Three Consecutive Good Days on Wall Street

We have not seen this in a while, three consecutive good days on Wall Street. This occurred because there were some small glimmers of hope. The were some indications that the economy’s downward spiral might be slowing. On Monday the markets fell to their lowest point in 12 years, but since then the indexes have bounced back roughly 10%.

Now we are not out of the woods yet, but a few days of light was welcome relief.

South Carolina's Republican Governor Turns Down $700m in Stimulus Money

South Carolina has the second highest unemployment rate in the country, so of course their Repuglican governor is going to turn down $700 million in stimulus money for unemployment insurance. What a moron. The people of South Carolina should really think about the votes they have made. They voted for McCain 54% to 45% for Obama. They voted for this Republican governor who will screw his state for an ideology. Now their state is entering into a massive depression, and I have to wonder will they wake up? I sure hope so, because we need the whole country to succeed. We are in the midst of a great recession, we don't have time for Repuglicans.

Update: Obama says NO to South Carolina Governor's stimulus scam

The Governor of South Carolina, Mark Sanford, trying to curry favor with the far right wing of the Republican Party (the ones who vote in presidential primaries and attend presidential caucuses, btw), wants to use federal stimulus dollars to pay his state's debt instead of rebuilding schools, for example.

Today, Obama, via OMB Director Peter Orszag, said NO to Sanford's scheme:

The Obama administration has rejected South Carolina Gov. Mark Sanford's request to use $700 million in federal stimulus cash to pay down state debt.White House Budget Director Peter Orszag (OHR'-zag) said in a letter to the Republican on Monday that the federal stimulus law doesn't allow President Barack Obama to make an exception for that cash. Sanford sought a waiver last week, asking to pay off debt rather than use the money to create jobs and avoid deep program cuts.Don't mess with Orszag. Now, keep in mind, Sanford pulled this stimulus stunt to garner attention. He got some of that attention in the form of an ad from the Democratic National Committee:

Roubini: Recession Might Not Be Half Way Over

Dr. Doom, Professor Nouriel Roubini is the man who predicted the current financial crisis and yesterday he said the U.S. recession could drag on for years without drastic action. He says that this recession could last 36 months. As we are in the 15th month of a recession this is not good.

This is a nation of shopped-out and debt-burdened consumers who just lost their ability to keep over spending. They lost their resilience and started to give up on spending in the third quarter of 2008. This was when for the first time in two decades, personal consumption contracted. With personal consumption making up for over two-thirds of aggregate demand for the U.S. economy, the outlook for the U.S. is not good for 2009. Consumers are still at the center of the dynamics that will play out in the real economy in 2009.

Professor Roubini told CNBC in a live interview:

"Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Professor Roubini also said he sees:

"There is no hope for the recession ending in 2009 and will more than likely last into 2010."

Last he again pushed the idea of bank nationalization of at least the four major banks:

"Most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization."

"Temporarily take over the banks, clean them up and get them working again."

According to Professor Roubini, unfortunately, Tim Geithner's Financial Stability plan won't solve our financial woes because it assumes that the system is solvent, while nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume.

IMF warns of global "Great Recession"

The International Monetary Fund warned on Tuesday that the world economy will likely contract this year in a "Great Recession." The IMF expects global growth to slow below zero this year, the worst performance since World War II.

This will be the backdrop when the Group of 20 leaders meet in London on April 2

President Obama's Weekly Address - March 7 2009

President Barack Obama used his weekly address to detail his plans to fix our ailing economy, noting that reforming healthcare is necessary to ensure our long term fiscal health.

Watch It Here:

LibertyAir Blog

Fourth Quarter GDP Figures Have Been Revised

To all those who have tried to suggest the economic problems of this country are not that bad (I'm looking at you Republicans) and that there were even signs of recovery at the end of Bush's administration, the news today is not good.

Highlighting that this nation is facing a major crisis, the fourth quarter GDP figures have been revised.

In Revision, G.D.P. Shrank at 6.2% Rate at the End of 2008, by Catherein Rampell, New York Times: The economy at the end of last year contracted at a far faster rate than initially estimated... With the exception of government spending, every major component of the economy shrank.

Output fell 6.2 percent at an annualized rate in the fourth quarter of 2008, revised downward from a previous estimate of a 3.8 percent decline.

The economy took the biggest hits in exports, retail sales, equipment and software, and residential fixed investment.

