Bernanke delivers blunt warning on U.S. debt

Stage is set in U.S. for a Greek tragedy

 

"With uncharacteristic bluntness, Federal Reserve Chairman Ben S. Bernanke warned Congress on Wednesday that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt."

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

 

I wonder what congress thinks about having the FEDs tell them they will not help them? I still don't believe the FEDs will stop the printing press until external forces make them stop. Greece didn't. Japan hasn't stopped yet. Then why should we?

 

Is Bernanke just blowing more smoke, or does he see the writing on the wall. China has stopped buying American debt and has started dumping instead. Japan and Britian have picked up the slack over the last few months, but they are both broke and will not be able to keep this up very long.

 

Can the US economy go lower and have lost decades, yes. Can it avoid this, maybe, but I really believe the clock is ticking. I wonder if the IMF has enough funds to bail the US out? Maybe Canada and Mexico will step up?

Gramarye:

 

I'm not sure if you are an economist or an amateur like me.  I enjoy the act of thinking these scenarios through.  So, my responses:

 

The issue is that we're *all* importers. The entire U.S. economy is an importer economy. We import much more than we export. A weak dollar could help domestic manufacturers, but it would do so at the expense of almost everything else, and wouldn't even help domestic manufacturers all that much if they're manufacturers that get a lot of their raw materials from outside the U.S., since a weak dollar would drive up the costs of those raw materials.

 

That's precisely my point- the U.S. needs to import less and export more.  Anything that helps to give people a reason to invest in creating goods of value for export and the personal savings rate is a positive thing for the U.S.  Look at how much was wasted in terms of opportunity cost as result of the housing bubble.  Americans spend too much of their money on certain sectors and not enough saving.

 

There seems to be two ways of viewing changes in the exchange rate: Changes either balance out across the economy and their is no net effect, or changes can cause new patterns of investment that have real effects, either good or bad.  My view is the latter, that our economy is currently out of balance, and more domestic manufacture and exports would be better and rebalance the economy from, as you say, "import[ing] much more than we export."

 

Keep in mind that the way a weak currency makes manufacturers more competitive is by allowing them to pay their employees less in real terms. It's the cultural resistance to pay cuts that makes it an "attractive" alternative to simply paying workers fewer dollars that are worth more as opposed to more dollars that are worth less.

 

Don't really disagree, except that it seems to me that decreasing the average person's purchasing power would potentially increase the savings rate, which is something I think would be good.  I don't think you're arguing that the weak dollar wouldn't increase exports, because of all the phenomena you described above, so that's once again a factor that I view as a benefit, along with the decrease in personal consumption.

 

The strong dollar does a lot more than just keep the price of most consumer goods (which are either imported or assembled from imported materials and components) low; it also allows American companies to buy out their competitors rather than being bought out by them (since we get to bid in dollars and they get to bid or defend with whatever their local currency is).

 

That's what happened when InBev bought Anheuser-Busch when the Euro was riding high against the dollar.  I'm not sure why anyone should care about this.  The only way that InBev closes plants in the U.S. is if beer consumption falls in the North American market, which is something the bosses in St. Louis would do as well.  It's not like the auto industry.

 

It also is absolutely critical to maintain the dollar's standing as the world's reserve currency. This is something that very few voters comprehend and yet is absolutely central to our global financial clout, which directly benefits everyone in the country from top to bottom.

 

This strikes me as a political question rather than something related to the relative value of currencies floating against one another.  The creditworthiness of the U.S. Treasury is directly related to the amount and regularity of the tax receipts it can command, which is in turn directly related to the productivity of American workers.  We should be trying to get Americans to invest in business that pay good wages, not houses to trade back and forth.

Keep in mind that the way a weak currency makes manufacturers more competitive is by allowing them to pay their employees less in real terms. It's the cultural resistance to pay cuts that makes it an "attractive" alternative to simply paying workers fewer dollars that are worth more as opposed to more dollars that are worth less.

 

Don't really disagree, except that it seems to me that decreasing the average person's purchasing power would potentially increase the savings rate, which is something I think would be good. I don't think you're arguing that the weak dollar wouldn't increase exports, because of all the phenomena you described above, so that's once again a factor that I view as a benefit, along with the decrease in personal consumption.

