating. We think the rally has legs,” Gina Sanchez, Roubini’s director of equity and allocation strategy, told CNBC.

… Sanchez topped off this forecast by saying that investors have months to make money.

But the Wall Street Journal reported that Roubini tweets he doesn’t see the rally lasting more than a few months. “Indeed in H2 2012 the rally will fizzle,” he said on Twitter….

However, Roubini also reportedly thinks more pain will accompany the equity markets in the second half of 2012, and sees the S&P 500 ending the year at 1300, which would represent a 3.6 percent decline from current levels. (“Famed Bear ‘Dr. Doom’ Roubini Turns Bullish“)

I didn’t get my predictions of decline earlier this year from Roubini. I came by them honestly by making my own deductions, but sometimes it pays to note (and quote) where others have agreed with you as reinforcement to what you are saying. In fact, I said the economy would fizzle before the second half of the year (H2), and it has been fizzling throughout the last month of spring.

The point I want to make is that you can see these dark times coming, even when things are looking rosy, if you’re willing to take your reality straight up. You have to be willing to rub noses with the bears and not just listen to those purveyors of economic fluff who will tickle your rose buds with the gentle breaths of spring air you’d like to hear about the economy.


 

Germany fiddles as the euro burns

The fizzling is now sizzling as we get ready to enter that summer that “will look like the heat of hell for Europe.” Things in Europe are going to get hot enough to burn the tired soles of German Chancellor Merkel’s feet as she skids along in resistance from one international emergency meeting to another. I wouldn’t want to be in her shoes.

The biggest reason Europe is not going to find a solution to its problems is that Germany clearly rules Europe, just as it wished to do in the last century and several other centuries before. Notice all decisions now constantly hinge on what Angela Merkel is willing to do. Germany has the money, and money rules. Merkel (and the Germany that stands behind her) is only willing to incrementally do the minimum amount necessary to save the situation. And this goes against the advice I have given people for years in falling markets.

If you’re in a falling market, you have to get ahead of the game. If house prices are falling, for example, you need to bite the bullet right away and price yourself under the market to get out (if it is your intention to sell). If you try to price at the market, the market is moving downward faster than your own marketing efforts, and you will wind up following the market all the way to its bottom with one price reduction after another … always doing what you think is the minimum it will take to get out. I’ve seen people do it time and again. The smart ones cut their losses quickly if they need to sell.

That is the game Merkel is playing. She is clearly not the kind of leader who is willing to do more than the market demands at the moment in order to get ahead of the game. Germany’s conservative approach will follow this thing to the bottom. They are constantly putting out brush fires, instead of getting well ahead of the fire and creating a solid fire break. To create a fire break, you have to be willing to sacrifice a certain amount of territory that you would have liked to save in order to buy the time it takes to create proper protection. Germany is working from crisis to crisis and never getting ahead of the blaze, never making fullest use of the time it has … arrogantly acting as if time, itself, is one Germany’s schedule.

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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 this week

06/12 UK Factory Output Takes Unexpected Fall Factory output fell 0.7% in April from the month before, said the Office for National Statistics (ONS). It follows a 0.9% rise in March. The figure was worse than expected as analysts had predicted no change.

06/13 Stocks Fall as Retail Sales Drag “We’ve had a volatile couple of days,” said Ryan Detrick, senior technical strategist with Schaeffer’s Investment Research. “Over the past couple of weeks, the market hasn’t really gone anywhere. But declining retail sales are a major problem.”

06/13 U.S. Bonds rise on weak U.S. data before 10-year sale U.S. government debt prices rose on Wednesday after weaker-than-expected inflation and consumer spending data reinforced the view of slowing U.S. economic growth, which may result in more monetary easing from the Federal Reserve.

06/14 Monthly Federal Deficit Doubles, Annual Nears $1 Trillion … Again The U.S. government budget deficit dramatically widened in May, as spending jumped 31.3 percent from the same month a year ago. Overall, the budget deficit is approaching $1 trillion for a fourth straight year even though the government is collecting more.

06/14 Top global accounting firm Deloitte says US debt crisis is ‘bigger than you think’ Interest payments on the country’s massive debt add a whole new level of fiscal pain and are expected to total some $US 4.2 trillion over the next decade, and that is if the rates stay at their record low! U.S. debt could rapidly spiral out of control.

06/14 U.K. Income fall ‘biggest since 1981’, say tax experts UK households saw their average take-home incomes drop by 3.1% in 2010-11. It said this was the first fall for five years and was the biggest drop since 1981. The fall was due to the belated effect of the recession between 2008 and 2010.

06/15 India’s services export down 23% in April India’s services export, which had been growing 25% a year for the last ten years, plunged 23% in just one month as American and European countries outsource fewer services to India due to declines in their economies and as the rupee depreciates.

06/15 Slower Manufacturing, Dim Sentiment Pushing Economy Into ‘Ugly Situation’ In May, output sank at American plants making everything from cars to computers. June already shows factory activity in New York state cooling. Consumer spending slowed and sentiment fell in early June to a 6-month low. Hiring has slowed 4 straight months.

06/15 Unemployment rates rise in 18 states in May Unemployment rates rose in 18 U.S. states in May, the most in nine months. Unemployment rates fell in only 14 states. That’s fewer than the previous month, when rates fell in 37 states. Employers added only 69,000 jobs, the fewest in 12 months.

06/15 US factory production declined 0.4% in May US factories produced less in May than April, as automakers cut back on output for the first time in six months. Retail sales also dipped in May for the second straight month, giving the first back-to-back drop in two years.

06/15 Wall Street gains as Europe girds for turmoil Showing their addiction to bailout economics and free money, US stocks rose on Friday on optimism major world central banks will take coordinated action if the closely watched election in Greece this weekend results in market turmoil.

 

Economic predictions / forecasts that made news headlines

06/13 IMF chief Christine Lagarde warns world risks triple crisis Christine Lagarde, the head of the International Monetary Fund, has warned that the world risks a triple crisis of declining incomes, environmental damage and social unrest unless countries adopt a more sustainable approach to economic growth.

06/15 Roubini: Global Economic ‘Perfect Storm’ Brewing With No Place to Hide A global economic storm is set to unleash in 2013 with no safe harbors, says NYU economist Nouriel Roubini. The European debt crisis continues to build. Asian economies are cooling, and Middle East tensions involving Iran are likely to flare again.

 

Euro crisis updates as the Great Recession goes viral

06/11 Germany grows weary of being Europe’s crutch Germany seems on the verge of a bad case of bailout fatigue. Opinion polls are beginning to show waning support from voters and taxpayers for their reluctant role as the defender of the 20-year experiment in monetary union known as the euro.

06/12 Asian markets fall as euphoria fades over Spain bank deal The optimism over the $125 billion weekend deal was replaced by concerns about the practicalities of implementing the bailout and fears that it would not be enough to avert a broader catastrophe in the eurozone.

06/12 Eurogeddon: A Worst-Case Scenario Handbook for the European Debt Crisis Spain’s bailout was a failure – an abject flop that was supposed to buy Spain’s credibility, but instead bought only four hours of peace before investors continued to panic.

06/12 Fitch cuts Spanish banks after Fitch Ratings on Tuesday downgraded 18 Spanish banks less than a week after the agency cut the country’s sovereign debt rating, underscoring the potential for lenders’ assets to deteriorate further.

06/12 Germany will not bow to G20 pressure on growth Berlin will not bow to pressure to boost growth with more borrowing and will “maintain that line” at this month’s G20 summit, a German government source said on Tuesday.

06/12 Spain borrowing costs hit euro-era record high Spain’s borrowing costs have risen to the highest rate since the launch of the euro in 1999. The benchmark 10-year bond yield hit 6.81%, as optimism about the weekend’s Spanish bank bailout continued to evaporate.

06/13 Why Spain’s Big Bank Bailout Is Really a Big Bust Every time the leaders of the beleaguered euro zone come together to make a decision aimed at quelling its debt crisis, the boost in confidence for the common currency’s future becomes shorter-lived. The latest step barely moved the sentiment meter.

06/14 German minister rejects plans to pool eurozone debt Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said, “Debt is a national responsibility. I don’t see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted.”

06/14 Greeks Withdraw $1 Billion a Day Ahead of Cliffhanger Vote Greeks pulled their cash out of the banks and stocked up with food ahead of the election on Sunday that many fear will result in the country being forced out of the euro. Retailers said some of the money was being used to buy pasta and canned goods.

06/14 Spain’s borrowing costs at fresh high after Moody’s cut The yield on benchmark 10-year bonds hit 7% in early trade, a level which many analysts believe is unsustainable in the long term. It later fell back slightly. It came as Moody’s cut Spain’s credit rating to one notch above “junk.”

06/14 Spanish gov’t appeals for calm amid market turmoil Bond yields jumped due to Moody’s decision Wednesday to downgrade the country’s sovereign credit rating by three notches to Baa3, the lowest investment-grade rating, and to the possibility that both Italy and Spain might require a sovereign bailout.

06/14 Wall St rises on news central banks primed to act U.S. stocks jumped on Thursday after news major central banks are preparing coordinated action to stabilize markets and prevent a credit squeeze if necessary if the results of Greek elections this weekend lead to turmoil in financial markets.

06/15 Central Banks Warn Greek-Led Euro Stress Threatens World Monetary policy makers around the world sounded the alert about potential fallout from the euro bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

06/15 Euro crisis: World on red alert for Greek vote Companies across the globe are on high alert this weekend as the Greek vote on Sunday could decide the future of the euro. Fathers’ Day celebrations have been cancelled for some to prepare for any disruption. In Asia, banks are calling in extra staff.

06/15 Europe Crisis Spreads As Merkel Resists Big Steps European countries are being squeezed by a financial vise ahead of the Greek election that could escalate the region’s political and economic turmoil. Italian and Spanish borrowing costs rose to alarming levels on Thursday. No grand solution is imminent.

06/15 Francois Hollande warns Greeks vote could see them exit Euro While acknowledging the Greeks’ right to determine their future, Hollande said that, if it appears from the vote that they doen’t want to respect the bailout deal, “there will be countries in the eurozone which would prefer to end Greece’s presence.”

06/15 How shock waves will hit US if Greece drops euro What was unthinkable earlier this year suddenly looks possible. Bankers, governments and investors are starting to prepare for Greece to stop using the euro as its currency, a move that could spread turmoil throughout the global financial system.

06/15 Moody’s cuts Dutch bank credit ratings on eurozone woes “Dutch banks will face difficult operating conditions throughout 2012 and possibly beyond,” Moody’s said. The cuts come amid fresh worries about debt-laden Spain, Italy and Cyprus. The election in Greece on Sunday may also undermine financial confidence.

 

Federal Reserve actions tracked in the economic headlines

06/13 Under Obama, Fed’s Holdings of U.S. Debt Have Jumped 452% The Fed’s holdings of U.S. government debt have quintupled — an increase from January 2009 of $1.366 trillion. Under Obama, the Federal Reserve has become the single largest owner of U.S. government debt. When Obama entered office China was the largest.

 

The Iranium Reaction as it makes and shakes the news

06/11 Iran feels sanctions pain as oil income slumps Iran’s finances are under unprecedented pressure and the resilience of ordinary people is being tested by 20% inflation due to tightening oil sanctions and sharply falling oil prices. Oil output is the lowest in 20 years with revenue down by $10 billion.

06/11 Letters show 6 world powers, Iran, remain split on nuke issues Letters show same issue divides: Six nations negotiating with Iran want it to stop enriching uranium to a level that can be turned quickly into warhead material. Tehran claims only interested in medical research. Next meeting: Moscow June 18-19.

 

Articles of Justice during the Great Recession

06/15 Former Goldman Director Gupta Found Guilty of Insider Trading A federal jury convicted Rajat Gupta, once an executive and board member at the pinnacle of American business, of insider trading, capping the fall of the most prominent figure caught in the government’s drive to stop the leaking of corporate secrets.

 

Other economic updates / miscellaneous news articles

06/12 U.S. Families’ Wealth Plunged 40 Percent During Recession, Fed Says The Federal Reserve reports that Americans saw a record drop in their wealth between the years 2007 to 2010. Driven primarily by plummeting home values, families’ median net worth dropped 38.8 percent, to levels last seen 18 years ago.

06/13 Why The Farm Bill’s Provisions Will Matter To You If you think only farmers care about the farm bill currently being considered by Congress, you’re mistaken. The measure will not only set policy and spending for the nation’s farms for years to come, but will cost nearly $1 trillion.

06/14 Gen. Dempsey: Mandated defense cuts could lead to war “We would go from being unquestionably powerful everywhere to being less visible … and presenting less of an overmatch to our adversaries, and that would translate into a different deterrent calculus and …, therefore, increase the likelihood of conflict.”