The downward revisions, though, came primarily because of a larger-than-anticipated contraction in inventories of unsold goods. ... Some hail the decline in inventories as potentially good news.

“The only plus to take out of this is that inventories weren’t as high, and that implies you don’t have to cut as much this quarter to get them back under control,” Mr. Gault said. He added that inventories were still too high, and he expected companies to further scale back their production, especially in response to the dismal consumer spending numbers.

Households also saved much more of their paychecks than initially estimated.

Professor Krugman comments in his blog

Minus 6.2%: Yikes.

And if the data on new unemployment claims are any indication (which they are), the economy is continuing to plunge at least as fast.

As Brad DeLong says, I think we’re going to need a bigger stimulus.

This will be a surprise for some, but it just confirms what most people thought was happening.

Ever Closer To a World Wide Depression

I was just passing through a room that had CNN on, and the report out of Japan was not good.

Sony is sacking its President CEO, and is turning to their head of British operations. Japanese Car companies are reporting that sails are down 40%, and while unemployment remains the same, they are reporting this is due to people giving up on looking for jobs, rather than any stabilization.

This financial crisis is not ending any time soon, and the problem is worse than most understand.

Playing Symantics

Yesterday Fed Chairman Ben Bernanke had this to say about nationalizing banks:

"Nationalization, to my mind, is when government seizes the banks, zeros out the shareholders and begins to manage and run the bank, and we don't plan anything like that."

Some our saying this is proof that the Obama administration is not considering nationalizing some of the major banks which are on the verge of collapse. I however take from this that the Obama administration will be taking control of these banks, but calling it a different name.

Stocks Sink to Lowest Levels in a Decade

It's all gone. The Dow Jones industrial average tumbled 251 points to its lowest close since Oct. 28, 1997, while the Standard & Poor's 500 index logged its lowest finish since April 11, 1997. All the major indexes slid more than 3 percent.

Over a decades worth of capitol in the stock markets is gone, and I think it will be a long time before this money is remade.

As has been the case for the past nine months, financial stocks were the heart of the crash. Investors are still concerned that a number of the country's largest banks could be nationalized as they continue to suffer severe losses because of their mismanagement and the on-going recession. They're also worried that banks' losses will keep escalating as the recession sends more borrowers into default.

The market's decline extends massive losses from last week when the major stock indexes tumbled more than 6 percent. The major indexes plunged through the lows they reached in late November, at the height of the credit crisis.

All Gone

The Dow Jones closed down at its lowest level in six years. The gains in the market during the Bush years are all gone. The gains made after the crash which came in the wake of 9-11 are all gone. The Dow is at about half of its all-time high of 14,164, which was reached in October 2007. The total value of all shares of companies on the Dow has now dwindled to $2.45 trillion, down from $4.51 trillion. Bank stocks have been especially hit as investors grow increasingly nervous about the fragile economy.

This economic crisis is going to be one for the history books. The trouble is our government has become so split and dysfunctional, I'm not sure it can meet the needs of the crisis. Look at what has been happening in California. California is the world's 8th largest economy, but has a 42 billion dollar deficit. They needed a draconian budget of tax increases and cost cutting to keep going yet Republicans were not willing to work with Democrats and compromise. Luckily at the last minute the disaster was averted in California.

Fed Downgrades Economic Forecast for this Year

Do not expect a quick ending to the recession/depression lite, because today the Federal Reserve sharply downgraded its projections for the country's economic performance this year. They are predicting that the U.S. economy will actually shrink, while unemployment will grow.

Dear God when will it end.

Under the Fed's new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. Personally I think they are being conservative here, I bet that it will be between 9.0 and 9.2. Of course this is using the metrics that don't count millions, and the actual number will be over 16 percent. Now the old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent. This was always a laugh. Employment is almost always the last part of the economy to heal once it emerges out of recession and is in recovery mode. Therefore the jobs picture will remain grim for years to come.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent. The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

Fed officials do predict that the economy should pick up speed in 2011, growing by as much as 5 percent, which would be considered robust, though I again say they are being optimistic.

Geithner to Announce New Plan

Treasury Secretary Timothy Geithner is scheduled to unveil a plan to handle the government's second half of the $700 billion financial rescue program today. The plan as it is being leaked is to impose tough new standards on future payments to banks. It also calls for greatly expanding an effort to unclog credit markets to provide loans to consumers and businesses. The administration also announced that the program would be expanded beyond consumer and small business loans to provide aid to the troubled commercial real estate sector.