 

No, I'm not arguing that there wouldn't be an increase in exports; I'm simply arguing that it would not be worth the cost in terms of the damage done to other measures of economic health and standard of living.  However, I am arguing against your contention that a depreciating dollar would increase the savings rate.  A falling dollar is the worst thing for savers, because the money I withdraw from my bank or portfolio is worth less than the money I put into it, meaning that the first several percentage points of my interest, dividends, or capital gains are just to cover the inflationary shortfall.  It's a rising dollar that encourages saving, because the dollar you don't spend today will be worth more tomorrow, not less.  Look at countries where inflation is high.  Do you see individuals there saving much?  They have no incentive to do so because inflation erodes the value of savings.

 

The strong dollar does a lot more than just keep the price of most consumer goods (which are either imported or assembled from imported materials and components) low; it also allows American companies to buy out their competitors rather than being bought out by them (since we get to bid in dollars and they get to bid or defend with whatever their local currency is).

 

That's what happened when InBev bought Anheuser-Busch when the Euro was riding high against the dollar. I'm not sure why anyone should care about this. The only way that InBev closes plants in the U.S. is if beer consumption falls in the North American market, which is something the bosses in St. Louis would do as well. It's not like the auto industry.

 

With respect to the business decisions, this is true.  However, having a corporate headquarters in this country can be extremely good for the area in which that headquarters sits, regardless of where the production facilities are.  It's good to have production facilities here, but it's also good to have the headquarters here.  (It's also good to have the shareholders here, since that brings some of the profits here even if the headquarters of a company are in Tokyo.)  Nevertheless, this was a secondary point in my mind.

 

It also is absolutely critical to maintain the dollar's standing as the world's reserve currency. This is something that very few voters comprehend and yet is absolutely central to our global financial clout, which directly benefits everyone in the country from top to bottom.

 

This strikes me as a political question rather than something related to the relative value of currencies floating against one another. The creditworthiness of the U.S. Treasury is directly related to the amount and regularity of the tax receipts it can command, which is in turn directly related to the productivity of American workers. We should be trying to get Americans to invest in business that pay good wages, not houses to trade back and forth.

 

The creditworthiness of the U.S. Treasury is also affected by the value and trajectory of its currency, however, along with the reputation of the dollar and its managers.  Greece can collect a substantial amount of taxes with regularity, but it still has very low creditworthiness.  (That's more a fiscal issue than a monetary issue, I admit, but both can damage a country's creditworthiness.)  If creditors, foreign or domestic, expect that they'll be getting paid back with dollars that are worth less than the dollars they lent, they'll demand higher interest rates, and will ultimately stop lending to us (though we have a long ways to go before our creditworthiness drops to that level).

 

I agree that trading houses back and forth adds very little to the real economy, though building the houses did, at least for a time.  There are better investments out there.  I don't have any real estate in my portfolio anymore.  (Of course, there are often opportunities in sectors that conventional wisdom of a given day has given up for dead, but I'm willing to leave those to others to find.  More power to them.  Less stress to me.)

Jeffery, interesting analysis.  I wonder what you think the future will look like since you've lived through a lot of the last 50 years and you have a keen eye on the data.

No, I'm not arguing that there wouldn't be an increase in exports; I'm simply arguing that it would not be worth the cost in terms of the damage done to other measures of economic health and standard of living. However, I am arguing against your contention that a depreciating dollar would increase the savings rate. A falling dollar is the worst thing for savers, because the money I withdraw from my bank or portfolio is worth less than the money I put into it, meaning that the first several percentage points of my interest, dividends, or capital gains are just to cover the inflationary shortfall. It's a rising dollar that encourages saving, because the dollar you don't spend today will be worth more tomorrow, not less. Look at countries where inflation is high. Do you see individuals there saving much? They have no incentive to do so because inflation erodes the value of savings.

 

Well, there's no inflation right now and there's a lot of unemployment.  The fed is keeping exchange rates low with the intention of encouraging lending and investment.  It seems to me that if you have money that can't buy many foreign goods at the moment you'd do better to keep it in your bank account or buy bonds or something (savings isn't just holding hard cash, if I'm reading you correctly) and wait out the depreciation.  The problem that Spain is suffering from right now is that they don't control their currency, so they can't depreciate it now that unemployment has skyrocketed and prices remain at their pre-unemployment levels.

 

With respect to the business decisions, this is true. However, having a corporate headquarters in this country can be extremely good for the area in which that headquarters sits, regardless of where the production facilities are. It's good to have production facilities here, but it's also good to have the headquarters here. (It's also good to have the shareholders here, since that brings some of the profits here even if the headquarters of a company are in Tokyo.) Nevertheless, this was a secondary point in my mind.