Economic News Articles in The Great Recession Blog, week of 06/03/2012

Has anyone noticed the silence? Week after week the news screeches like relentless train wheels about the scurrying of European leaders in and out of meetings to resolve the latest failure of their efforts to round up their endless troubles. Yet, every week, at the same time,  you hear no sound of U.S. leaders scurrying to do anything to resolve U.S. troubles. It is an almost scary quiet.

There has, of course, been campaign talk and lots of it, but that’s all dry wind. There has been almost none of the real talk of people hammering out deals or announcing grand visions that could stir the heart. There has been nothing like what you see in Europe, fruitless as all their urgent talk over there has been.

Because silence in one area is hard to notice amid a lot of noise from another, I did not take note of just how inactive U.S. leaders have been myself until I sat to write this recap. It became evident to me as I was working with the template for this weekly round-up of last week’s economic news. When I set up the template, I created a subhead titled “U.S. government moves (and blunders) in articles about the economy.” As I deleted that subhead once again, I realized that I delete it almost every week. There has rarely been news in any week since the unemployment insurance was dealt with about the U.S. government taking serious action to resolve U.S. troubles. Yet the U.S. faces “Taxmageddon” at the close of 2012.

Oh, there are articles about the Federal Reserve doing things, but the Federal Reserve is not government. It’s a government-sanctified coalition of bankers and economists, who have been granted nearly unbridled authority over the U.S. monetary system. In actual truth it is a coalition of bankers. Forget the economists, for the professional bankers in charge outnumber the professional economists in every vote.

This means the U.S. government is running through the Great Recession with only one plan for recovery — leave everything to the Fed to solve while politicians campaign and play golf. The only activity in recent months by the government to help the economy has been the occasional talk of banking regulation and minor murmurs of taking someone to court or instances of government officials telling Europe how to solve its problems. Precious time is rapidly disappearing.

That is why the one unique bit of news last week was of Federal Reserve Chairman Ben Bernanke and the European Central Bank joining to say, “Politicians, the rest is up to you.” With that, a briefly swelling market ducked back under the waves because the Fed has been their only champion. The fact is Bernanke’s band doesn’t have any more tricks to pull, and their old tricks have slid far down the curve of diminishing returns. Thus, the news last week also contained opinions that more quantitative easing would not even accomplish a single week of stimulating the stock market because the market, dependent on that drug as it is, has also built up considerable tolerance to it. The U.S. monetary system is awash with more money than we’ve ever seen, yet, no one seems to have any to spend. Likewise, the big rescue plans cooked up by Europe’s leaders for Spain had a market stimulus last week that could be measured in minutes this time before the air went out of the plan’s tires.

Taxmageddon cometh while our politicians do nothing but fiddle. Well, hey, at least they’re not fiddling with the economy where they could do actual harm! Maybe that is how to look at it from a positive angle.

Overall, the global economy lost a fair amount of steam last week as realization began to settle in that maybe no one really has an answer to the world’s economic malaise — at least, no one in charge. Stocks fell, churned upward briefly, and then fell again. Housing prices settled to stay in line with declining employment. Factory orders slumped … again. Both imports and exports are in decline, and even the mighty China’s engines have faded to far less than a factory roar as the big bird coasts down for a soft landing. So, it is no wonder the news seemed unusually full of people in high places starting, at last, to cast negative predictions about the economy for the remaining year and for 2013.

Everything is in a lull, waiting to see what happens in Greece, as European hopes are fading into the summer haze. European credit ratings can be heard falling everywhere like sand and pebbles down the dry sides of a canyon. Can you feel the economic doldrums that are settling in as the world waits to see what will happen in Greece … to see if Europeans can even solve their smallest problem? If Greece goes bad, the world is ready to run.

(If you liked this article about last week’s economic news and want to see others as they’re posted each week, please click the RSS feed link in the left sidebar and subscribe. Also, please use the email button to pass it along to friends you think might be interested. They will not get added to any email list.)

 

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

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

China syndrome — following the Great Recession to the Great Wall

06/03 Tokyo stocks hits 28-year low amid global rout Asian shares tumbled on Monday, pushing the broader Tokyo market to a 28-year low, as investors extended a rout of global stocks and worried about a nightmare scenario of euro-zone breakup, U.S. economic relapse and a sharp slowdown in China.

06/07 China’s sovereign wealth fund “scales back exposure to Europe” Chairman Lou Jiwei said, “There is a risk that the eurozone may fall apart, and that risk is rising.” Mr Lou also scotched speculation that China might buy eurobonds if and when they are launched. “The risk is too big, and the return too low.”

06/07 Stocks gain as China stimulates economy U.S. stocks rose Thursday after a surprise rate cut by China’s central bank and a successful bond auction by Spain cheered investors around the globe.

06/07 When the Chinese Cut Rates It’s Time to Worry “As the first rate cut since Dec 2008, the surprise move sends a strong signal that the government will be more active in supporting demand and stabilizing growth. We see this as a shift [that will increase] the chance for the economy to … rebound in Q3.”

06/08 COMMODITIES-Fed letdown, China data fears fuel slide Commodities fell on Friday, disappointed by the U.S. Federal Reserve’s reticence to jump in and stimulate the world’s largest economy amid worries that a surprise Chinese rate cut suggested its economy was performing even worse than expected.

 

Economic indicators and stock market responses in the news this week

06/03 Investors Brace for Slowdown The U.S. and China show fresh signs of slowing as troubles in Europe flare anew. Investors across financial markets have reacted with increasing alarm at the drumbeat of bad news from all corners of the world. Asian stocks were sharply down early Monday.

06/04 US factory orders decline again in April New orders at US factories fell for the second month in a row, adding to evidence that the world’s largest economy is weakening. Economists had expected a 0.1% rise.

06/04 Wall Street slips on economic, Europe worries Stocks fell modestly on Monday as investors reacted to the latest signs of economic slowdown and looked ahead to events this week that could ease Europe’s debt crisis. The decline extended Friday’s steep drop that wiped out the Dow’s gain for the year.

06/05 US Data: State Economies Grew Considerably Slower in 2011 Economies at the state level grew sharply slower in 2011 compared with 2010, mirroring the economic trend at the national level. Real gross domestic product at the state level grew 1.5% in 2011, only half the rate of 2010.

06/05 US stocks lose steam, even after upbeat services data US stocks traded flat on Tuesday, losing steam after stronger-than-expected growth data in the nation’s crucial services sector was eclipsed by Europe’s long-running financial crisis.

06/06 Asking Home Prices May Be Softening in Line with Employment Asking home prices may be softening in line with the country’s deteriorating jobs market, according to a new report. “Asking prices and employment both stagnated in May, yet one more reminder that the housing recovery depends on job growth.”

06/06 Dow Leaps 286 Points in Best Day of the Year The charge turned the Dow positive for 2012 and erased the biggest loss of the year less than a week after it happened: the 275-point plunge set off by a dismal U.S. jobs report on Friday. The big jump follows weeks of losses.

06/06 Fed survey finds US growth, hiring mostly steady The mostly upbeat survey offered a hopeful sign after last week’s more dismal data on hiring and manufacturing. Those reports sketched a picture of an economy that is slumping after a promising winter.

06/07 Initial Jobless Claims In U.S. Fell Last Week To 377,000 Fewer Americans applied for unemployment payments last week, indicating limited progress in the labor market after a two-month slowdown in hiring. First-time claims for benefits fell by 12,000. Half of the drop was due to revision of last week’s figure.

06/07 Wall Street Trims Early Gains After Bernanke Dashes Easing Hopes On Wednesday the stock market had its biggest gain of the year on hopes that more economic stimulus might be on the way in the U.S. and Europe, but the rally faded this morning after the Fed gave no signal of immediate action to prop up the U.S. economy.

06/08 Global Stall Speed? Imports, Exports Both Post Declines Both imports and exports dropping from record high levels set in March, a government report showed on Friday.

06/08 Stocks fall as Fed chief disappoints on stimulus Global stocks dropped Friday after the U.S. Federal Reserve’s chairman indicated there were no immediate plans to boost growth in the world’s largest economy, wiping out gains made on China’s surprise interest rate cut.

06/08 US cities struggle with blighted foreclosed homes In some areas half of bank-owned homes are in a blighted state.

 

Economic predictions / forecasts that made news headlines

06/04 Experts: Massive Summer Stock-Market Plunge Coming Again! Even if the U.S. does avoid a downturn, the possibilities are growing, which will send equities plunging. “There’s no question the economy is still struggling and still struggling a lot … I’m starting to fear summer,” says Diane Swonk, a chief economist.

06/04 World Bank President: World May Be Headed for Repeat of 2008 Financial Collapse Global financial systems will be doomed to repeat the 2008 financial crisis if policymakers fail to tackle the European debt crisis now, says Robert Zoellick, outgoing president of the World Bank. Greek exit contagion impossible to predict.

06/06 U.S. economy heading straight for the cliff Taxmageddon is coming while congress fiddles, avoiding action because of election politics. Credit-rating agencies, however, may lose patience before lawmakers stop putting themselves ahead of the nation … as they did during last summer’s brinksmanship.

06/07 BlackRock’s Fink: Good Chance Fed Will ‘Juice’ Economy but it Won’t Help Much The problem with monetary stimulus, Fink tells CNBC, is that rates are already low and banks awash in liquidity thanks to two past easing rounds. A third round would just lead to diminishing returns.

 

Euro crisis updates as the Great Recession goes viral

06/05 Europe’s Fade Becomes Drag on Sales for U.S. Companies As the Euro crisis intensifies, more companies in the United States are warning investors that sales in the region are slowing and could get much worse. President Obama reflected that Europe’s economy is “starting to cast a shadow on our own as well.”

06/05 Germany Is Open to Pooling Euro Debt, With Conditions Pressed by market turmoil, Germany indicated it is prepared to accept a grand bargain that would provide greater support for its most indebted euro zone partners in exchange for more centralized control. Changes on this scale could take years.

06/06 Act fast or break euro, Spain tells EU Spain’s prime minister is pleading for a direct eurozone rescue of the country’s banks to avoid the humiliation of a national bailout. Spain is warning that the euro will unravel unless leaders decide within weeks to centralize budget and tax policies.

06/06 Moody’s downgrades credit ratings of six German banks “Today’s rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis,” Moody’s said. Moody’s believes Germany would be hit if the euro crisis turned into a catastrophe.

06/06 Stimulus hopes spur stock, commodities rally U.S. and Europe shares rallied more than 1%, and the euro gained on Wednesday as European officials urgently explored ways to rescue Spain’s debt-laden banks and expectations grew major central banks would act to bolster a slowing global economy.

06/07 Could austerity be the right cure for Europe’s hangover? We might conclude [when we awaken after a binge] that drinking alcohol does not cause hangovers; stopping drinking alcohol causes hangovers. Sobriety does not work, it seems…. Governments feel no better when they sober up from a financial binge.

06/07 Fitch cuts Spain rating by three notches to “BBB” Fitch also put Spain on a negative outlook, indicating it is prepared to cut the Spanish credit rating even more. Fitch attributed the cut to foreign indebtedness.

06/07 Geithner, Bernanke Worried About Europe Banks U.S. Treasury Secretary Geithner and Federal Reserve Chairman Bernanke “were very worried about what was going on” with European banks, said Finland’s prime minister. “It’s such a difficult issue … I don’t have … a clear picture what should be done.”

06/07 Germany finalizing face-saving aid deal for Spain A deal is in the works that would allow Spain to recapitalize its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside, German officials say.

06/07 President Of Estonia Slams Paul Krugman: ‘Smug, Overbearing & Patronizing’ The president of Estonia chewed out Paul Krugman on Wednesday, using Twitter to call the Nobel Prize-winning economist “smug, overbearing & patronizing,” in response to a short post that questioned the lauded merits of Estonian austerity.

06/07 Spain bond auction: Borrowing costs break six percent Spain found strong demand for its bonds at an auction on Thursday, which was seen as a key test of the country’s ability to raise funds, but it came at the cost of raising interest to 6.044%, up from the 5.743% paid when bonds were last sold in April.

06/08 GLOBAL MARKETS-Stocks, euro fall on Spain bank worries Global stocks, euro and oil prices tumbled on Friday after hopes for more stimulus from central banks faded and with Spain expected to become the fourth and biggest country to seek assistance since the euro zone’s debt crisis began.

06/08 Greek GDP falls by 6.5 per cent in Q1 of 2012 Greece’s statistics agency says the country’s economy contracted by 6.5 percent in the first three months of the year compared to the same period in 2011, as Athens struggles through a financial crisis that has left it mired in a deep recession.

Federal Reserve actions tracked in the economic headlines

06/07 Bernanke says Fed ready to do more, but nothing imminent Federal Reserve Chairman Ben Bernanke told Congress Thursday that he expects the economy to grow moderately this year despite last week’s disappointing report on May job growth. Bernanke said the European debt crisis poses significant risks.

06/08 Fed and ECB to Politicians: Your Turn to Act After three years of unconventional policies to revive their economies from the recession, the U.S. Federal Reserve and the European Central Bank have shifted the onus to politicians. “He threw it right back at the politicians where it belongs.”

 

The Iranium Reaction as it makes and shakes the news

06/07 Israeli Military Chief: Israel super-ready to attack Iran if needed The IDF chief explained that “in order to be a credible military threat, we must be super-ready – and as far as I’m concerned, we’re super-ready.” He further added that Iran had yet to determine whether to use its nuclear capabilities for weapons.

 

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

06/04 Merrill Losses Before Bank of America Deal Top executives at Bank of America did not tell shareholders prior to the vote on its purchase of Merrill Lynch & Co. that losses were mounting and expected to weigh down earnings for years, papers filed in private shareholder litigation show.

 

Other economic updates / miscellaneous news articles

06/04 Be Safe — Buy Physical Gold and Stash It The risk of another Lehman-style crisis remains a constant threat. “It’s just a matter of time. This financial system is completely unsustainable. The level of interconnectedness, the level of misapplied incentives is again unprecedented in history.”

06/05 Expert Issues a Cyberwar Warning When Eugene Kaspersky, founder of Europe’s largest antivirus company, discovered the Flame virus that is afflicting computers in the Middle East, he recognized that the virus adds weight to his warnings of the grave dangers posed by cyberwarfare.

06/05 In Economic Deluge, a World That Can’t Bail Together By early 2009, financial markets had bottomed out and begun strong recoveries. Economies followed with slow growth last year, spurring hope that the crisis had passed. But within the last few weeks, much of that hope seems to have faded.

06/05 Krugman: This Republican Economy What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years.

06/08 Gold extends sell-off after Fed disappoints Gold fell more than 1 percent on Friday, extending a sell-off from the previous session when the U.S. central bank chief gave no hint on imminent stimulus, disappointing investors and dampening the appeal of gold as a hedge against monetary easing.

Economic News Articles in The Great Recession Blog, week of 05/27/2012

Bullheaded optimism presses on in the news. This week the Economic Times reported…

“The bullish momentum on Wall Street extended Tuesday’s gains, when the Dow rose 0.2 percent, snapping a four-day losing streak.”

Perhaps they mean the market is now “climbing at the speed of an ox cart.” It nearly crashed last week, completing the erasure of the entire year’s gains. Is two days of erratic trading after a near crash, followed by a 0.2% upward nudge the continuation of “bullish momentum?” 

 

Unless that was a typo, 0.2% is a sniff. The market did surge more than 2% by closing today, but I don’t believe today’s gain marks any return to an upward trend. The market is flighty right now. Its moves look increasingly desperate and even silly. The last few days in the market moved as smoothly as an ox cart on cobblestone, and today’s rise was based on groundless hope that Europe is actually going to do something effective about the euro crisis. They’ve had a year so far and have not yet resolved anything. Greece is a bigger mess than ever. Spanish bond rates are higher than ever. Yet, the market acts as if the mere talk by Germany of “working out” a bailout for Spain’s banks means anything. Spain has already declined the offer because it doesn’t want Germany’s control, and when has European talk worked out anything in the past year?

So, the upturn is an example of bullheaded optimism (as is this writing in the Economic Times), but it is certainly not momentum. Momentum is not a one-day rally. Momentum speaks of something that has been gaining speed. It certainly speaks of something that has some weight behind it. This has nothing but hot air behind it. You can expect a market that is running out of gas to surge. This was that kind of surge.

As for “snapping” a losing streak, I’m thinking the 0.2% rise rise reported had as much snap as boiled spaghetti. Later in the day, the market did have snap to it, but that was well after the Economic Times got excited about 0.2%.

Let’s go back to last week and see what the Economic Times’ idea of bullish momentum really looked like:

 

Homing in on distorted economic news

Consumer optimism took its biggest plunge in nine months. Home prices hit new lows so there was no upward momentum there. Still, that didn’t stop the creators of the Case/Shiller price index from saying, “We see signs of hope!” They explained that “you have to dig to find the negatives” when it was patently obvious they were digging hard to find the positives. The authors talked of the market having hit a bottom, but “new lows” hardly sounds like a bottom. They do warn us not to expect price increases too soon. No, I guess not, given that the prices are still falling! 

Let me do the digging without trying to spin any optimistic notions and see what the facts beneath the surface really show. The authors find hope in the fact that home sales volume is up in the second quarter. (Their report covers the first quarter.) Therefore, they think the new lows in their first-quarter report will be offset by what is happening now. Well, the number of sales typically goes up as we get closer to summer, even in bad times; so that doesn’t mean much. Moreover, mortgage rates have finally found all-time lows. People know interest can’t go lower by more than a sliver, so they are jumping in on the best interest rates they will ever see at a time when housing prices are the lowest they’ve been since the Great Recession began. This buying will only last for as long as interest rates remain at record lows. Even so the volume uptick was slight. Such a small increase in purchases in the face of new lows in prices and interest tells me the market still has a tremendous amount of inertia against recovery.

One person quoted in the article responded to the increase in sales volume by saying, “Prices will eventually follow, but in fits and starts, and it’s still very possible that they go lower still.” Well, that’s hardly a bottom as the authors of the Case/Shiller index claimed. It is mind-boggling to me how seemingly intelligent people who have specialized in industry pricing for years can be blind enough to say, “You have to pick to find real negatives,” when their own report clearly shows prices are still falling and the lowest they’ve been since the Great Recession began. These guys clearly did not wear eye protection while watching the recent solar eclipse.

The article about their report is more balanced, offering the following caution,

As servicers implement [mortgage fraud] settlement guidelines, we will see an increase in short sales and foreclosures, as a very large number of borrowers … won’t qualify for [principal] write-downs…. This is especially true for those who have failed to make payments or do necessary maintenance for many months. These problems will be especially felt in the former bubble markets.

In other words, the logjam of mortgage foreclosures still hasn’t made its way down the river. When it does, it will suppress prices further. Plain and simple. Supply and demand. People who don’t see this simply don’t want to; but The Great Recession Blog is for people who want to see straight, even if they don’t like what they are seeing. It is for those who want to see what is going to hit them. (This is no place for ostriches.)

Another version of the story reported that the Case-Shiller price index showed home prices rising. To make sense of that, you have to realize that the article writer means that prices rose in twelve out of the twenty cities that the index covers. Since that was a rise in more than half of the cities, the optimistic reporter headlines the story as a “price rise” overall. However, prices fell in eight out of ten cities more than they rose in the other twelve. So, overall, prices averaged lower across the nation. Moreover, some of the areas were prices finally rose are areas that have been the least hit all along, such as Seattle. After getting your hopes up in the headline, the article finally says deeper down, “The index edged down to its lowest level since the housing bubble burst.” That’s the bottom line, and it’s pretty low when you consider that this overall drop in prices happened while thirty-year interest rates came to an all-time low.

Some people might call this a “recovery.” I call it a “hangover.” Houses are hanging over the edge of a cliff. No sooner did the ink dry on the news stories above than the next report came out that said pending home sales fell by the most in one year. Well, so much for that bright lining that was afforded by sales volume. The sales up ahead just fell off a cliff. They now dangle from a large overhang of foreclosures. Jobs are back down and down hard, and the stock market almost crashed. What impact will those changes have on housing prices this summer?

Yes, surprise, surprise, economists were overly optimistic about the job market after all. They anticipated an increase in the report that came out last week, and the job market actually fell. Well, it practically crashed … to be more accurate … just like …

 

European all over us

The big news last week was Europe bringing on the near-crash of stock markets all over the world.  That’s timely by my predictions:

The heat of summer will look like the heat of hell for Europe. Money will flee Europe over the course of this year, including European money.

In fact, summer arrived a month early this year. With that, it’s getting close to time for a mid-year audit of all my 2012 predictions. It’s looking like every one of them is going to be right on the money, but I’ll wait until the end of the first six months. As it stand right now, it looks like we are experiencing another sea change all over the world, just as I said would happen in the spring. So, keep a look out for that midyear audit. If I was wrong, I will just as readily let you know that.

(If you liked this article about last week’s economic news and want to see others as they’re posted each week, please click the RSS feed link in the left sidebar and subscribe. Also, please use the email button to pass it along to friends you think might be interested. They will not get added to any email list.)

 

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 this week

05/29 Consumer Confidence Plunges in Biggest Drop Since October 2011 Americans feel worse about the economy than they have in eight months. The Consumer Confidence Index for May stands at 64.9, down from a revised 68.7 in April. Economists had expected an increase to 70.3! The biggest concerns are jobs, housing, and stocks.

05/29 Home Prices Hit LOWS, But ‘We See Signs of Hope’ All three “headline composites” of the latest and widely watched S&P/Case Shiller home price indices ended the first quarter of 2012 at record post-crisis lows, yet experts crow about price increases in some hard-hit regions.

05/29 Home prices RISE in most major U.S. cities Chiller Price Index reports home prices rose in March from February in 12 out of 20 major U.S. cities for the first time in seven months. Paper reports the increase as the latest evidence of a slow recovery taking shape in the troubled housing market.

05/30 Pending Sales Of U.S. Homes Decrease By Most In A Year …indicating the U.S. housing recovery remains uneven. The index of pending home resales dropped 5.5%. Last month was revised down as well. Economists had expected no change.

05/30 Stocks hit by more European woes Stocks fell sharply as worries about Europe’s debt, specifically the Spanish banking system, again shook confidence. Investors flooded into U.S. Treasuries, raising prices and pushing the yield on the benchmark 10-year note down to a record low of 1.656%.

05/31 ADP Employer Services Says U.S. Added Fewer Jobs Than Expected in May The 133,000 increase in employment followed a revised 113,000 gain the prior month that was smaller than initially estimated. The 39 economists surveyed by Bloomberg called for a May advance of 150,000. Businesses may be wary of European struggles.

05/31 Jim Rogers: Govt ‘Makes Up the Numbers’ on Unemployment, Inflation Don’t let declining unemployment rates fool you, says international investor Jim Rogers. The government tinkers with the numbers and doesn’t stop with jobs reports, either. One way it tickers is by excluding people who have stopped looking in despair.

05/31 Jobs, GDP Data Point to Loss of Momentum in Recovery Payroll growth accelerated only slightly last month, and claims for jobless benefits rose last week, suggesting the U.S. labor market is stalling after a strong performance early in the year. Factory activity in the Midwest also slowed considerably.

05/31 Wall St falls on Europe after weak May showing U.S. stocks fell on Thursday and were on track to post the largest monthly drop since September as investors focused on Europe’s mounting credit problems.

06/01 Broader Jobless Rate Jumps to 14.8% [Ignore the absurdly positive spin here, and look at what it says about how unemployment numbers have been long understated, just as I have put forward on this site many times. Look at the graph.]

06/01 Dow erases 2012 gains after ‘terrible’ jobs report U.S. stocks sank Friday, as the Dow erased all its gains for the year, and the 10-year yield on U.S. Treasuries hit another record low, after a U.S. jobs report fell far short of expectations. The report showed less than half the jobs economist had predicted.

06/01 Even Mediocre Job Growth Coming From Wrong Places Job growth was weak. Just as bad: the type of jobs the economy managed to add. Growth is coming ENTIRELY from workers getting part-time jobs. The number of Americans working full-time fell by 266,000 in May, erasing all the gains of the past three months.

06/01 Three analysts sound off on weak jobs report, choppy markets and some signs of hope Only a month ago, surprisingly strong corporate earnings and steady growth in the U.S. economy had investors in a cheery mood. Then “reality happened. The idea took hold at the start of the year that this was a self-sustaining recovery. And then came Europe.

06/01 U.S. Jobs Slowdown Adds to Global Fears U.S. job growth slowed sharply in May to just 69,000 new jobs, a sign of a sputtering recovery that may increase pressure on the Federal Reserve to prop up the economy. The unemployment rate ticked higher to 8.2% in its first increase since June 2011.

06/01 Weak U.S. Hiring Adds to Global Gloom Job report is evidence of a global slowdown. “In February or March, I thought the labor market had achieved escape velocity,” said Patrick J. O’Keefe, the director of economic research at J. H. Cohn. “It appears to me now that that was a premature call.”

06/01 Where is the Fear & Greed Index Today? [Stocks have fallen back off a cliff. The one-week rise was as short as I figured it would be. How are investors feeling?] “Stock price strength has declined rapidly and indicates that investors have recently shown extremely high levels of fear.”

06/03 Investors Brace for Slowdown The U.S. and China show fresh signs of slowing as troubles in Europe flare anew. Investors across financial markets have reacted with increasing alarm at the drumbeat of bad news from all corners of the world. Asian stocks were sharply down early Monday.

06/03 Tokyo stocks hits 28-year low amid global rout Asian shares tumbled on Monday, pushing the broader Tokyo market to a 28-year low, as investors extended a rout of global stocks and worried about a nightmare scenario of euro-zone breakup, U.S. economic relapse and a sharp slowdown in China.