The administration's new plan will include a government-private sector partnership aimed at removing toxic assets from banks' balance sheets, although the details on how this program would operate were still being worked out.

The Obama administration is promising an aggressive effort to combat the worst financial crisis in seven decades, unveiling a program that could mobilize well over $1 trillion in public and private support to get the frozen credit markets functioning again.

The new plan would greatly expand an effort to unclog credit markets that provide loans to consumers and businesses. Funding for this effort would see a huge increase — from $20 billion up to $100 billion.

Paul Krugman: On the Edge

Paul Krugman nails the absurdity of the current situation:

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.

It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.

Consumers, their wealth decimated and their optimism shattered by collapsing home prices and a sliding stock market, have cut back their spending and sharply increased their saving — a good thing in the long run, but a huge blow to the economy right now. Developers of commercial real estate, watching rents fall and financing costs soar, are slashing their investment plans. Businesses are canceling plans to expand capacity, since they aren’t selling enough to use the capacity they have. And exports, which were one of the U.S. economy’s few areas of strength over the past couple of years, are now plunging as the financial crisis hits our trading partners.

Meanwhile, our main line of defense against recessions — the Federal Reserve’s usual ability to support the economy by cutting interest rates — has already been overrun. The Fed has cut the rates it controls basically to zero, yet the economy is still in free fall.

It’s no wonder, then, that most economic forecasts warn that in the absence of government action we’re headed for a deep, prolonged slump. Some private analysts predict double-digit unemployment. The Congressional Budget Office is slightly more sanguine, but its director, nonetheless, recently warned that “absent a change in fiscal policy ... the shortfall in the nation’s output relative to potential levels will be the largest — in duration and depth — since the Depression of the 1930s.”

Worst of all is the possibility that the economy will, as it did in the ’30s, end up stuck in a prolonged deflationary trap.

We’re already closer to outright deflation than at any point since the Great Depression. In particular, the private sector is experiencing widespread wage cuts for the first time since the 1930s, and there will be much more of that if the economy continues to weaken.

As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself. As dollar incomes fall in the face of a depressed economy, the burden of debt becomes harder to bear, while the expectation of further price declines discourages investment spending. These effects of deflation depress the economy further, which leads to more deflation, and so on.
And deflationary traps can go on for a long time. Japan experienced a “lost decade” of deflation and stagnation in the 1990s — and the only thing that let Japan escape from its trap was a global boom that boosted the nation’s exports. Who will rescue America from a similar trap now that the whole world is slumping at the same time?

Would the Obama economic plan, if enacted, ensure that America won’t have its own lost decade? Not necessarily: a number of economists, myself included, think the plan falls short and should be substantially bigger. But the Obama plan would certainly improve our odds. And that’s why the efforts of Republicans to make the plan smaller and less effective — to turn it into little more than another round of Bush-style tax cuts — are so destructive.

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.

President Obama would do well to listen to Paul Krugman right now. Krugman and other economists have for a long time been saying that the stimulus must have more spending, and be larger.

Unemployment Rate Hits 7.6% -- Worse Than Expected.

The new unemployment numbers are out:

January job losses: 598,000

Job losses from Nov-Jan: 1.8 million

Unemployment rate: 7.6%

Unemployed workers: 11.6 million

In a word they are ugly.

So while Republicans continue to play political games with the future of this nation, the number of Americans who have lost their jobs is skyrocketing. The Numbers were worse than expected:

U.S. employers slashed 598,000 jobs in January, the deepest cut in payrolls in 34 years as the national unemployment rate shot up to 7.6 percent, according to a Labor Department report on Friday that underlined a deepening recession.

January's job losses were worse than the 525,000 that had been forecast by Wall Street economists, who also had expected the unemployment rate to come in lower at 7.5 percent. The bleak employment data is certain to be cited by the Obama administration as a fresh reason for Congress to speed up debate over a multibillion-dollar package of proposals to try to stimulate economic activity.

The Economy Shrinks Again

It was predicted that the numbers would be bad, and this morning it was confirmed that they were. During the fourth quarter of 2008 the U.S. economy shrank at its fastest pace in 26 years. The gross domestic product (GDP) -- a crucial measure of economic performance -- shrank at an annual rate of 3.8% in the fourth quarter of 2008 as the credit crisis deepened the recession.