 

Don't disagree with you, but I doubt many but the seniormost positions left St. Louis for Leuven, and I doubt that that purchase will effect AB's presence in the St. Louis community.  A similar thing happened when P&G bought Gillette.  Almost all of those jobs remained up in Boston.

 

The creditworthiness of the U.S. Treasury is also affected by the value and trajectory of its currency, however, along with the reputation of the dollar and its managers. Greece can collect a substantial amount of taxes with regularity, but it still has very low creditworthiness. (That's more a fiscal issue than a monetary issue, I admit, but both can damage a country's creditworthiness.) If creditors, foreign or domestic, expect that they'll be getting paid back with dollars that are worth less than the dollars they lent, they'll demand higher interest rates, and will ultimately stop lending to us (though we have a long ways to go before our creditworthiness drops to that level).

 

Income results from productive activity.  The primary activity of the past five to ten years was not productive.  If it takes some devaluation to jar us into productive pursuits, the U.S. will be better served by it.

 

 

This is why housing and home prices still have another leg down coming. The true adjustment has not been allowed to happen in its fullest yet. Only delayed.

 

Housing: Time to Pull the Plug on Government Support

 

"These policies are geared toward propping up home prices, the definition of a perverse public policy. Artificially holding prices at above-market levels harms new potential buyers, from young adults starting their own households to immigrants putting down stakes in the American Dream. The subsidies wrongly delay the inevitable home market price adjustment to excess supply in many markets across the country."

 

I don't see anything being gained by holding housing prices higher than the market rate," says Dean Baker, economist and co-director of the liberal Center for Economic & Policy Research in Washington. "It is difficult to see why the government would want to pursue policies that would encourage people to pay too much for homes."

http://www.businessweek.com/investor/content/feb2010/pi20100226_589467.htm

^Correct me if I am wrong, but when people (including banks) sell real estate at a loss, that loss can be used as a tax write-off.  I get the argument though.  The bubble really got ridiculous.  Even neighborhoods that were not "in demand" in the past decade or so, saw the home prices nearly double.

I want to say that individual capital losses are capped at $3000/year.  I could be wrong about that.

I think there's a cap, but I think there's also some carry-over to subsequent years.

I don't think you get capital loss carry-forwards.  These aren't like NOL's, AFAIK.  I think someone who loses $25,000 on the sale of their house really doesn't get any tax benefit beyond the first $3000 of loss (and don't forget that the tax savings even on that will generally be only a few hundred dollars.  You can offset it without bound against other capital gains, but realistically, most people hit by the foreclosure crisis aren't going to have tens of thousands of dollars in capital gain income.

From the above article....

 

"The subsidies wrongly delay the inevitable home market price adjustment "

 

"It is difficult to see why the government would want to pursue policies that would encourage people to pay too much for homes."

 

Well Mr. Dean Baker.... the anwere is obvious when you consider it for a mili-second.  You are right... it's not in the general public's interest to artificially hold RE prices high.  But it IS in the interest of the banking industry to do so.  It limits the bad loan write-offs the banks have to take.  And that keeps the banks solvent (otherwise all big banks would be both insolvent and bankrupt).  and that allows the government to keep functioning (paying its bills, borrowing money, warding off pitch forks and torches, etc).

 

So, Mr. Baker... Did I answer your question?  The government wants to save itself and big banks at the expense of the general population. Under that aim, a 10 year period of slow housing deflation is preferable to a sudden correction.

 

-------------

 

in my opinion...

 

Throughout this bursting of the financial bubble (of which the housing was just the physical manifestation of), the intent of the government has been to save the financial system. Period.  Bottom Line.  End of Discussion.  Keeping prices high is one aspect of it.  Keeping mortgage holders paying, instead of defaulting, has been another goal (though not working out all that well as of late). Despite throwing a few bones our way, the government doesn't really care about individual borrowers.  It's the lenders they are protecting. 

 

Imagine if GoldmanSacks (GS), BofA, Citibank, Wachovia, WellsFargo, Merril Lynch had all gone BK.  Technically, I'm pretty confident they did, indead, fail according to traditional accounting methods.  But had they actually gone under, the gov would find it much harder to conduct business, FDIC could not support them, and the panic around the world would probably have brought down many governments.

 

In a free market, each should have been allowed to fail, and their assets sold off to good companies that are better managed. US Bank and others could have bought a lot of assets real cheap.  But there isn't enough money in the remaining good banks to buy all the good assets in the failing big banks at a decent price.  Foreign banks would probably try to come in and snatch up the good assets. But more importantly, the losses that would be spread around Wall Street and the world would have brought down too many companies and people.  The government simply could not let this happen.

 

The other, slightly less cynical reason that the gov't has been propping up home prices (encouraging people to pay too much for homes) is that the majority of adults of voting age already own a home, and that homeowners are more likely to vote.

CincyDad and X, right on the money.

 

Save the big boys, let main street slide, click your heals and hope the whole thing doesn't come crashing down in the future. But, just in case it does come crashing down, make sure the most well connected have received enough money to safely travel in their yatch to a far away land.

Gramarye... I think you're right. 

 

X... I'm almost certain you're right.  And so is CincyDad.  A third reason is that so many local governments are depedent on the property taxes and have no way to replace them if/when the bottom falls out.

CincyDad and X, right on the money.

 

Save the big boys, let main street slide, click your heals and hope the whole thing doesn't come crashing down in the future. But, just in case it does come crashing down, make sure the most well connected have received enough money to safely travel in their yatch to a far away land.

 

There isn't just one main street, either.  Like I said, there's a divide between people who own and rent and their interests in what happens to the housing market.  Truthfully I'm not even so certain that housing prices falling through the floor is great for most renters, as many have jobs selling furniture, or doing repair work for, or otherwise catering to homeowners.

The property tax angle is an interesting one.

 

In Ohio, the mill rate on property taxes is set and can't be changed by the local governments without the approval of citizens.  A few other states have legal restraints on the modification of the local tax rate (California's Prop 13 being the most recognizable), but most states do not.

 

Many people around the country are reporting that local governments are significantly raising the local tax rate to compensate for the decline in tax rate base ("property value").

 

So yes, the government wants to help local governments with the decline in tax revenue due to falling property values.  It looks everyone is angling for a combination of (meaningful) tax increases, (minor) service cuts, and the Fed gov't helping to plug the remaing gap.

 

Of course, here on Ohio, a drop in property values can't be made up by simply upping the mill rate.  So there is a very strong vested interest in keeping property values as high as possible.

 

There isn't just one main street, either.

 

Very true, but I don't think until now we've reached the point of needing to identify the different "main streets".

 

In the "bubbly areas" of the country, rents are much cheaper than buying.  So, logically, if the gov't wants to keep people in their houses, keep them paying their mortgages, it should somehow impose a penalty on renting to raise the effective cost of renting to closer to that of owning.  They lower the cost of owning through tax breaks. 

 

If it weren't that an attack on rents is viewed as an attack on the "poor", I would look for a tax penalty on renting.  It would be indirect, of course.  Like eliminating tax benefits of landlords so they would pass the increased cost of business on to renters.

^I'm not sure if there's that much of a conspiracy.  Lot's of people don't want prices to fall because they leveraged things under the old price.  It's pretty straightforward and understandable.

 

Look at what happened when the banks started to fail.  The stock market started to tank, because people who were overleveraged sold any any asset they could.  Then GM, Chrysler, the State of California and other entities can't get the short term loans they rely on to make payroll, etc.

 

A great thing about the U.S. and property is that banks can't come after you for the mortgage because it is attached to the house.  That's why for a lot of people who are underwater on their mortgage, it might make good sense just to walk away.

Not all states have anti-deficiency statutes.  Ohio allows collections of deficiency judgments for up to two years after the confirmation of the judicial sale, for example, so if you have other assets, the bank can come after them for two years.  If you inherit some money ten years later, though, they can't.

Not all states have anti-deficiency statutes. Ohio allows collections of deficiency judgments for up to two years after the confirmation of the judicial sale, for example, so if you have other assets, the bank can come after them for two years. If you inherit some money ten years later, though, they can't.

 

Good to know.  Obviously anyone planning to bail like that should talk to a lawyer to make sure you cover your ass.

Cincinnati’s commercial real estate industry is in a crisis

 

"And there could be plenty more rock-bottom deals in the works, based on a Business Courier analysis that identified 177 retail, hotel, office, industrial and apartment properties that are considered distressed. That means they’re in foreclosure or default – or are at risk for such trouble."

 

‘It could halt the economic expansion’

“It’s one of the reasons we have a half-speed recovery,” said Stuart Hoffman, senior vice president and chief economist for PNC Financial Services Group Inc. in Pittsburgh. “It’s not by itself enough to throw the economy back into recession, but if you throw a few other bad things at it, like a spike in oil prices or a lack of job growth, it could halt the economic expansion that’s going on.”

http://cincinnati.bizjournals.com/cincinnati/stories/2010/03/08/story1.html?b=1268024400^2972801

 

This 'crisis' will only grow, not just in Cincy but across the country. There is no need to add any new inventory to the market, its already saturated at this time.