 

Economic predictions / forecasts that made news headlines

05/28 Marc Faber: 100% Chance of Global Recession Faber’s bearish market calls have been followed since 1987 when he warned clients to cash out before Black Monday. Now Faber warns with “100%” certainty that the economies of the world are on the brink of another serious slowdown in Q4 or 2013.

05/31 Jim Rogers: ‘If You Are Not Worried About 2013, Please — Get Worried’ This year, an election year, will be a decent one for the economy although a recession will strike and strike hard in 2013 or in 2014 at the latest, says international investor Jim Rogers, CEO and chairman of Rogers Holdings.

05/31 Pimco’s Gross Warns of Economic ‘Breaking Point’In his June outlook, Gross said stimulus policies by the Federal Reserve and the European Central Bank have led to riskier government bonds with degraded value and paved the way for higher inflation, signaling a potential global economic “breaking point.”

06/01 British Chambers of Commerce cuts growth forecastThe British Chambers of Commerce has slashed its forecast for economic growth this year, from 0.6% to 0.1%. Official figures show the U.K. has taken a second dip into recession. Unemployment will also increase almost one point.

 

 

Euro crisis updates as the Great Recession goes viral

05/27 Lloyd’s ‘has plans for euro collapse’ The insurance market Lloyd’s of London is preparing contingency plans for the possibility of the euro collapsing, its chief executive has said. Mr Ward is one of the first bosses of a large UK business to admit he is planning for the end of the euro.

05/28 Spain’s Regional Rescue Risks Tipping Point On Interest Spain’s plan to help cash-strapped regions sell debt risks piling additional liabilities on the central government as borrowing costs approach the 7% level that pushed Greece, Ireland and Portugal into bailouts.

05/29 Greeks Furious Over Harsh Words from IMF and Germany As Greeks prepare for the polls once again in three weeks, international criticism is intensifying. IMF head Christine Lagarde said Greek citizens must begin paying their taxes, while a German cabinet member referred to Greece as a “bottomless pit.”

05/30 Investors flee Spain as financial crisis spirals When compared to safe German debt, investors in Spanish bonds were demanding an additional 5.41 percentage points, a premium that easily crashed through euro-era records set each day of this week. Stock prices skidded across the world.

05/30 Moody’s, S&P downgrade Danske, other Danish banks Moody’s Investors Service on W ednesday downgraded nine Danish financial institutions, pointing to sluggish economic growth, risks from the euro zone debt crisis and structural changes to the covered bond market, a reliable source of cash.

05/30 Spain faces ‘total emergency’ as fear grips markets Spain faces the gravest danger since the end of the Franco dictatorship as it is frozen out of global capital markets and slides towards an epic showdown with Europe. “We’re in a situation of total emergency, the worst crisis we have ever lived through.”

05/30 Spain fears prompt bond yield rise and euro fall The Spanish government’s 10-year bond yields increased to 6.7% while Germany’s fell to 1.31%. Tensions over eurozone debt also forced the Italian government into paying sharply higher rates on Wednesday .

05/31 European Central Bank Prez Warns Eurozone is ‘unsustainable’ Mario Draghi said the central bank is powerless to stop the debt tornado. “It’s not our dutye” to “fill the vacuum left by the lack of action by national governments on the fiscal front.” Politicians repeatedly underestimated their problems.

06/01 Eurozone unemployment at record high 11% The 17-nation eurozone’s unemployment rate reached the highest level since the creation of the common currency 13 years ago, climbing to 11% in April. The unemployment rate in the broader 27-nation area that makes up the European Union rose to 10.3%.

06/01 Irish Voters Approve EU Deficit-Fighting Treaty Ireland’s voters have agreed to ratify the European Union’s deficit-fighting treaty with “yes” votes reaching 60 percent. Pro-treaty campaigners expressed relief rather than joy because of the stark economic challenges the treaty creates.

 

 

Federal Reserve actions tracked in the economic headlines

05/27 Treasuries Rally May Give Fed Room to Ease Again Decelerating inflation and signs of slowing economic growth have some Fed officials talking about the possibility of more accommodation. New York Fed President William Dudley says central bank will have to act if the economy falters and inflation shrinks.

 

The Iranium Reaction as it makes and shakes the news

05/27 After Talks Falter, Iran Says It Won’t Halt Uranium Work Iran’s nuclear chief, reversing the country’s previous statements, said the country would not halt production of high-grade uranium, suggesting that the Iranian government was veering back to a harder line after talks in Baghdad last week ended badly.

05/28 Panetta: U.S. is Ready to Stop Iran from Creating Nuclear Weapons U.S. Defense Secretary Leon Panetta on Sunday indirectly confirmed recent remarks by the Ambassador to Israel that the U.S. is “ready from a military perspective” to stop Iran from making a nuclear weapon if international pressure fails.

05/30 Israel Defense Minister: “It is impossible to sleep soundly.” “Iranians are saying to themselves: ‘We’ve waited 4,000 years for a nuclear capability, so we’ll wait another few weeks, and we won’t do anything that would provoke an Israeli or American operation’.”Barak said Israel could not close its eyes and wait.

06/01 Obama Order Sped Up Wave of Cyberattacks Against Iran Breaking story about how the U.S. developed the Stuxnet virus and deployed it successfully against Iranian centrifuges. Also hints at how the use of cyber weapons could come back to haunt the United States. Stuxnet was never meant to reach the web.

 

 

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

05/29 Republicans Wrangle to Remove Mandatory Spending Cuts Agreed to Last Year Reid has also made it clear he will not back GOP efforts to spare the Pentagon from some $50 billion in automatic spending cuts next year in what’s known as “the sequester.” That sets up a fight with defense hawks led by Sen. John McCain of Arizona.

05/29 U.S. Winds Down Longer Benefits for the Unemployed Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number cut off prematurely this year to almost half a million, not including people who simply exhausted the weeks of benefits they were entitled to.

 

 

Other economic updates / miscellaneous news articles

05/27 Pimco’s: US Treasurys Only Real ‘Haven’ Asset Gold, traditionally a good hedge, has taken a beating as investors ditching euro positions are favoring the dollar, and a rising dollar sends gold tanking. So, Bill Gross says Treasuries are the only safe place. Of course, they are what he has to sell.

05/30 ‘Sons of Stuxnet’ virus threaten energy infrastructure Energy infrastructure is more vulnerable than ever in escalating cyber war thanks to “sons of Stuxnet,” which can be created from the virus designed to sabotage Iran’s nuclear program, widely thought to have been sponsored by western government agencies.

06/02 Gold Glitters Amid Market Slide Gold roared to its biggest one-day price rise in three years on speculation of new monetary stimulus triggered by a poor U.S. monthly jobs report. Signs of a faltering U.S. economy were all gold needed to hear to reclaim its safe-haven status.

Economic News Articles in The Great Recession Blog, week of 05/20/2012

At the start of last week, economists were feeling rosy. They thought housing was up, and the stock market was up after a long fall. They even thought the job market was doing better. Meanwhile, I continued to wonder why they continue to get paid.  Read the remainder of this entry »

Economic News Articles in The Great Recession Blog, week of 05/13/2012

At the beginning of last week a big financial advisor proclaimed that the markets’ little downturn meant nothing. The market would go right back up. He was certain that Europe’s problems that week would quickly be yesterday’s worries. He gets paid too much to be that certain about that much and be that wrong. I thought at the time I should have copied this man’s words for later quoting because he’d surely be eating them soon. 

 

The fact is that the market is overinflated. Because it’s running on fumes, it doesn’t take much to bring it down. The fact is that there are many massive forces that teeter on bringing it down right now. Any single one of them has the potential to make the market crash. And the fact is that Europe’s problems are clearly not going away soon. For the big money he makes, the advisor above should have been able to see all of that clearly. By the end of the week, however, The Wall Street Journal reported…

A day billed as Facebook Inc.’s coming-out party ended up marking a much gloomier event: the stock market’s worst week in six months. As the long-anticipated listing of the social-networking company landed with a whimper, the Dow Jones Industrial Average sank 73.11 points, or 0.6%, to 12369.38, bringing its losing streak to six days. The blue-chip index has fallen in 12 of the past 13 days.

The latest wave of selling came as investors focused on fresh developments in Europe’s sovereign-debt and banking crisis, and concerns over the pace of global economic growth.

The selling came amid the heaviest trading volumes of the year.

Europe went to hell in a hand basket while the man mentioned above wasn’t looking.

Even Facebook couldn’t save the market. In fact, Facebook couldn’t have picked a worse time to come out, as surely the fast receding current of the market helped pull Facebook down some, too (though many of its problems were due to its own greedy pricing and market glitches). At, first, the WSJ reported that it appeared the market was set to close with its greatest streak of declines in forty years! Later in the day, they revised their tone slightly to what I’ve quoted above.

If “the worries about Europe could be felt in every corner of the U.S. asset markets” during the past two weeks, as the WSJ also said, what would the actual fall of Europe bring to every corner of the U.S. asset market?

At this point, you might recall one of my earlier predictions for 2012: (If not, you can count on me to remind you 😉 )

The heat of summer will look like the heat of hell for Europe. Money will flee Europe over the course of this year, including European money.

The money is now fleeing, even sooner than I anticipated, given that summer is yet a few weeks away, because other news was that several European countries were, for the first time in the great recession, experiencing near runs on their banks. (More on that below.)

It also looks as though we are marching steadily toward this part of the euro prediction:

So, prediction five follows from number four because it is its fraternal twin: Spain will consume the last of Europe’s ability to save the euro.

We are now at that point I predicted where the good news of the first quarter, which many economists were glowing about, would begin to evaporate in the spring under the harsh light of reality in Europe. By the end of last week, the DOW had almost eradicate all the gains it had made through the first quarter. So, in terms of the market, the evaporation happened in two week’s time. The last time the Dow suffered this many losses on a two-week stretch was in 1974 — almost forty years ago. Expect the market to seesaw wildly at this point because there are still many bulls trying their best to sell people on a bull market, while the forces that could collapse the market are looking more precariously balanced every day.

At the same time, it was reported that the U.S. is now paying record low interest on its national debt. Maybe it would be a good time to recall another one of my earlier 2012 predictions (which, as you recall, was made at a time when everything in the news was running contrary to my predictions):

The U.S. will not see its interest rates rise on the national debt in any significant way this year, even when its credit rating gets downgraded by one or two of the big-three credit-rating agencies. China and Europe combined insure the U.S. against this. The euro crisis is a windfall for the U.S. in terms of the cost of its credit, though the fall of Europe will hurt the U.S. in other ways. The U.S., in spite of how bad its situation is, is likely to remain the safest haven that is capable of selling huge amounts of notes and bonds, and China needs a huge seller of bonds to soak up its cash. That support from China will, however, ebb in time as China’s economy settles and it has less cash to bank in foreign markets. (So, longterm, the U.S. is in a boatload of trouble, but not this year … in terms of the cost of its debt.)

The parts in red are now playing out, and the rest will follow in time. Europe’s woes have made the U.S. such a safe Haven that it has, for the time taken gold’s place. As one of the articles at the end of last week said,

“If gold was a safe haven, it should be higher. Physical demand is mediocre and the Europeans want the dollar, which is why it [the dollar] is so strong,” a physical U.S. gold trader said.

That — even from the mouth of a gold trader. Don’t worry about my gold predictions not panning out, though. By the end of last week, this market turmoil turned gold around, too, and it climbed for the last two days of the week. Apparently the U.S. dollar just couldn’t absorb all the European money that started fleeing its way. In fact, it turns out many of big investors are buying gold now — Soros, John Paulson, even Pimco. Soros more than tripled his investment.

(Remember, though, that I also said gold would take a rocky ride to the top — not the fairly straight line seen last year. Gold has some ballast this time that it didn’t have last year, but the negatives in the year that will boost gold will be the prevalent forces.)

Last week, European stocks posted their greatest drop in eight months.

All of these market tumbles (U.S. stock market, European stock market, value of the euro, solvency of European banks) is tumbling down the path toward this part of my predictions:

The perfect storm is brewing all around the world…. This is the year when all hope for reviving the old economy begins to crack and fall away.

Did anyone say “bank run?”

Now this one, I had to laugh at. At the beginning of last week, The Independent in the U.K. reported,

Italy’s banking and business community responded angrily yesterday to a mass downgrade of Italian banks by the credit rating agency Moody’s, calling the move irresponsible and an assault on the austerity-hit country as it struggles with an economic crisis.

Already battling shrinking demand and soaring bad loans, Italian banks suffered a further blow as the US agency slashed the credit ratings on 26 local lenders, adding to their difficulties in raising funds.

“Moody’s decision is an assault against Italy, its companies, its families,” the Italian banking lobby ABI said.

Stunning. Banks are ruthless to their clients and completely trusting of these same agencies when they downgrade loan applicants over minor little hiccups in their credit, but the banks think they are above being rated! They get furious when they are downgraded for absolutely serious global-scale problems they created. Their problems are infinitely greater than any problem one of their bad-credit clients walked in the door with. If you were applying for a loan with these same banks and found your credit had been downgraded for something like unemployment, you might explain that you just got a new job, but these same banks would respond, “Tough luck. You’re a credit risk.” What arrogance in thinking they should now be above the same kind of ratings just because it causes the same problems for them on a corporate level that it caused in your life on a personal level! The banks are worried that this hurts their already difficult funding abilities! What do they think it does for you when your funding abilities are already difficult? So, why should banks be cut any slack just because it makes their problems worse? They never cared that it made your problems worse.

In short, the U.S. stock market plunged like forty-five-degree rapids as a result of problems emerged in the previous week in Europe. Those problems played out in numerous credit downgrades on banks all over Europe, further credit downgrades of the nation of Greece, another rise in Spanish bond rates, and runs or near runs on banks in a number of European countries. The continent began to unravel, as predicted at the beginning of the year:Again, it looks as if bank problems will begin in a German-dominated central Europe, then spread to the U.K., which is outside the European Union’s eurozone, and finally to the U.S. A failed European econony will crash on U.S. shores later in the year in the form of diminished markets and further bank stresses. The present situation is almost a mirror image to how a great recession that ended the roaring twenties turned into The Great Depression for nearly the entire world, which would then last more than a decade.

Again, it looks as if bank problems will begin in a German-dominated central Europe, then spread to the U.K., which is outside the European Union’s eurozone, and finally to the U.S. A failed European econony will crash on U.S. shores later in the year in the form of diminished markets and further bank stresses. The present situation is almost a mirror image to how a great recession that ended the roaring twenties turned into The Great Depression for nearly the entire world, which would then last more than a decade.

…It is not just the inability of nations to finance debts in an increasingly furious bond market that is the problem, but the likelihood of European bank failures in the midst of all that. As noted in the “Tipping Point” article referenced above, it did not take a major bank failure in 1931 to bring the Great Depression fully on. Credit Anstalt was a smaller bank in central Europe’s economy. Failure of another small European bank like Credit Anstalt could happen anytime. And, such a small trigger, could release an avalanche of bone-chilling problems, just as it did in 1931.

And that was just last week’s news:

 

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

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

China syndrome — following the Great Recession to the Great Wall

Economic indicators and stock market responses in the news this week

  • 05/15 US retail sales slow sharply in April US retail sales barely grew in April, rising 0.1% from March’s level, while consumer prices were unchanged.
  • 05/15 US stocks mixed; euro dives on Greece turmoil Stocks are having one of their worst months in the past eight. For the month, the Dow is down 518 points — about 4% — after hitting a four-year high on May 1. The average is on track to post its first monthly loss since September, when it fell 6%.
  • 05/17 Jobless Claims in U.S. Unchanged at 370,000 Last Week More Americans than forecast filed applications for unemployment benefits last week, a sign the labor market has stalled. Three consecutive weeks have shown essentially zero change in unemployment claims. Economists had called for a drop to 365,000.
  • 05/17 Wall Street goes bearish on US stocks Investor worries mount over the threat of a eurozone break-up and the outlook for the global economy. Stocks peaked in their best first quarter since 1997. Since March, however, the S&P 500 has shed more than half its prior gains for the year.
  • 05/18 Dow Sinks for 12th Time in 13 Session Blue chips extended a streak of declines the likes of which hasn’t been seen in almost 40 years, amid concerns about the euro zone and Facebook’s lackluster debut. It was the worst 13-session performance since October 1974.
  • 05/18 U.S. Stocks: Global fear trumps Facebook debut U.S. investors resumed focus on the global issues plaguing world markets Friday, following a brief euphoric pop from Facebook’s debut. “People are talking about Facebook, but it’s really a sideshow.”
  • 05/18 Wall Street banks facing slowdown Wall Street banks are predicted to report sharp declines in trading and investment banking revenues in the second quarter because of weaker client activity. The unusually sharp declines are due to less liquidity provided by the European Central Bank.

Economic predictions / forecasts that made news headlines

  • 05/17 Jim Rogers: 2013 to Be Bad, ‘God Knows What Will Happen in 2014 If investors think 2012 isn’t going their way, they need to brace for a bumpy ride, international investor Jim Rogers says. Election-year politics and loose monetary policies will keep the economy afloat this year, but get ready for a sell-off.
  • 05/18 Krugman: Apocalypse Fairly Soon Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed.
  • 05/18 Rogers: Buy Gold, Silver Before ‘More Turmoil’ Jolts the Globe Roiling capital markets aren’t going to calm any time soon so investors would be better off putting their money in hard assets like gold, silver and agricultural commodities, says international investor Jim Rogers.

Euro crisis updates as the Great Recession goes viral

  •  05/13 Francois Hollande threatens to block eurozone’s new financial treaty The new French president wants the treaty to focus more on encouraging growth. Angela Merkel, the German chancellor, on Thursday told France that there was no alternative to spending cuts and painful deficit cutting measures.
  • 05/13 Greece, euro zone exit and the drummer in the band A year ago, it was nearly impossible to get a diplomat in Brussels to talk about the possibility of Greece leaving the euro zone. Now, it’s the opening to most conversations.
  • 05/13 Merkel’s party routed in big German state Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state, a result which could embolden the left opposition to step up its criticism of her European austerity policies.
  • 05/13 Opinion: It’s too late for Germany to save the euro Greece must take back control of its own destiny by leaving the euro. As it is, the economy is condemned only to permanent depression. Youth unemployment was just revealed to have overtaken even that of Spain, at an almost unbelievable 54 percent.
  • 05/13 Thousands march against economic gloom in Spain, UK Thousands of Spaniards fed up with economic misery and waving banners against bankers marched on Saturday to mark the first anniversary of the grassroots “Indignados” movement that has sparked similar protests around the world.
  • 05/14 Despite Germany, euro zone sinks into recession European officials and economists have repeatedly said Europe’s recession will be mild, with a recovery in the second half of this year. But the strong economic data seen in January has unexpectedly faded and business surveys point to a deeper downturn.
  • 05/14 Greek impasse prompts euro exit warnings, rattles markets With Greece set to run out of money as early as next month and no new government in place to negotiate the next aid installment, investors have begun betting that a chaotic Greek default and euro exit will happen sooner rather than later.
  • 05/14 Greek parties try to form government, stocks tank “The dramatic drop in state revenues during the election campaign and the serious souring of the atmosphere in Europe toward Greece mean that after almost certain repeat elections there will be a need for even tougher austerity measures.”
  • 05/14 Merkel tells Greece to back cuts or face euro exit Greece may be forced to leave the euro if the country refuses to implement spending cuts agreed with the European Union, Angela Merkel warned. An outgoing Greek minister warned that the country could descend into “civil war” amid the chaos of a euro exit.
  • 05/14 Moody’s downgrades credit of 26 Italian banks The ratings agency said the banks are suffering because Italy is back in recession and government measures are cutting demand for loans. Banks are facing more loan losses, limited access to funding and weaker profits.
  • 05/14 Spain Hit By Fears on Banks, Greece Fears of a messy Greek exit from the euro zone washed up on Spain’s shores, pulling local stock prices to 8-1/2 year lows and driving T-bills up to 6.24% int., a level many analysts see as unsustainable. A bad omen for Spain’s bond auction this week.
  • 05/15 Europe’s Banks Continue to Feel Pinch from Debt Crisis “The beginning of the year started off with a bang, but the optimism has definitely come to an end,” said a leading European banker. Greece’s exit from the euro could cost European governments and their banks a combined 400 billion euros ($512 billion).
  • 05/15 Eurozone avoids recession after strong German growth The eurozone has narrowly avoided returning to recession after recording zero growth in the first three months of the year, figures have shown. The stronger-than-expected performance was in large part due to growth of 0.5% in the German economy.
  • 05/15 Greece Faces Big Debt Payment Tuesday: Now What? As if the Greek situation wasn’t messy enough, a missing paragraph from a key legal document is throwing a wrench into a debt deadline. Greece has a 436 million euro principal repayment due today. So far, the country has not decided what to do.
  • 05/15 New Greek elections as coalition talks fail Greece is set to go to the polls again after the final round of coalition talks failed to produce agreement on a new government, says the leader of the Socialist Pasok party, Evangelos Venizelos.
  • 05/15 Powered By Germany, Eurozone Avoids Recession Huge economic disparities exist across the eurozone. Of the euro’s 17 members, 7 are in recession. Though the zone posted flat output, against expectations that it might slip into recession, the months ahead may be more difficult.
  • 05/16 Bank of England governor warns of eurozone crisis ‘storm’ “We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis … and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.”
  • 05/16 Debt crisis: Greek euro exit looms closer as banks crumble A tsunami of capital flight from Greece threatens to overwhelm the authorities. Greeks have pulled €4bn a week out of banks since the triumph of anti-bailout parties. Steen Jakobsen from Saxo Bank said outflows are becoming unstoppable.
  • 05/16 Greek euro exit talk ups chance of endgame, but uncertainty may drag on Speculation about an endgame in Greece’s protracted crisis has flooded markets with euro exit scenarios this week because public money will run out before the next elections, but there’s still every chance that uncertainty will simply drag on.
  • 05/16 Greek exit ‘somewhere between catastrophic and armageddon’ The damage to the rest of Europe from Greece leaving the euro would be “somewhere between catastrophic and Armageddon”, said the chief negotiator for the private sector bond holders caught in Greece’s debt restructuring.
  • 05/16 Greek turmoil spreads pessimism across markets The unending turmoil in Greece spread fallout across the financial markets Wednesday, as Greece called for new elections. The Dow Jones industrial average fell for the ninth day out of 10, and gold, oil, and the euro all dropped to multi-month lows.
  • 05/16 Greeks withdraw money from banks as worries grow Bordering on panic, Greeks withdrew 700m euros ($894m) from the country’s banks in the week ending on Monday. The action comes as fears increase that the country may be forced out of the eurozone and on to a weaker currency.
  • 05/16 Italy’s banks furious at Moody’s over mass rating downgrade Italy’s banking and business community responded angrily to a mass downgrade of Italian banks by the credit rating agency Moody’s, saying, “Moody’s decision is an assault against Italy, its companies, its families.”
  • 05/16 Merkel and Hollande spell out Greek fear The new leader of France joined Germany to urge Greece to reaffirm its commitment to membership of the eurozone. François Hollande flew to Berlin for talks with Angela Merkel, German chancellor, within hours of being installed as French president.
  • 05/17 Greeks not alone in bank savings exodus It is not only Greeks who are worried about their savings. Data shows depositors have also taken flight from banks in Belgium, France and Italy. And on Thursday, Spain’s Bankia was reported to have seen more than 1 billion euros drained in one week.
  • 05/17 Softening, Merkel Says She Is Open to Stimulus for Greece Chancellor Merkel of Germany said Wednesday that she was ready to discuss stimulus programs to get the Greek economy growing again and that she was committed to keeping Greece in the euro zone, signaling a softer approach toward the struggling country.
  • 05/17 Spanish Bank Hit by Report of Withdrawals Shares for Bankia, just nationalized by Spain, plummeted Thursday after a newspaper reported that depositors were rushing to withdraw money under the fallout of higher Spanish bond rates and the Greek crisis. Bankia’s stock is down 70% in less than a year.
  • 05/17 Spanish Banks Downgraded as Borrowing Costs Soar Spain’s borrowing costs shot up at a bond auction on Thursday and its troubled banks suffered a double blow, with shares in part-nationalized Bankia diving and 16 lenders — including the euro zone’s biggest — having their credit ratings cut.
  • 05/17 U.S. 10-Year Yields Approach Record Low on Economic Data, Europe Treasury 10-year yields fell to almost the record low reached in September as reports suggested the U.S. economic recovery is faltering and as investors sought a haven from Europe’s worsening debt crisis.
  • 05/18 European Stocks Post Biggest Weekly Drop In Eight Months The Stoxx Europe 600 Index fell 5.2%. Banco Espirito in Spain lost the most since 1993. Bankia lost 15%. Opap closed in Athens with the biggest slide since it sold shares to the public in 2001. “The markets are signaling … fatigue regarding … Greece.”
  • 05/19 Days of turmoil for Europe and Greece The world avoided a repeat of the Great Depression by the skin of its teeth in the wake of the Lehman collapse. Now the threat has returned, this time in even more virulent form. Europe seems on the brink of one of its periodic collapses into chaos and division.

Federal Reserve actions tracked in the economic headlines

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

Other economic updates / miscellaneous news articles

 (If you liked this article about last week’s economic news and want to see others as they’re posted each week, please click the RSS feed link in the left sidebar and subscribe. Also, please use the email button to pass it along to friends you think might be interested. They will not get added to any email list.)

Economic News Articles in The Great Recession Blog, week of 05/06/2012

The news of the week centered on Europe where no one knows how to clean up the Greece stain that smears the euro image. Greece ironically elected Nazis to fight German austerity last week. France joined in the fight with a hard left-wing punch to Sarkozy, knocking him flat on his French derriere and replacing him with a socialist.

With the spotlight strongly on Europe throughout last week’s global economic news, the U.S. stock market whip-sawed itself to pieces. During the first two days of the week, European news took the U.S. market down, but then a U.S. jobs report came along that was received as positive by investors and reversed the trend. This was kind of silly because the decrease in claims for unemployment benefits was a mere 1,000, and statistical error could gobble up all of that paltry number.

Readers of The Great Recession Blog may have been more inclined than other market investors to take the job news with a grain of salt, especially since the drop in unemployment claims was the size of a grain of salt. Note that one of the articles about this slight dip in unemployment reported that half a million people have dropped out of the labor force since February. Since unemployment figures do not count people who are not considered to be in the labor force, the drop was likely due to people giving up on finding a job, rather than due to fewer people needing a job. The devil is in the details.

The news for Europe was a downhill slog all the way last week with all indications being that the European economy is going to largely define the global economy this year. China, for example, saw a drop in orders at its export fair, and its export growth for April was only half of what economists had expected. The growth rate of Chinese imports also fell off a cliff — not because Chinese consumers were buying less but because China was importing far fewer of the raw materials from which it manufactures its exports.

Don’t worry about China, though. As I said in my earlier article ( Hard Landing For China’s Economy Not in the Tea Leaves ), China has a bankrolled surplus long enough to string yuan paper cuttings around the world many times. If the depressed world stops buying from China, China can create projects at home from its bunkers of money. This is what smart countries do: they make sure they are running a surplus budget during good economic times so that, when bad economic times come, they have a vast reserve they can tap for stimulus without having to rack up debt. The United States missed that wise opportunity decades ago and has chosen to continue missing it every year since the Clinton administration ended.

Of course, a New York Times reporter was quick to stress, “there are increasing signs that the Chinese economy may be running into trouble.” While people muse in America about China’s possible hard landing, most nations wish they could have China’s trouble. Take care to notice, if you read the article, that all China has seen is the growth in its exports come in at half of what economists had expected. It is not as if China’s exports are receding. They are merely not growing at the rocket pace they once were because China has fewer rich foreigners to sell to. As a matter of fact, China’s exports grew 5% last month. Many countries would be glad to see their exports grow that much in a year. In fact, China is growing faster during the Great Recession than the U.S. did during the best of times.

Continue to bear in mind, also, that China tried for months last year to slow down growth in order to curb inflation. China also has a lot of room to stimulate its economy whenever it wishes because it has done none of the quantitative easing stunts of the U.S. or Europe, and it has a lot of head room to reduce bank interest rates or lower bank reserve requirements to ease credit, while the U.S. and Europe have all but exhausted their capacity to use such stimulus tools.

One interesting little breakout in the economic scene happened quietly last week when the U.S. began to cruise down the road of selling its banks to China.

Other evidence of wistful stock market thinking came as investors found hope that Greece would form a government. Investors would have been safer to fear that Greece would never get a government together that would support the massive spending cutbacks required under the German-pushed austerity pact. The story of the Greek crisis from day one has followed the course I’ve said it would: no sooner is an agreement reached than the agreement falls apart. That’s what happens when you try nailing horse shoes onto a horse with no hooves. That horse ain’t gonna run and ain’t gonna thank you for the horse shoes.

Once again, Greece is a mess, and no one knows how to clean up the Greece stain that smears the euro image. Even the Greek neo-Nazis won parliament seats for the first time in forty years. Their motto? “The time for fear has come.” Nice. This is the government Greece chooses? Is it any wonder Greece is a disaster on steroids?

There is one thing different about the Greek problem this time. The news this week is that many of the bankers and euro leaders are starting to say, “Go ahead and leave then.” That’s a clear sign they’re giving up on finding a solution.

While the Greeks ironically voted in Nazis to fight Germany, the Italians took a left swing at their government in order to knock down the parties that supported the German-imposed austerity measures. France joined in the fight against Germany with a hard left-wing punch to Sarkozy, knocking him on his derriere and replacing him with a socialist. It was all quite a tumble.

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Recap of economic news on The Great Recession Blog last week

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

China syndrome — following the Great Recession to the Great Wall

  • 05/07 Weak Response at China Export Fair a Troubling Sign The Canton Fair disclosed during the weekend that contracts signed at its spring session totaled $36 billion, a drop of 2.3 percent in dollar terms from the spring session last year and a decline of 4.8 percent from the session last autumn.
  • 05/08 China’s Gold Imports Jump as Country May Become Biggest User China’s gold imports through Hong Kong surged more than sixfold in the first quarter. Demand has climbed in China as rising incomes and curbs on property speculation boosted purchases. The purchases may signal that the mainland is accumulating reserves.
  • 05/10 Data Signal Economic Trouble in China China announced Thursday that growth in imports had unexpectedly come to a screeching halt in April — rising just 0.3 percent from the same period a year earlier, compared with expectations for an 11 percent increase.
  • 05/10 Fed clears China’s first US bank takeover The U.S. has just opened its banking market to ICBC, China’s biggest bank, for the first time clearing a takeover of a US bank by a Chinese state-controlled company. The Fed board also approved a Chicago branch for Bank of China, China’s third-largest bank.

Economic indicators and stock market responses seen in the news this week

  • 05/07 Airbus and Boeing hit by plane cancellations Airlines have cancelled a total of 32 orders for planes so far this year, according to data from the world’s two major plane makers. The cancellations reflect the difficult travel market and weak global economy.
  • 05/07 Economy Keeping Investors Out of the Market Investors are turning their fear of the economy into an aversion to stocks, and a preference for bonds. While the market has seen some bounceback, headlines like Friday’s weak jobs report and worries about the European debt crisis have kept many sidelined
  • 05/08 Wall St tumbles on euro zone uncertainty U.S. stocks tumbled to the lowest level in two months on Tuesday as new questions emerged over Europe’s ability to fend off a deeper crisis. Elections in Greece and France added to concern about economic growth in the United States and China.
  • 05/09 GLOBAL MARKETS – Stocks fall, bonds gain on Greek fears Global shares slid for a sixth day while safe-haven U.S. and German government debt rose on Wednesday as rising fears about the fragility of Spanish banks and a political impasse in Greece worsened fears about the euro zone debt crisis.
  • 05/09 Wall Street slides 1 percent on Europe fears US stocks fell sharply on Wednesday as political uncertainty in Greece and the frail state of Spanish banks fueled fears that the region’s debt crisis would worsen.
  • 05/10 Stocks Push Higher; Dow Looks To Snap Six-Session Losing Streak Stocks advanced after a slightly better-than-expected jobs report and as investors watched Greece’s 3rd attempt to form a government. Investors expressed some optimism that Greece would resolve its political situation. Spain eased banking worries.
  • 05/10 Weekly Claims For Jobless Benefits Drop The number of people applying for U.S. unemployment benefits ticked down last week after dropping sharply the previous week, evidence hiring could pick up this month. However, More than 500,000 Americans have left the work force since February.
  • 05/10 Gold continues its south-ward journey, silver recovers In New York, gold dropped on strong dollar amidst political worries over Greece and Spain that stoke fears on the euro-zone debt crisis. Gold for June delivery dipped by $ 10.30 to $ 1,594.20 an ounce on the Comex.
  • 05/10 How the stock indexes fared on Thursday The Dow had been on its longest losing streak since August before gaining almost 20 points on Thursday. Stocks got a boost from a drop in new unemployment applications, as well as Spain’s move to take over a debt-laden bank.
  • 05/11 Gas prices keep inflation tame, push confidence to four-year high Falling energy and gas prices helped keep inflation in check last month and also pushed consumer confidence to a four-year high. The good news mitigated a stock market slump after investors reacted to JPMorgan Chase & Co.’s $2 billion trading loss.

Euro crisis updates as the Great Recession goes viral

  • 05/07 Be afraid, exultant Greek neo-Nazis warn rivals Greek neo-Nazi party Golden Dawn warned rivals Sunday that “the time for fear has come” after exit polls showed they secured entry in parliament for the first time in 40 years. “The time for fear has come for those who betrayed this homeland.”
  • can i buy ambien at cvs billion bailout that is keeping the country from bankruptcy.” href=”https://www.washingtonpost.com/world/greece-at-new-risk-of-being-pushed-off-euro/2012/05/07/gIQAD9z18T_story.html” target=”_blank”>05/07 Greece at new risk of being pushed off euro Infuriated by demands for harsh spending cuts that could exacerbate a crippling recession, Greek voters on Sunday overwhelmingly rejected politicians who had supported the $171 billion bailout that is keeping the country from bankruptcy.
  • 05/07 Greek election impasse heralds lengthy instability Greece faces weeks of financial turmoil after voters angry at austerity measures punished mainstream politicians and let a far-right extremist group into Parties backing the draconian international rescue package lost their majority in parliament.
  • 05/07 Italians Show Austerity Anger in Local Elections Left-wing and protest parties made strong gains in local elections on Monday and the center-right party of former Prime Minister Silvio Berlusconi saw heavy losses as Italian voters joined other Europeans in venting anger over austerity policies.
  • 05/07 Sarkozy’s exit could transform France’s world role Hollande’s defeat of French President Sarkozy may greatly affect European politics and the future of the euro, but the first French Socialist president since ’95 could also dramatically alter France’s role in the world at a sensitive time.
  • 05/07 Spain to Spend Billions on Bank Rescue In an abrupt reversal of policy, Spain, which had insisted no more state money would be needed to clean up its banking sector, confirmed it will bail-out Bankia with the injection of billions of euros of public money into the troubled lender.
  • 05/07 What Hollande’s victory means for Europe’s economy In recent weeks, the European landscape has changed profoundly. Twelve European countries are now in recession, and the leaders of Italy and Spain have asked for balancing fiscal consolidation with growth measures. Now France has a socialist leader.
  • 05/08 European election waves could cause ripples in US presidential race If Europe’s left turn over the weekend means they are unwilling to balance their finances, that could rattle the global markets, reverberate across the Atlantic and hit home for the U.S. economy. Jittery markets would be bad news for the U.S.
  • 05/08 Eurozone at risk from anti-austerity revolt European Union leaders are to hold an emergency summit as a popular anti-austerity backlash threatens to break the eurozone apart and cause a deep rift between France and Germany.
  • 05/08 German industrial production surges in March Total volume of output from Germany’s factories, power stations and building sites rose a seasonally-adjusted 2.8% in the month, well ahead of economists’ expectations for a 0.8% rise. Rising demand for consumer goods lay behind the strong result.
  • 05/08 Greek leftist leader lays out radical agenda Greek leftist leader Alexis Tsipras said Greece voted to reject the international austerity pact. His radical agenda includes cancellation of the pact and nationalization of banks that “remain in the hands of the managers who bankrupted the system.”
  • 05/08 In Europe, a storied way of life comes under threat as economic gloom deepens The Great Recession is bringing serious changes to European culture — reducing the welfare state, lengthening the work week, even getting the Irish out of their pubs.
  • 05/09 German Patience With Greece on the Euro Wears Thin Just weeks ago, the idea that Greece would leave the euro zone was almost unthinkable. Now, with Greece’s newly empowered political parties refusing to abide by the euro pact and Europe’s leaders talking tough, that outcome looks increasingly likely.
  • 05/09 Greece’s newly elected socialist leader pledges to rip up euro deal The leader of a Left-wing coalition in Greece pledged to form a government committed to tearing up the terms of his country’s “barbaric” 130 billion euro bail-out deal, as political paralysis threatened to grip the country.
  • 05/09 Greek Euro-Exit Talk Seeps Into Public as Officials Air Doubts Policy makers are beginning to air doubts that Greece can stay in the euro. The tumult in Athens has put a Greek exit on the planning agenda. EU President Van Rompuy called this an “important moment in European Union history, a moment of crisis.”
  • 05/09 Greek Exit and Spain bank worries roil bondsMounting concerns over Spanish banks and fears Greece’s political vacuum could lead to an exit from the euro zone provided the recipe for fresh turmoil in European credit markets Wednesday, causing Spanish bond yields to spike above 6%.
  • 05/09 Roubini: Europe Is a ‘Slow-Motion Train Wreck’eaving the eurozone, says New York University economist Nouriel Roubini. “”Europe will be lucky if it ends up in stagnation.”
  • 05/10 Eurozone crisis in graphics Chart shows state budget data for all of the countries that officially use the euro as well as the UK.
  • 05/10 Spanish lender Bankia is partly nationalised The state will emerge with a 45% stake in the bank. Earlier, Spanish stocks fell by 3% and government bond yields rose above 6%, a level seen as unsustainable. Bankia has the industry’s largest exposure to the property market, which burst spectacularly.
  • 05/10 What ails the Spanish economy? The gov’t ran a surplus budget, but everyone else behaved recklessly. With low interest rates, banks, property developers and ordinary home-buyers fueled an enormous property bubble. The bubble broke spectacularly, yet prices have a lot further to go.
  • 05/11 Dow Drops Most in 2012 as Europe Concern Resurfaces U.S. stocks fell for a second straight week, driving the Dow to the biggest loss of 2012, as political tension in Greece heightened concern about Europe’s debt crisis and JPMorgan Chase & Co. $2 billion trading loss weighed on shares of banks.
  • 05/11 Opinion: Euro Will Have to Be Devalued to Save EU Faced with a stubborn sovereign debt crisis that won’t go away, the European Central Bank will be forced into currency devaluation, Wharton finance professor Jeremy Siegel said. The ECB’s efforts to end problems have not assuaged market concerns.
  • 05/11 Pressures intensify on European leaders Confidence is already in short supply in financial marketsand could evaporate further in the coming week if investors judge that Europe’s often fractious political leaders aren’t mapping out a sustainable path through the current crisis.
  • 05/12 EU central bankers ponder Greece euro exit Europe central bankers have openly expressed the possibility of Greece leaving the eurozone. Germany’s top banker said it was up to the Greeks to decide, but if they did not keep to their bailout commitments, they would receive no new aid.

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

  • 05/07 UPDATE: Report Sees $15 Billion Profit From AIG Rescue GAO report says U.S. government may wind up with a profit of more than $15 billion from AIG’s rescue. The report comes on the heels of Treasury decision to sell $5 billion in AIG common stock at $30.50 a share, reducing the government’s stake to 63%.

Other economic updates / miscellaneous news articles

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Economic News Articles in the Great Recession — Archive for the week of 04/29/2012

The first and most notable thing I did while working on this website last week was laugh at the optimistic headlines I was posting. MSNBC reported, “New claims for unemployment benefits tumbled more than expected in the latest week, raising hopes that the job market remains on the mend.” NPR reported the same story this way: “The number of Americans seeking unemployment benefits fell last week by the most in more than three months. The figure was a hopeful sign one day before the government releases the April jobs report.”

False optimism in new articles about job improvements

Once again media reports were trumpeting the idea of an economic recovery. My first thought was, Never mind that the previous three months they are comparing to were nothing worth talking about, so beating them doesn’t mean much. My second thought was, By the end of the week this jobs improvement will fade like a mirage anyway. Some might say I’m dismal. I’d just say that I’m willing to look at reality for what it is, whether I like it or not.

You see, other reports that same day supported my belief that the press was, once again, missing the point. In my opinion, jobless claims for unemployment benefits were down only because people were dropping off the unemployment roles due to ineligibility. Either their time was up because they have been on the roles so long, or they just fatigued of looking for anything after months without success. The drop in jobless claims, in other words, was anything but positive news! Most reporters, however, just don’t look or think deeper than the facts that are fed to them.

They wouldn’t have had to look far either in order to decide to choke back their accolades for the job market. One of the other reports that same day said, “Economic Worries Weigh on Wall Street. U.S. factory orders took their largest drop since March 2009. ‘Steep and accelerating downturns’ were reported in Italy, Spain and Greece.” Clearly jobs could not be on any mend that promised “hope” for recovery with news that factory orders were plummeting all over the world. It’s not hard to do the math.

Within the next two days, all news agreed with me: claims for jobless benefits had, indeed, only gone down because people quit looking and were, therefore, not eligible for benefits. The BBC reported, “Employers in the US added fewer workers than forecast in April and the jobless rate unexpectedly declined as people left the labour force, underscoring concern the world’s largest economy may be losing speed.”

Indeed. Is that not what I have been saying all winter would happen in the spring? What several news agencies had reported early in the week as a sign of continuing recovery turned out by weeks end to be only proof of ultimate job-hunting malaise.

Deciphering conflicting economic reports

Other economic news was mixed and confusing last week, too. The Washington Post reported, “US economy shows resilience as manufacturing grows at fastest pace in 10 months!” Whoopeeee! I would have fallen off my tuffet in glee while eating curds and whey, except that I saw a spider in the report. The article stated, “The index of manufacturing activity reached 54.8 in April, the highest level since June. The sharp increase surprised analysts, who had predicted a decline after several regional reports showed manufacturing growth weakened last month.”

My opinion upon reading this was that gauges (indexes) still had to be out of whack. Which should one trust — the indexes that showed improvement or the regional reports that said manufacturing slowed? Without trying to untie this knot, I put my money on the actual regional reports because the indexes are human calculations set up by economists, and we know economists are the last to know what’s happening in the economy. They’re part of the problem because too many leaders are listening to them, even though nearly every one of them failed to see all of this coming, obvious as it should have been.

I also noted at the beginning of the week that the Dow closed at a four-year high and thought, That won’t last long. The very next day, Fox ran the headline, “Economic Worries Weigh on Wall Street.” So, the market went from a four-year high in one day to “worried.” By the end of the week, the Dow dream was over. The Economic Times of India reported, “Wall Street was set for its worstweek this year on Friday after a disappointing jobs report heightened concerns that the economic recovery is slowing down. The jobs retreat was a blow to investors who hoped the S&P would break into new recovery highs.” Whoa! It didn’t just go from a four-year high to “worried.” It went to its worst week of the year. CNN added, “S&P ends worst week of 2012. U.S. stocks sold off Friday. The major indexes all ended lower for the week, after posting two consecutive weekly gains.”

This was not just a sell-off to realize profits. CNN also stated, “Investors made a broad flight to safety in the bond market as they learned that the pace of job creation is well below last year.” So much for jobs being the sign of hope! By the end of the week, they were the cause of a massive sell-off.

The lesson here is clearly, “Beware of economic optimism in the press, and think for yourself.” The optimistic news at the beginning of the week frequently turns on its head before the end of the week because most reporters are not thinking when they tack on their hopeful little comments. Such is the nature of our present times. This is bear season, but financial reporters who cut their teeth in the bull days strain out any sign that the times they understand are returning. They are too quick to give a positive spin to the tiniest glimmer of hope without making any effort to think about what may have caused that glimmer — to test it to see if the basis for hope is sound. As a result, they completely missed the obvious at the start of last week — that not as many people are filing for unemployment benefits because 1) they have been on those benefits so long they have used them up; and/or 2) they have been applying for work so long, they have given up and quit trying to find jobs so are no longer eligible.

The press is not asking tough questions. It is not thinking. It is parroting the data that are fed to it.

Other confusing economic news

Here is another example of seemingly conflicting data when you compare last week to this week: Last week’s news in The Economic Times claimed, “Earlier data from Germany, Europe’s largest economy, showed its manufacturing sector contracted for a second successive month in April…. German manufacturing output showed a renewed decline, attributed by many firms to weak demand from southern Europe.” Yet, today’s news in the same publication said, “German industry recorded a surprise surge in output in March. The total volume of output from the country’s factories, power stations and building sites rose a seasonally-adjusted 2.8% in the month, according to official data.”

To sift that out, just note that January through March was the period in which many economic pundits were gleeful about economic recovery because signs were looking up, even though I kept saying recovery was a phantom that would quickly disappear in the spring. The good news article, though it was published a week later than the bad, actually looks to data further back in time — to March — and reports this week that things are looking up because of March’s data. The bad news last week, on the other hand, came from the more recent spring data, even though the article appeared a week earlier, and says that German industry is now in decline.

Here is how you sort that out: the good news for March was about factory production; while reading on in the other article about April reveals the bad news comes from a decline in new orders. Which is more indicative of where the German economy is going? High production back in March? Or seriously declining orders in April? Obviously, March was just a fulfillment of orders that came in earlier in the year. April’s orders are where Germany is headed.

So, everything is going as I anticipated. Don’t be confused by glimmers of untimely good news. You have to dig deeper than reporters are willing to go … or maybe than they even know how to go. If you don’t have time to dig deeper, come back here. I’ll dig on your behalf. Well, either way, come back here 😉

What the news really says about the economy for the near future

Here is the general trend of reality that you can see in the news from last week. Talk of more quantitative easing is gradually increasing because the stock market is now a bubble built on such Fed programs, just as the housing market was a few years ago. The Fed is becoming increasingly split on the benefit of further Q.E., but the pressure for more Q.E. will grow because the market is addicted to it … and we have to see the market rise, even if the rise is just a bubble … because that is what we do in the current economy.

Congress is making absolutely no headway toward meaningful budget reforms so the likelihood of “Taxmageddon” increases at the end of 2012 as does the likelihood of another credit downgrade. Europe is solidly in full recession now, in spite of the glint presented about Germany this week. All of the steam has gone out of the first-quarter improvements in U.S. jobs that so many were crowing about in the U.S., and European jobs have been in decline all year. Global investors are continuing to exit European debt so that the prospects for Europeans to finance their debts at interest rates they can survive continue to get worse, not better.

How is any of that a picture of recovery?

Oh, and one in seven people believe the end of the world will come in 2012 or, at least, very soon!

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China syndrome — following the Great Recession to the Great Wall

  •  buy ambien us pharmacy easing concerns about a sharp slowdown in the world’s second-largest economy.” href=”https://www.bbc.co.uk/news/business-17904037″ target=”_blank”>05/01 China manufacturing activity expands for fifth month China’s manufacturing activity has expanded for the fifth month in a row, easing concerns about a sharp slowdown in the world’s second-largest economy.

Economic indicators seen in the news this week

  •  05/01 Australia’a central bank cuts rates by more than forecast The Reserve Bank of Australia has cut interest rates more than expected due to increasing signs that its economy is being hit by a slowdown in global growth and demand for its resources. Housing sales fall.
  • 05/01 Chrysler Sees Best April Sales In Four Years Chrysler’s U.S. sales rose 20 percent in April as the company continued its comeback from financial disaster.
  • 05/01 Dow Notches Four-Year Closing High After a tepid April showing, the blue-chip average kicked off May by closing at the highest level since December 2007. April was a weak month for Wall Street in which the broad S&P 500 ended with a 0.75% loss, snapping a four-month winning streak.
  • 05/01 GLOBAL MARKETS-Shares fall on growth worries, Aussie tumbles Global stocks slipped on Tuesday and the U.S. dollar dropped to a two-and-a-half month low against the Japanese yen as worries about the U.S. economy and Europe overshadowed signs of recovery in China’s vast factory sector.
  • 05/01 GM, Ford see declines as April auto sales ease Strong gains in U.S. auto sales over the last six months eased in April, with General Motors Co.and Ford Motor Co. both doing less business.
  • 05/01 Manufacturing Picks Up The pace of growth in the U.S. manufacturing sector unexpectedly picked up in April. Meanwhile, U.S. construction barely edged upward.
  • 05/01 US economy shows resilience as manufacturing grows at fastest pace in 10 months The index of manufacturing activity reached 54.8 in April, the highest level since June. The sharp increase surprised analysts, who had predicted a decline after several regional reports showed manufacturing growth weakened last month.
  • 05/02 Economic Worries Weigh on Wall Street Markets slid solidly into the red on amid worrying economic reports from several of the world’s biggest economies. U.S. factory orders took their largest drop since March 2009. “Steep and accelerating downturns” were reported in Italy, Spain and Greece.
  • 05/02 Report Points To Weaker Growth In Jobs The private sector tacked on far fewer jobs than expected, meaning the April stall is carrying into May, and the number of people applying for unemployment benefits is rising again. New jobs in April fell off 40% from March’s already sluggish figures.
  • 05/03 Jobless claims post biggest drop in a year New claims for unemployment benefits tumbled more than expected in the latest week, raising hopes that the job market remains on the mend.
  • 05/03 New Claims For Jobless Benefits Drop Sharply The number of Americans seeking unemployment benefits fell last week by the most in more than three months. The figure was a hopeful sign one day before the government releases the April jobs report.
  • 05/03 U.S. Retail Sales in April Disappoint Recovery Hopes “There was a lot of enthusiasm in the March numbers, which were really good, and the hope was they weren’t borrowing from April sales but were showing an exciting new trend. It doesn’t look like that was the case.”
  • 05/03 Wall Street drops as data increase uncertainty; Nasdaq off 1.3% The Institute for Supply Management’s report on Thursday showed the pace of growth in the large U.S. services sector slowed more than expected in April, with drops in both new orders and employment.
  • 05/03 Wall Street slips on day ahead of jobs report While earnings were strong and the latest jobless claims report was encouraging, a slower-than-expected reading on growth in the huge US services sector and weakness in retail stocks drove the day’s trading.
  • 05/04 Jobs Below Forecast in U.S. Employers in the US added fewer workers than forecast in April and the jobless rate unexpectedly declined as people left the labour force, underscoring concern the world’s largest economy may be losing speed.
  • 05/04 Jobs Slow and Work Force Shrinks The U.S. had another month of job disappointment. April’s net gain of 115,000 jobs was way below March’s bad figure and way less than economists predicted. While the unemployment rate dropped, that was entirely because 342,000 people gave up looking.
  • 05/04 More on the loss of jobs in the U.S. “The drop in the unemployment rate was actually an unhealthy drop – you had less people looking for work, which shows a bad sentiment.”
  • 05/04 S&P ends worst week of 2012 U.S. stocks sold off Friday. The major indexes all ended lower for the week, after posting two consecutive weekly gains. Investors made a broad flight to safety in the bond market as they learned that the pace of job creation is well below last year.
  • 05/04 Wall Street faces worst week this year Wall Street was set for its worst week this year on Friday after a disappointing jobs report heightened concerns that the economic recovery is slowing down. The jobs retreat was a blow to investors who hoped the S&P would break into new recovery highs

Economic predictions / forecasts that made news headlines

  • 05/02 Peter Schiff: ‘Junk’ US Treasurys, Dollar Headed for Collapse While some Fed officials say the economy needs no more easing, Chairman Ben Bernanke has said he can’t rule it out. “Unfortunately, we are going to get more QE than Rocky movies, because the only thing keeping this phony economy going is this QE,” Schiff said.
  • 05/01 US at Risk of Another Credit Downgrade The U.S. could suffer another credit downgrade, similar to the Standard & Poor’s decision to strip the country of its coveted AAA rating in 2011, says Bill Gross, founder of Pimco, manager of the world’s largest bond fund.
  • 05/03 Gold set for biggest drop in month “Things will have to look very weak tomorrow morning to see any upside momentum come back [to gold prices]. If the nonfarm payrolls number is stronger, then we’ll see gold really test [the bottom at] $1,600 an ounce,” said one precious metals trader.
  • 05/03 ‘Taxmaggedon’ Deal Unlikely Before Year End: Orszag Congress is unlikely to reach a deal before the end of the year that would derail the coming “taxmaggedon,” when several tax cuts expire, a former White House budget director said. The coming storm is expected to siphon $500 billion out of the economy.

Euro crisis updates as the Great Recession goes viral

  • 05/02 Euro zone downturn taking root among core members. Second dip is here! Euro zone manufacturing slipped further into decline as the downturn in smaller nations spread among core members France and Germany. Workers have been laid off at the fastest pace in more than two years as new orders fell for the 11th straight month.
  • 05/02 Eurozone jobless rate hits record high For all 17 nations in the eurozone, the jobless rate rose again to 10.9%, the highest since the euro was formed in 1999. Even in Germany, the jobless rate rose to 6.8% as austerity measures throughout Europe ate into German production. Spain stands at 24.
  • 05/02 German inflation angst returns in new threat to Europe “There’s nothing dramatic happening at the moment, but the inflation dangers for Germany over the next two to three years are very high. There is a significant risk that this ends in disaster.”
  • 05/02 Greek debt raised out of default by Standard and Poor’s S&P upgraded the crisis-hit nation to “CCC” from “selective default” after the country completed the biggest debt restructuring in world history earlier this year.
  • 05/03 European Central Bank Says Economic Outlook More Uncertain “Latest signals … highlight prevailing uncertainty…. There are indications that the global recovery is proceeding. Looking beyond the short term, we continue to expect the euro-area economy to recover gradually in the course of the year.”
  • 05/03 Global Investors Resume Exit From Euro Debt Global investors resumed their exit from euro zone bond markets in April, cutting their holdings of the bloc’s bonds to their lowest level in over a year
  • 05/03 How the Head of the Bank of England Spins Sir Mervyn needs to get new glasses. His cooky rewrite of history misses seeing any of his own mistakes and typifies bankers and economists all over the world who missed calling the coming of the Great Recession. He adds enough spin to make a monkey dizzy
  • 05/03 Spain sells more bonds but at higher rates The Bank of Spain sold 3-year bonds at average yields of 4.04%, up from 2.6% at its last sale on March 1. Interest rates on 10-year Spanish bonds – the benchmark for borrowing costs – are edging closer to 6%. Spain currently has 24.4% unemployment.
  • 05/03 U.K. House prices fell again in April Housing slide continues in U.K. The Land Registry for England and Wales said house prices fell by 0.6%, which also left them 0.6% down from a year ago. The Nationwide building society said prices had fallen four times in the past five months.
  • 05/04 Eurozone private sector ‘contracts sharply’ In the sharpest fall since October, the eurozone economy contracted sharply in April. News was worse than economists had anticipated, and one economist described it as “truly dire.” The steepest contraction in almost three years even brought Germany to a decline.

Federal Reserve actions tracked in the economic headlines

  • 05/01 Fed Hawk and Dove Agree: No More Easing Two top Federal Reserve officials — one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk — on Monday both said they see no need for the U.S. central bank to ease monetary policy any further.

Articles of Justice during the Great Recession

Occupy Wall Street (OWS) / the Occupy Movement updates

Other economic updates / miscellaneous economic news articles

  • 05/03 Gold Standard is for Nuts … or Not? Nut cases. That’s what they are. And if you take an interest in them, you are a nut case, too. That’s the consensus among credentialed economists who describe advocates of a return to the gold standard. A Bank of England report questions that assumption.
  • 05/03 Job numbers: Are the books cooked? [Yes, the gov’t cooks the books, and people are now talking about what I said all of last year … that the unemployment rate seriously undercounts the number of unemployed.]
  • 05/03 One in seven people believe end of world is coming soon Whether they think the world will end through by hands of God, or a natural disaster or a political event … one in seven people believe the end of the world is coming. Of those, more than half believe it may end in 2012 according to the Mayan calendar.

Economic News Articles in the Great Recession — Archive for the week of 04/22/2012

Splintering sounds ruptured the euro zone as it, again, became the big leader in economic news last week. The prior week emitted a couple of loud cracks when Spanish bonds sailed to unsustainable heights. This past week the austerity pact, which was intended to stabilize those bond prices, became the new threat. Political instability broke out on the weekend and resulted in a rough start for European stock markets on Monday with £122 billion lost in corporate values.

The stalwart Germans saw two of the strongest national supporters of their austerity rules begin to bust apart: France’s president lost his first election round in the French counterpart to the U.S. primaries, and the Dutch prime minister resigned over his own country’s inability to live within the austerity agreement. While Germany intended the austerity pact as a way to restore financial stability, it clearly has caused countervailing political instability.

Even the nations most in favor of the austerity pact have failed to meet its mandates. And, while the European Commission demanded budgetary austerity from all of its member nations, it increased its own budget almost 7% last week. Greece in particular rumbled with more talk of splitting away, as its own economic expderts said Greece will be worse off for decades if it stays in the euro zone than if it drops out of the E.U.

While the euro zone creaked under pressure, three European nations announced they had slipped solidly into the long-feared double-dip of the Great Recession. That means lower tax revenues, and that means the likelihood of meeting austerity-pact goals becomes worse than ever. Even Germany’s economy shrank at the fastest rate it’s declined since 2009 when the economic crisis that originated in the U.S. first washed up on Europe’s shores.

On this side of the sea, two different measures of the U.S. housing market indicated that housing is falling into a second recessionary dip, too. I’ve been saying it would, contrary to the voices of far more popular economic experts. The illusion that had appeared to these soon-to-be-disappointed optimists as a recovery during the first quarter of the year disintegrated last week. Reports revealed that home sales dropped all over the nation. Prices, due to foreclosures, also hit a low they have not seen in a decade.

Orders for durable goods took a big drop, too. Yet, the sweet taste of Apple’s earnings report, lifted the U.S. stock market out of fears that had caused it to stagger backward earlier in the week when it heard the rumblings in Europe.

This past week also reinforced the popular but unwarranted fears that China will have a hard landing in the months ahead. I’m sticking with my recent prediction that China will have a smooth landing, precisely as it has planned … at least for this year.

I have finally found one U.S. official (or former official) who agrees with my statements that the Fed is causing a stock market bubble. A former FDIC chair that the wild ebullience of the stock market in recent months is nothing but a bubble created from fastest free money ever clicked into existence on a computer screen. Obviously, the Fed loves creating bubbles because it has been in the bubble business several times in the past.

Iran did exactly as I predicted it would during negotiations and indicated last week that it may halt nuclear expansion! Whoohooo! (What I said will happen is that Iran will try to make it look as if negotiations have hope of succeeding … to the fullest extent it can while remaining strong in appearance against the U.S.. The Russians gave them that chance last week with a proposal that would halt enrichment. The proposal afforded the opportunity for Iran to appear to be acting in good faith as a gracious and diplomatic act toward their Russian allies without looking weak to the U.S. The press, of course, also did as I said it would and heralded this as a “possible breakthrough.” They should stay with publishing funny papers. All Iran really said of the Russian proposal that would curb their nuclear expansion was, “We need to study this proposal and to establish on what basis it has been made.”

Of course that is what they said: 1) Russia has provided the bulk of Iran’s nuclear technology; so Iran cannot simply dismiss what its nuclear partner says without thinking through a careful response; 2) The obvious ploy that the press missed entirely is that studying the proposal takes time, which is another way of saying that it buys the time Iran needs to continue its development of nuclear weapons. For as long as Iran can cause negotiations to continue, it can continue its clandestine nuclear enrichment. Yet the press, which now seems to drink the same dope as our flamboyant economists, proclaims this ruse a “possible breakthrough!”

That wasn’t the only news that edged in the direction of my earlier warnings: Fifty percent of last year’s college graduates are either unemployed or underemployed. What happens to a trillion dollars in student loans when half of all graduates cannot find a job that is capable of making payments on those loans?

For the past two weeks now, several things have started to track exactly as I’ve said they would every month this year. I’ve maintained all along that I did not expect these things to start going the way I was predicting until spring. As in the past, I’m one of the few people who has been saying that there is no sustainable recovery and that the appearance of one in the beginning of the year was an illusion. Those who speak of “the recovery” live in illusion.

The popular economists who are all over the news have been saying the exact opposite of what I have been saying all year. So, I write contrary all the time to the most influential voices in America. These beleaguered optimists were, again, surprised by the changes that have come in the last two weeks (which reflects yet another failing on their part to do their jobs).

Among the following stories are a few of the surprises that came their way last week:

 

China syndrome — following the Great Recession to the Great Wall

Economic indicators seen in the news this week

  •  04/23 U.S. Stocks drop 1% on China, Europe fears “Events over the weekend re-ignited concerns that the European community is going to have trouble working out a coordinated plan.” Investors have focused on the Dutch prime minister resignation’s and France’s possible government shakeup.
  • 04/24 Home prices lowest since 2002 The home price index of 20 cities recorded a decline of 3.5% from a year earlier. Home prices have not been this low since November 2002. The main challenge for housing continues to be foreclosures and other distressed property sales.
  • 04/24 New Home Sales Drop After Big Revision The Commerce Department said Tuesday that sales dropped 7.1 percent in March to a seasonally adjusted annual rate of 328,000 units. That followed a 7.3 percent increase in sales in February.
  • 04/24 Strong earnings from AT&T, 3M lift US stocks Solid U.S. corporate earnings and higher spirits in Europe propelled the Dow Jones industrial average to a triple-digit gain Tuesday.
  • 04/25 Apple blowout quarter stokes Wall Street US stocks advanced on Wednesday after a blowout quarter from Apple further lifted optimism in an earnings season that has far outstripped expectations.
  • 04/25 Durables orders drop sharply, cast shadow on U.S. recovery Orders for equipment, appliances, aircraft and other so-called durable goods fell 4.2 percent in March from February — the second decline in the past three months and the biggest monthly dip in three years, indicating the economy has gone soft.

Economic predictions / forecasts that made news headlines

  • 04/24 Gold may touch $7,000 per ounce before end of uptrend While gold’s latest price gyrations may seem excessive to some investors, Bank of America analyst MacNeil Curry said the volatility was nowhere near extreme enough to convince him the precious metal’s long-term uptrend was nearing the end.

Euro crisis updates as the Great Recession goes viral

Federal Reserve actions tracked in the economic headlines

The Iranium Reaction as it makes and shakes the news

Articles of Justice during the Great Recession

  • 04/23 Iceland ex-PM Haarde ‘partly’ guilty over 2008 crisis Mr Haarde is thought to be the first world leader to face criminal charges over the financial crisis. Some Icelanders have seen the trial as scapegoating, while others feel public accountability is essential after the country’s financial collapse.

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

  • 04/25 Goldman Board Hopes Image Overhaul Will Save Blankfein It’s being billed as the biggest salvage job on Wall Street—and it has nothing to do with preventing another meltdown at troubled mega banks Bank of America and Citigroup. Rather, it’s about preserving the job of Goldman Sachs’ CEO, Lloyd Blankfein.
  • 04/25 Small banks in US bailout pool under pressure More than 100 smaller banks were able to tap government programs to pay off bailout money they received during the financial crisis but hundreds of others still owing face a perilous future, a federal watchdog said on Wednesday.

Other economic updates / miscellaneous economic news articles

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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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