Some will say that 3.8% was better than expected, but I would not take much comfort in this as it will undoubtedly be revised down, and MarketWatch is reporting that the number are much closer to 5.1% if inventory is included.

The bad thing is that the economy may not have yet hit bottom.

Roubini: US Banking System is Insolvent

Nouriel Roubini, of RGE Monitor, was one of the first people to predict the housing crisis, and now he has come out and said that "the US Banking System is Insolvent." While at Davos Nouriel Roubini said he believes this because expected losses for the US banking system will be about $2 trillion, which far exceeds bank capital of about $1.5 trillion. Roubini has also said that he believes total financial system losses could hit $3.6 trillion.

Because of this fact Roubini does not believe the government plan for buying the toxic assets of US banks may not work.

Instead Nouriel Roubini suggests that the Obama administration should look towards Sweden's plan of nationalizing all insolvent banks, cleaning them up and then selling off the good assets to the private sector.

I can just hear the Republicans howling now.

What’s up with the Republicans?

New York Times columnist Bob Herbert asks the question, why is anyone even listening to the Repuglicans?

I would like to know too.

The Same Old Song
By Bob Herbert

What’s up with the Republicans? Have they no sense that their policies have sent the country hurtling down the road to ruin? Are they so divorced from reality that in their delusionary state they honestly believe we need more of their tax cuts for the rich and their other forms of plutocratic irresponsibility, the very things that got us to this deplorable state?

The G.O.P.’s latest campaign is aimed at undermining President Obama’s effort to cope with the national economic emergency by attacking the spending in his stimulus package and repeating ad nauseam the Republican mantra for ever more tax cuts.
“Right now, given the concerns that we have over the size of this package and all the spending in this package, we don’t think it’s going to work,” said Representative John Boehner, an Ohio Republican who is House minority leader. Speaking on NBC’s “Meet the Press,” Mr. Boehner said of the plan: “Put me down in the ‘no’ column.”

If anything, the stimulus package is not large enough. Less than 24 hours after Mr. Boehner’s televised exercise in obstructionism, the heavy-equipment company Caterpillar announced that it was cutting 20,000 jobs, Sprint Nextel said it was eliminating 8,000, and Home Depot 7,000.

Maybe the Republicans don’t think there is an emergency. After all, it was Phil Gramm, John McCain’s economic guru, who told us last summer that the pain was all in our heads, that this was a “mental recession.”

The truth, of course, is that the country is hemorrhaging jobs and Americans are heading to the poorhouse by the millions. The stock markets and the value of the family home have collapsed, and there is virtual across-the-board agreement that the country is caught up in the worst economic disaster since at least World War II.

The Republican answer to this turmoil?

Tax cuts.

They need to go into rehab.

The question that I would like answered is why anyone listens to this crowd anymore. G.O.P. policies have been an absolute backbreaker for the middle class. (Forget the poor. Nobody talks about them anymore, not even the Democrats.) The G.O.P. has successfully engineered a wholesale redistribution of wealth to those already at the top of the income ladder and then, in a remarkable display of chutzpah, dared anyone to talk about class warfare.

A stark example of this unholy collaboration between the G.O.P. and the very wealthy was on display in the pages of this newspaper on Jan. 18. The Times’s Mike McIntire wrote an article about the first wave of federal bailout money for the financial industry, which was handed over by the Bush administration with hardly any strings attached. (Congress, under the control of the Democrats, should never have allowed this to happen, but the Democrats are as committed to fecklessness as the Republicans are to tax cuts.)

The public was told that the money would be used to loosen the frozen credit markets and thus help revive the economy. But as the article pointed out, there were bankers with other ideas. John C. Hope III, the chairman of the Whitney National Bank in New Orleans, in an address to Wall Street fat cats gathered at the Palm Beach Ritz-Carlton, said:

“Make more loans? We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

How’s that for arrogance and contempt for the public interest? Mr. Hope’s bank received $300 million in taxpayer bailout money.

The same article quoted Walter M. Pressey, president of Boston Private Wealth Management, which Mr. McIntire described as a healthy bank with a mostly affluent clientele. It received $154 million in taxpayer money.