 

Cincinnati’s commercial real estate industry is in a crisis

 

"And there could be plenty more rock-bottom deals in the works, based on a Business Courier analysis that identified 177 retail, hotel, office, industrial and apartment properties that are considered distressed. That means they’re in foreclosure or default – or are at risk for such trouble."

 

‘It could halt the economic expansion’

“It’s one of the reasons we have a half-speed recovery,” said Stuart Hoffman, senior vice president and chief economist for PNC Financial Services Group Inc. in Pittsburgh. “It’s not by itself enough to throw the economy back into recession, but if you throw a few other bad things at it, like a spike in oil prices or a lack of job growth, it could halt the economic expansion that’s going on.”

http://cincinnati.bizjournals.com/cincinnati/stories/2010/03/08/story1.html?b=1268024400^2972801

 

This 'crisis' will only grow, not just in Cincy but across the country. There is no need to add any new inventory to the market, its already saturated at this time.

 

A good way to unsaturate the commercial real estate market is to tear down all the crap commercial buildings that litter the land.  Save the good stuff, both new and old, and move on.  Someone, somewhere needs to start making priorities in their communities of what buildings matter and which don't.  So many crap commercial buildings to tear down, so little time.

The one benefit to the fact that so much of the postwar development is not mixed use is that tearing it down does in fact take it out of the market. Contrast with the retail strips of the pre-war era which often had housing, offices, and even light manufacturing mixed in and you had a much bigger problem to deal with those neighborhoods declined. As the article notes, the real problem is that so many investors big and small are tied up in these markets and would lose everything if we just started large scale bulldozing.

 

Basically, you'd probably use more federal debt to push to the cities for massive landbanking projects. Whole stretches of America's cities could look like the land between Calhoun and McMicken.

It's a shame that the City doesn't have the cash to start landbanking.  Instead Qualls thinks we should sell our most valuable properties in down market to cover budget shortfalls.

Press Release:

 

 

The Conference Board Employment Trends Index™ (ETI) Increases

 

 

 

The Conference Board Employment Trends Index™ (ETI) rose in February for the sixth consecutive month. The index now stands at 93.5, up from January's 93.2. During the past six months, the index increased by 13.4 percent (annual rate), the highest six-month growth rate since 1994.

 

"The continued rise in the ETI suggests that job growth is about to begin," said Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board. "The past two jobless recoveries in 1991 and 2002 were a result of a continuous decline in manufacturing employment. This time, the strong recovery in manufacturing production has already led to two consecutive monthly increases in manufacturing employment. We are likely to see this trend continue over the next several months, which will contribute to overall job growth."

 

This month's increase in the Employment Trends Index was driven by positive contributions from four out of the eight components. The improving indicators were: Number of Temporary Employees, Job Openings, Industrial Production, and Real Manufacturing and Trade Sales.

 

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out so-called "noise" to show underlying trends more clearly...

 

..more at the link.

 

Levanon is correct about manufacturing lagging...really not recovering at all...after the 2001 recession. That was the case in Ohio.  The BLS will have the final December and preliminary January employment numbers out later this month for Ohio and MSAs, so I will be able to do some scenarios to see how deep in the hole we (Ohio) are when it comes to employment.

 

 

Jeffery, interesting analysis.  I wonder what you think the future will look like since you've lived through a lot of the last 50 years and you have a keen eye on the data.

 

Looking at those long-term charts one realizes how difficult it is to predict or forcast when sitting in the middle of a trend.  One thing to be wary about is when people said we've licked the business cycle.  That means we are at the peak of an expansion.  People said that in the 1960s and they said it in the 1990s.  As I said before in the current recession something has happened since the swings in numbers are so big, so who knows? 

 

"Whole stretches of America's cities could look like the land between Calhoun and McMicken. "

 

Many stretches of American's cities already do.

The Conference Board Employment Trends Index™ (ETI) rose in February for the sixth consecutive month.....During the past six months, the index increased by 13.4 percent (annual rate), the highest six-month growth rate since 1994.

 

Just some thoughts on this...(I agree that the employment situation has stopped nose-diving)

 

+  How has the employment index been affected by Government stimulous money?  Certainly the construction industry has retained some jobs for a while that it would have lost otherwise.  And the stimulous money has allowed state and local governments to avoid a lot of layoffs ... until now. This kind of stimulous money was not in the system for each of the 2 previous jobless recoveries. 

 

+ What happens to employment when all government stimulous (including all the actions currently being taken by the FED)  ends?  You have to think the construction industry will suffer.  State & local government employment will probably suffer as well.  Every industry will probably suffer some thru reduced spending by the 2 sectors I just mentioned, but not sure it will be that big a loss.

 

+ Manufacturing employment increasing is good news.  For several years, the mfg sector has been growing but employment in the sector has actually been falling.  Perhaps employment levels were cut too low and now the hiring is to come back up to (long-term) average levels.  Or perhaps the current employees were working lots of OT, and are burnt out.  Whatever the reason, it's a good sign.  Could still be tripped up if construction takes a big hit following the end of the stimulous money.

 

+ Remember, the work force in the US grows in the 100k range each month.  So any monthly employment change less than +100k is actually a loss.  We may very well show positive employment numbers for the next 12 months, but each one could come in under the +100k level needed to absorb new entries into the labor market.

 

+ The national employment picture has weathered major hits to sectors over the years (Heavy industry in the '70s/80s, Oil in the early '80s, defense in the early '90s, telecom & dot-com some 10 years ago).  These employment busts tended to be geographically defined, so the national employment numbers, while slowing down or dropping for a certain period, were able to absorb the losses (not good if you lived in that area, though)

 

But now it looks like we could see major declines in employment in several sectors all at once - Finance, construction, government (major for them), even retail.  Defense employment levels going forward have got to look questionable at this point.  Can the economy continue to expand with so many industries in employment slumps? Will another industry step up and dramatically increase its number of employees? (will health care continue to be a net employer?)

 

 

I don't think you get capital loss carry-forwards.  These aren't like NOL's, AFAIK.  I think someone who loses $25,000 on the sale of their house really doesn't get any tax benefit beyond the first $3000 of loss (and don't forget that the tax savings even on that will generally be only a few hundred dollars.  You can offset it without bound against other capital gains, but realistically, most people hit by the foreclosure crisis aren't going to have tens of thousands of dollars in capital gain income.

 

Cant use a loss on personal residence as a capital loss, so you get no tax break to sell at a loss, and you might even have to pay tax on the written off morgage if you did a short sale.

The Conference Board Employment Trends Index™ (ETI) rose in February for the sixth consecutive month.....During the past six months, the index increased by 13.4 percent (annual rate), the highest six-month growth rate since 1994.

 

+ Manufacturing employment increasing is good news.  For several years, the mfg sector has been growing but employment in the sector has actually been falling.  Perhaps employment levels were cut too low and now the hiring is to come back up to (long-term) average levels.  Or perhaps the current employees were working lots of OT, and are burnt out.  Whatever the reason, it's a good sign.  Could still be tripped up if construction takes a big hit following the end of the stimulous money.

 

 

Don't forget about the still-constant increase in automation.

This guy called the start of the recession correctly.

 

Economy 'Far too Close' to Double Dip: Roubini

 

"Poor economic data in the US coupled with Europe's debt crisis are contributing to an increase of the risk of the US economy going through a double-dip recession, Nouriel Roubini, who predicted the 2007 financial crisis, wrote in a research paper."

http://www.cnbc.com/id/35792768

Manufacturing employment increasing is good news.  For several years, the mfg sector has been growing but employment in the sector has actually been falling.  Perhaps employment levels were cut too low and now the hiring is to come back up to (long-term) average levels.  Or perhaps the current employees were working lots of OT, and are burnt out.  Whatever the reason, it's a good sign.  Could still be tripped up if construction takes a big hit following the end of the stimulous money.

 

I'm suprised at this and it doesnt really show up on the BLS numbers I look at.  This Conference Board might be using a different way to measure manufacturing.  I found it interesting since Ohio is still heavy into manufacturing.

 

+ Remember, the work force in the US grows in the 100k range each month.  So any monthly employment change less than +100k is actually a loss.  We may very well show positive employment numbers for the next 12 months, but each one could come in under the +100k level needed to absorb new entries into the labor market.

 

I did a quick run of the Ohio private numbers with the new BLS January number (which is preliminary).  It shows the expected seasonal employment drop, but it was not shallow, more a "typical" drop one saw in the years of mid 2000s.  I was hoping for a shallower drop as that might indicate we were approaching "floor" under job destruction.

 

As it is, if Ohio repeats the employment numbers for the "good years" of 2000s we will never get out of the hole in this state.  The jobs lost in the recession will stay lost for the foreseable future.

 

If job creation is more like the 1990s, the early post-recession 1990s, we'd take about 7 years or so to get back to the 2007-2008 employment numbers.

 

If we have a double-dip recession and it leads to additional job destruction on top of what we currently have I think we would be in a  near-Depression situation.  We would never recover from that unemployment hole.

If we have a double-dip recession and it leads to additional job destruction on top of what we currently have I think we would be in a near-Depression situation.   We would never recover from that unemployment hole.

I think the odds are favoring a double-dip recession but why don't you think we'd 'eventually' recover?

on the topic of increased employment in manufacturing....

 

I'm suprised at this and it doesnt really show up on the BLS numbers I look at.  This Conference Board might be using a different way to measure manufacturing.  I found it interesting since Ohio is still heavy into manufacturing.

 

Doesn't the government count food production, and possibly food distribution (including McDonalds) as manufacturing?

Production, I'm pretty sure goes under agriculture.  Packing, canning, etc. may go under manufacturing.  I think McDonald's is in the service sector, though.  They don't "manufacture" the food they sell.

 

Food goes through many sectors of the economy between seed and plate, unless maybe it's something from a farmer's market or grown in your own garden.

Retail Sales rise in February...

 

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20100312&id=11231565

 

U.S. retail sales rose unexpectedly last month despite heavy snow storms and a drop in vehicle purchases by consumers spooked by Toyota recalls, bolstering hopes of a sustainable economic recovery.

 

further down in the article...

 

Excluding motor vehicles, retail sales rose a bigger than expected 0.8 percent, building on a 0.5 percent rise the prior month. Economists had expected a 0.1 percent gain.

 

Core retail sales, which exclude autos, gasoline and building materials, increased 0.9 percent after rising 0.6 percent in January. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.

 

I work in retail and we are seeing sales stronger than expected as well.

 

I think it's interesting that non-auto sales are increasing nicely, while auto sales are sagging.  Seems to fit with the notion that people are trading down on their luxuries (a NEW car is a luxury).  Apparent electronic sales are up significantly.  Maybe people don't want to spend $30k and sign up for 6 years of payment on a car, but they will spend $200 on the latest cell phone.

 

 

 

I think the odds are favoring a double-dip recession but why don't you think we'd 'eventually' recover?

 

Yeah, despair fills the air.  I guess this is about trying to predict things and how its really tough to do beyond the near term.

 

If we see a substantial job loss in Ohio due to a close-in second recession without much employment recovery it will be a long time to recover if we have 2000's job creation rates, and by that time the baby boomers will start dying off or leaving the labor force, so the issue of weak job growth goes away since the people go away.

 

Anyway, who is to say what would happen that far out? Job creation could increase for some unforseen reason.  For example who forsaw the 1990s employment boom, with unemployment dropping to 1960s levels?

 

 

 

True and maybe Ohio will lead the charge? :)

Ohio is waiting here to receive all the YP's who can't afford the coasts after being hit by the recession. :-)

 

The "new middle class" will have a tough time with coastal costs of living.

 

    If you rank cities by population worldwide, you will find that most of the largest cities are on the coast, especially the fastest growing ones. Coastal cities have access to the most trade.

 

 

Ohio is waiting here to receive all the YP's who can't afford the coasts after being hit by the recession. :-)

 

The "new middle class" will have a tough time with coastal costs of living.

 

I sure hope you are right.  It seems like every week I'm talking to a YP (or a close family member or friend of theirs) that is looking to get out of Cincinnati to go to Portland, Atlanta, etc....

A growing wrench in an already fragile economic system. I still believe that external forces are going to put a lot of pressure on any economic recovery efforts over the next few years. But, who knows, maybe we can all share the toys and play nice in the sandbox. I am sure the middle east will do the same so oil prices don't go through the roof any time soon!!

 

Is China's Politburo spoiling for a showdown with America?

The long-simmering clash between the world's two great powers is coming to a head, with dangerous implications for the international system.

 

"China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy. There are echoes of Anglo-German spats before the First World War, when Wilhelmine Berlin so badly misjudged the strategic balance of power and over-played its hand.

 

Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc."

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html

Holy smokes batman, its another unexpected decline.

Man, I am in the wrong business. I really need to be an economist. You can be wrong over and over and over and be surprised over and over and over and the market still will look to you to shake the magic 8 ball every month. Then they send you a pay check.

 

Homebuilder Index in U.S. Declined to 15 in March (Update1)

 

"March 15 (Bloomberg) -- Confidence among U.S. homebuilders unexpectedly declined in March, a sign the housing recovery is having trouble gaining momentum.

 

The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 15 this month from 17 in February, the Washington-based group said today. A reading below 50 means most respondents view conditions as poor."

http://www.businessweek.com/news/2010-03-15/homebuilder-confidence-index-in-u-s-declined-to-15-in-march.html

 

 

^

Heh, yeah, Urban Ohio has great content!

 

@@@@

 

Recall my posts on Ohio employment, and how things have really tanked with this recession.  Looks like the Cleveland Fed has been doing some research on this, too.  Heres a chart showing employment in a different way, by months out from a peak. 

 

 

They provide a range, a postwar average, and the most recent recession.  If we see the kind of jobless recovery as in the 00s we are screwed.  I don't even want to think about a double dip recession..what that would do to the labor market.

 

From the Fed site:

 

". An even more worrisome pattern emerged in the previous two recessions. During the 1990-91 recession, employment never fell that far relatively speaking, but it took every bit of 35 months for it to return to peak levels. Moreover, Ohio has still not returned to peak employment levels since the 2001 recession."

 

I dont use the unemployment rate much as I think its an imperfect measure, but the Feds graph of this is pretty dismal, too:

 

 

The Fed's conclusion:

 

"Discounting the structural problems in Ohio’s economy such as human capital accumulation, population loss, manufacturing decline, and so on, labor market data indicate significant damage has been done to Ohio’s economy during the recession. Previous patterns in the labor market data point to a prolonged recovery."

 

Source: Ohio's Labor Market Cycles

 

 

The world has become one giant bubble. Maybe that is how we continue to 'float' in outer space.

 

China in Midst of ‘Greatest Bubble in History,’ Rickards Says

 

"March 17 (Bloomberg) — China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP."

http://www.businessweek.com/news/2010-03-17/china-in-greatest-bubble-in-history-rickards-says-update2-.html

 

Delta to cut 840 jobs, vacate airport's Concourse A

http://www.bizjournals.com/cincinnati/stories/2010/03/15/daily19.html

 

Hopefully the Cincy airport will continue to work on bring in more airlines and move past the concept that the airport is a major hub for Delta. The new airlines should be able off set some of the job loses.

 

^ Well, it's a good thing that somebody from Long-Term Capital Management has learned to spot a bubble.

Obviously, having LCTM on one's resume can be more of a liability than an asset, but that doesn't necessarily mean that the man is wrong about China.  It just means that one should be more hesitant to take his word alone for it.

 

I don't have any of my money in China, save for what I have there indirectly and not completely by choice due to the emerging-markets mutual funds my managed 401(k) invests in.  That's not because an LCTM alum told me not to invest there, but because the best information I've got (which of course is inevitably incomplete) made the prospect too risky for my liking.

It appears more and more Americans are realizing that buying a home is a business deal. That is all. If this approach to falling prices grows than we have a long ways to go in this housing bust. The banks may find that they have dug themselves a much deeper hole than they had previous thought, with all the taxpayer bailout money and record bonuses.

 

More homeowners are opting for 'strategic defaults'

 

"The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more."

 

"Underwater on their mortgages and angry at banks, more borrowers are choosing to hand over the keys, even if they can afford the payments."

 

"There is a growing sense of anger, a growing recognition that there is a double standard if it's OK for financial institutions to look after themselves but not OK for homeowners," said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject."

 

"He and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules."

http://www.latimes.com/business/la-fi-walkaway17-2010mar17,0,2297178.story?page=1&track=rss

Well, I think a lot of people are going to get in trouble trying this; not all states have anti-deficiency statutes.

 

However, to the extent that they're allowed to do so, I find it hard to blame them for walking and leaving the keys.  The banks deserve what they get in such a circumstance; it takes two to make a loan, after all, and if they were so eager for business that they didn't insist on prudent down payments, loan-to-value ratios, etc., then they were assuming greater risk in search of greater profits, and those risks, like any risk, can blow up.

Well, I think a lot of people are going to get in trouble trying this; not all states have anti-deficiency statutes.

 

However, to the extent that they're allowed to do so, I find it hard to blame them for walking and leaving the keys.  The banks deserve what they get in such a circumstance; it takes two to make a loan, after all, and if they were so eager for business that they didn't insist on prudent down payments, loan-to-value ratios, etc., then they were assuming greater risk in search of greater profits, and those risks, like any risk, can blow up.

 

Good point, before someone tries this they better know their state's anti-deficiency laws. Fortunately or unfortunately some of the big ones like California have not anti-deficiency laws.

 

Maybe this is one way main street strikes back at wall street. Instead of riots or demonstrations, they simply hit them in the wallet.