“With that capital in hand,” said Mr. Pressey, “not only do we feel comfortable that we can ride out the recession, but we also feel that we’ll be in a position to take advantage of opportunities that present themselves once this recession is sorted out.”
Take advantage, indeed. That, in a nutshell, is what the plutocracy is all about: taking unfair advantage.

When the G.O.P. talks, nobody should listen. Republicans have argued, with the collaboration of much of the media, that they could radically cut taxes while simultaneously balancing the federal budget, when, in fact, big income-tax cuts inevitably lead to big budget deficits. We listened to the G.O.P. and what do we have now? A trillion-dollar-plus deficit and an economy in shambles.

This is the party that preached fiscal discipline and then cut taxes in time of war. This is the party that still wants to put the torch to Social Security and Medicare. This is a party that, given a choice between Abraham Lincoln and Ronald Reagan, would choose Ronald Reagan in a heartbeat.

Why is anyone still listening?

Republicans have decided to "rule by hissy fit" as Atrios calls it. It is time to stop listening to them. After all the damage that John Boehner, Mitch McConnel, George W. Bush, Dick Chenney and all the GOP have done to our nation, they need to be relegated to the back of the closet. Democrats need to step up and take charge. Republicans are now lead by children who need to not be heard from.

Bad News on the Economy - Again

Brutal news on the job market yesterday, with six major corporations announcing combined layoffs of over 71,400 people. One of the companies was construction machinery manufacturer Caterpillar (CAT, Fortune 500) said Monday it will cut 20,000 jobs amid a "very challenging global business environment." Another company was Pfizer (PFE, Fortune 500) which said in an earnings report it would cut 10% of its staff of 81,900 and close five of its manufacturing plants. And a second round of cuts will shed about 15% of employees from the combined Pfizer/Wyeth staff of 120,000. That makes a total of 26,000 jobs lost. The company already cut 4,700 jobs in 2008.

Sprint Nextel Corp. (S, Fortune 500) will cut a total of about 8,000 jobs by March 31, the company said in a release. The telecommunications company's plan is to reduce internal and external labor costs by about $1.2 billion on an annual basis.

Home Depot (HD, Fortune 500), the world's largest home improvement retailer, announced Monday it will eliminate its EXPO design center business and cut 7,000 associates, or approximately 2% of the company's total workforce. The company blamed a lack of demand for big ticket design and decor projects.

Texas Instruments (TXN, Fortune 500) said it will slash its workforce by 3,400 employees to cope with weak demand and the slowing economy. More than half of those cuts will be layoffs while "voluntary retirements and departures" will make up the rest.

The cuts mark a horrific start to the week, and a brutal start to 2009. In the previous week, around 40,000 cuts were announced across multiple industries.

Glad that the Republicans have decided to be an obstacle to the stimulus plan.

Unemployment claims "surged last week"

The final week of the Bush Administration was a bad one for the U.S. Economy as the number of workers lining up for jobless benefits surged. In addition the number of new housing starts and permits hit record lows for the month of December. This is all evidence of an acceleration of the economy's sinking deeper into recession.

First time applications for state unemployment insurance benefits increased to a seasonally adjusted 589,000 in the week ended January 17 from a revised 527,000 the prior week, the Labor Department said on Thursday.

This was the highest level of initial claims since a matching reading in the week of December 20 and beat analysts' forecasts for a rise to 540,000 new claims versus a previously reported count of 524,000 the week before.

The last time claims were higher was in 1982, when they notched a weekly rise of 612,000.

U.S. Job Report Is Horrible

Reports came out today that the U.S. economy lost over 524,000 jobs in December. December folks is a month where there is usally an up tick in hiring as stores bring on seasonals, instead we lost over half a million jobs. This was the 12th straight month of decline. Job losses in both October and November turned out to be deeper than previously estimated. Revised figures showed that the employers slashed 584,000 positions in November and another 423,000 in October. Job losses were widespread in December. Construction companies slashed 101,000, and factories axed a whopping 149,000 jobs. Professional and business services got rid of 113,000 jobs. Retailers eliminated nearly 67,000 jobs, and leisure and hospitality reduced employment by 22,000. That more than swamped gains in education and health care, and the government.

Nearly 2.6 million jobs were lost in 2008, with 1.9 million destroyed in just the past four months.

It’s the biggest job loss in any calendar year since 1945. The unemployment rate rose to 7.2 percent, the highest since early 1993 — just after the last Bush left office.

USA Today charts the job losses over the past year: