Decline in Christmas Card Traffic Mirrors Unemployment Rate

How do you write the annual Christmas letter, anyway, when you have to write the following: "Gee, we've been out of work for a year now, we're six months behind on the mortgage, they're coming to get the car on Monday, and we're getting heating assistance and food stamps. But other than that, Merry Christmas to you and a Happy New Year!"?

Considering that the U-6 measure of unemployment is around 17%, a similar percentage drop off in Christmas card traffic just about fits.

“A lot of my friends aren’t sending real cards this year,’’ Willingham said. “I suspect every year it will decline, just like the rest of Western civilization.’’

Go here for more on the story from Boston.com.

FDIC In The Red . . . 140 Failed Banks Year to Date . . . $30 Billion Down, $100 Billion To Go

The Associated Press is reporting:

The 140 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the government-backed deposit insurance fund - which has fallen into the red - more than $30 billion so far this year. The failures compare with 25 last year and three in 2007.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years. ...

If the economic recovery falters, defaults on the high-risk loans could spike. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

Go here for the rest of the story.

It's a Depression

From Richard Posner of The Becker-Posner Blog, on Gross Domestic Product:

But it is necessary to emphasize that it is just a starting point. I disagree with economists who say the “recession” ended in the third quarter. The depression (as I think we should call it if only because of its enormous potential political consequences) has caused massive unemployment with all the associated anxieties and hardships, has greatly reduced household wealth, has caused private investment to turn negative, has cost the government trillions of dollars in lost tax revenues and recovery expenditures (TARP, the fiscal stimulus, the mortgage-relief programs, the auto bailouts, etc.), has undermined belief in free markets and altered the line between government and business in favor government, and is threatening a future inflation while deepening our dependence on foreign lenders. To view a change in GDP from negative to positive as signifying the end of a depression (by which criterion the Great Depression ended in 1933 and again in 1938) is to misunderstand the utility of GDP as a measure of economic activity.

Go here for the complete article.

"Obama's Policies Risk Another Depression"

Scott S. Powell and Ron Laurent, in "Obama's Policies Risk Another Depression" for The Detroit News, ask:

Light at the end of the tunnel or an oncoming train wreck?

In the panic following the insolvency of Fannie Mae, Freddie Mac and Lehman Brothers in September 2008, the American taxpayer was stampeded into bailing out AIG and Wall Street. We were told that $700 billion was needed to establish the Troubled Asset Relief Program (TARP) because the country faced nothing less than a collapse of its financial system.

Inexplicably after Congress passed it -- almost like a bait and switch -- TARP was directed at banks rather than troubled assets. A little more than a year later, TARP Inspector Neil Barofsky reports that AIG's $1.5 trillion in credit fault swaps did not, after all, pose systemic risk. So if we were misled about the TARP bailout, it seems appropriate to question other aspects of government intervention since unemployment, foreclosures and bank failures have risen. ...

Scott S. Powell is managing director of AlphaQuest LLC and a visiting fellow at the Hoover Institution. Ron Laurent is the managing partner and chief investment strategist of Veritas Partners LLC.


There's much more at the link.

Palin Was Wrong on the Most Important Issue of 2008, and She Still Is

Now that Sarah Palin is out with her book, I think it's crystal clear she hasn't learned anything in the last year about the terrible precedent set by the TARP bailout, nor about why she and John McCain lost. She should have taken another year to think about it, but even that probably would not have helped. The only thing that could help Sarah is to have been reading about conservative political philosophy and policy for the last twenty years. You don't suddenly become a marksman by joining the National Rifle Association.

Americans were looking for a clear choice in the presidential race in the face of an unprecedented crisis, and John McCain utterly failed to give them one. No surprise there: he never has. The instincts of the Republican rank and file in the Congress were correct about TARP. President Bush failed them and the American people. It's too bad we still don't have national Republican leadership which recognizes this. And until we do, the voters will keep electing anyone else.

Recall this from Palin as reported on September 30th of 2008:

Gov. Palin: Th..the alt.. as I say inaction is not an option we have got to shore up our economy. This is crisis moment for America. Really the rest of the world also. Looking to see what the impacts will be if America were to choose not to shore up what has happened on Wall Street because of the…the ultimate adverse effects on Main Street and then how that effects this globalisation that we’re a part of on… in our world. So the rest of the world really is looking at John McCain - the leadership that he’s gonna provide through this and if those provisions in the proposal can be implemented and make this proposal better make it make more sense to taxpayers than again, John McCain is gonna prove his leadership.

…

But ultimately what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy um helping the… oh - its gotta be all about job creation too - shoring up our economy and putting it back on the right track. So healthcare reform and reducing taxes and reigning in spending has got to accompany tax reductions and tax relief for Americans and trade we’ve got to see trade as opportunity not as competitive um scary thing but one in five jobs being created in the trade sector today we we’ve got to look at that as more opportunity - all those things under the umbrella of job creation - this bailout is a part of that.

And now fast forward to today from page 270 of "Going Rogue," as reported here:

[T]he House of Representatives rejected a Bush-backed economic bailout plan in a vote in which two-thirds of Republicans voted no. The impression this made on the electorate was not helpful to our cause. Millions of Americans were poised to go bankrupt or lose their savings, and the perception was that Republicans had failed to respond.

No, what was not helpful was the way Republican leadership never made the case nationally that the taxpayer is not responsible to pay for someone else's failing mortgage, failing insurance company, failing bank, failing car company, failing public school, failing pension plan, failing Social Security, failing Medicare . . . you get the idea.

The whole damn country is stuck on stupid, which is why Sarah Palin is the news of the moment.

"The Feds Have No Faith in Recovery"

Penetrating analysis here from the chief economist at Delta Global Advisors.

November 5, 2009

The Feds Have No Faith in Recovery

By Michael Pento

The stock market has enjoyed a significant rally since the end of the first quarter. The Bureau of Economic Analysis reported last week that the economy grew at a 3.5% annual rate in the third quarter--a figure they achieved by that claiming inflation was running at only a 0.8% annual rate, despite a sharp drop in the dollar, a spike in commodity prices and record highs for gold.

The cyclical bull market in stocks and positive print on GDP has caused some on Wall Street and in Washington to claim the recession has ended. Despite all the good economic news, an end to fiscal and monetary stimulus is nowhere in sight, precisely because policymakers know the happy news is artificially derived.

A closer look indicates that neither the administration nor the Federal Reserve believes its own recovery rhetoric. They understand that the economy will not prosper without continued life support.

I believe removing such artificial stimulus is needed so the country can immediately begin de-leveraging and to prevent the accumulation of yet more baneful debt. What is truly amazing is how many people on Wall Street are foolish enough to postulate that our problems have been solved. The stock market will not be so easily fooled for much longer.

The Great Depression Part II was narrowly averted last year by slashing interest rates to near zero. The Fed made money virtually free because the record level of indebtedness ($34 trillion) in the economy required such low rates so that borrowers could service their obligations. Otherwise a cataclysmic domino effect of defaults and bankruptcies would have occurred. To avoid that scenario, the public sector assumed some of the private sector's debt and then subsequently took on a significant amount more. The debt of the nation continues to increase at a 4.9% annual rate. All public debt is ultimately the responsibility of the private sector to pay off--either directly or through future taxes. As a result, the economy has never been more precarious than it is today.

In spite of this, the stock market appears to be doing quite well. We've seen a 57% rally off the March lows in the S&P 500. However, if you measure the market against other assets its performance is much less impressive. Since the beginning of 2000 the S&P is down about 50% measured in terms of a basket of currencies other than the falling U.S. dollar. The index is down nearly 80% against the real inflation hedge--gold!

The sad truth is that this recent market rally has been produced on the back of a weakening dollar and the slashing of corporate overhead. Cutting payrolls and research and product development projects are not a prescription for sustainable growth. As I like to say, you can't burn your furniture to keep your house warm forever. Eventually, top-line revenue growth must emerge or Wall Street's game of beat-the-expectations will be short lived.

It's also worth noting that a country cannot devalue itself to prosperity and that a bull market cannot survive an inflationary environment for long. In the short run, nominal gains in the averages can occur since everything priced in dollars tends to increase in value. However, the rally will be truncated unless the Fed provides consumers and corporations with a stable currency.

The ramifications of a crumbling currency are vastly misunderstood. A strong dollar is the cornerstone of a healthy economy. It is essential for balanced growth and healthy investment to occur. On the other hand a weak currency decimates the middle class and the corporate sector's ability to maintain earnings growth. Inflation lies behind all infirm currencies, and it is inflation that destroys the purchasing power of consumers. The diminished value of their wallets leaves them with the ability to buy only non-discretionary items. As a direct result, unemployment rates soar and economic output plunges.

I believe we will suffer from a protracted period of stagflation. Money supply, as measured by M2, has increased 5% Y.O.Y. Meanwhile the output of goods and services is falling. As long as the money supply is chasing a shrinking GDP pie, there will be upward pressure on prices.

Making the situation even worse is the manner in which the money supply is growing. The quality of growth is very low because the increase in supply is coming from commercial bank purchases of Treasury debt, rather from an issuance of credit to the private sector for capital goods creation. Total Loans and Leases at Commercial banks are down 8.2% from last year. Meanwhile, the amount of Treasuries held at all commercial banks is up 20% year-on-year.

That means money supply growth is emanating from government's misallocation and redirection of capital. It isn't being loaned out to build mines and factories; it is instead being loaned out to increase consumption and build even more consumer debt.

If the Treasury and Federal Reserve truly believed the economy and the stock market were on a sustainable recovery path, talk of extending and increasing the home buyer's tax credit would be off the table. The Fed would already be reducing the size of the monetary base. The truth, however, is that no one in government really believes in this recovery. If they did, they would be hiking interest rates and the deficit would be shrinking.

The government's realization of our precarious economic condition means its largess will continue. Near term, that may ease some pain. So did the artificial stimulus that gave rise to the housing boom. In the end, a protracted period of a near-zero interest rates, along with endless economic stimulus, will spawn another bubble and not a genuine recovery.

Michael Pento is chief economist at Delta Global Advisors and a contributor to greenfaucet.com.

The Baloney in the Bailouts

An excellent summary detailing in plain language what has been wrong with the bailouts of banks and Wall Street, posted today at Jesse's Cafe Americain. Here is the link.

02 NOVEMBER 2009

Ten Things Not to Like About the US Government Policy Actions Known as "The Bailouts"

Malcolm McMichael

1. The Treasury and the Fed rewarded some aggressive risk takers and failing business models at the expense of those who followed sound business practices. Those who followed conservative practices have been penalized twice; first on the way up and again on the way down. Those companies that did fail appear to have been 'targeted' by insiders.

2. Much of the process was done in secret with minimal transparency, debate, or disclosure by people who have obvious conflicts of interest.

3. The stated objectives of freeing up credit for the real economy and stemming foreclosures have not been achieved.

4. Trillions in taxpayer monies were provided with few strings attached and at minimal stipulated rates of return. Furthermore, several of these institutions are using their taxpayer money to lobby against reform and award themselves pre-crisis salaries and record bonuses.

5. Bailout actions were arbitrary, inconsistent, ad hoc, and without any apparent guiding principles of justice.

6. The banking, rating, “insurance," and regulatory systems have not been reformed and the perpetrators of the collapse and their enablers remain in charge, now overseeing the “recovery.”

7. Criminal investigations are minimal; few people are facing indictments or even serious regulatory scrutiny for actions that are highly questionable. Official finds are whitewashes.

8. Regulations, regulatory structures, and other safeguards were implemented, revised or swept aside in chaotic and reckless fashion. [discount window participation and collateral, short selling rules, bank holding companies, mark-to-market]

9. The insider advantages, speculative excess, and extreme leveraging of the perpetrators has been allowed to continue; in fact, allowed to expand. There is a taint of insider trading and corruption that permeates the process.

10. Wall Street is bailed out; Main Street is not. Efforts to subsidize the incomes and balance sheets of failing firms have been massive and were implemented with minimal debate, requirements, or oversight; efforts to shore up taxpayer incomes and balance sheets have been comparatively minimal, subject to extensive debate and tinkering, highly selective, and incomplete.

"The Banks Must Be Restrained"

Total bank failures year to date reached 106 yesterday, bringing the total cost to the FDIC Deposit Insurance Fund this year to about $25 billion, with only about $100 billion to go, according to the FDIC's own projections.

The FDIC likes to take over banks on Friday afternoons, believing you won't notice it as readily with the weekend intervening before the next regular day of business. They wouldn't want you to panic, you know. So people who watch this stuff carefully like to call the last day of the work week "Bank Failure Friday." Yesterday, I noticed that the 106th bank to fail this year was in Itasca, Illinois, near where I used to live, and it reminded me of these words posted by Mish (who lives in Illinois) in July of 2008:

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Since those words were penned, the FDIC is planning to charge premiums several years forward to banks to the tune of $45 billion, its deposit fund is down to about $10 billion, and its troubled bank list has ballooned to over 400 banks, with nearly 300 in serious trouble. The FDIC expects to need at least another $100 billion for bailouts through 2013. Let's see, $10 billion on hand plus $45 billion charged forward = $55 billion. Only $45 billion short! Hmm. And you think we can afford to federalize health care?!

When you go down to the bank to ask for a loan to buy a house, you typically get leverage of only 5 to 1 (20% down), because nobody's got your back but you. So why does the bank get leverage to the tune of 25 to 1 (4% down)? Because of the taxpayer guarantee, that's why. And "rules" which let them, written by politicians on the take. It's high time we ended all that or this country will surely go bankrupt. Consider Citigroup.

It alone has $800 billion in "assets" off the books, and looks to be in serious trouble: suddenly this week it ended its gasoline credit card program and dramatically hiked interest rates on its other cards. Forget about the FDIC covering Citigroup with forward charged premiums to its member banks if it goes under. There isn't enough money there. The taxpayer will be on the hook. Again. Are you mad as hell yet? Are you going to take it anymore? Vote the bums out.

No wonder Jesse keeps saying, "The banks must be restrained . . . before there can be any sustained recovery."

90 Jobs--10,000 Applicants/99.1% Disappointed

The country needs to create roughly 150,000 new jobs per month just to keep up with first time job seekers, but the inventory of already unemployed Americans just continues to grow. Who's going to have the money to buy the washing machines these lucky 90 are going to make? Certainly not the 15+ million Americans who've lost their jobs.

The news from Kentucky:

October 8, 2009

10,000 apply for 90 factory jobs

By Jere Downs

jdowns@courier-journal.com

In the latest sign of weakness in Louisville-area employment, about 10,000 people applied over three days for 90 jobs building washing machines at General Electric for about $27,000 per year and hefty benefits.

The jobs dangle medical, eye care, prescription and dental benefit packages, as well as pension, disability, tuition assistance and more, said GE spokeswoman Kim Freeman. And despite the recession, no union workers have been laid off from Appliance Park since the company negotiated lower wages with workers in 2005.

“There are no jobs out there paying these kinds of wages that also offer these kind of benefits,” said Jerry Carney, president of IUE-CWA Local 761 at Appliance Park.

Just four years ago, the same jobs paid $19 per hour. But that was before Local 761 approved wage cuts for new workers aimed at preventing the closure of Appliance Park.

“People still value these jobs,” Freeman said.

With the Jefferson County unemployment rate at 10.6 percent in August and more than 38,000 unemployed people looking for work, the opportunity for moderate pay and health care was an attractive lure.

“In this recession, there are lot of people who are just about to run out of unemployment benefits,” said Richard Hurd, a labor relations professor at Cornell University. The national average of time unemployment benefits collected now stands at 26 weeks, Indiana University Southeast Professor of Business Uric Dufrene said.

That’s about a third of the maximum that can currently be collected.

Larissa Roos, 38, never worked in a factory, but was one of the thousands who bid on jobs assembling appliances.

Until she was laid off from Bank of America in February, Roos said she made $18 per hour fielding calls, often from irritated merchants, about credit card glitches. Roos took that job just out of high school. But severance payments end this month, and Roos said she is looking everywhere to try to replace the income.

“I need something so I can live day to day. The job market is horrible,” Roos said Thursday, adding the family relies on her husband’s job as a printer to pay the mortgage on their Fern Creek home as well as utility, fuel and other bills.

With 10,000 vying for GE line jobs, “I am sure my application won’t even get looked at,” she added.

The rush of applicants came as no surprise to Carney, who noted that another recent GE advertisement for 13 maintenance workers, who are paid a union skilled trades rate of $23 hourly, drew 700 job seekers.

Carney credited GE’s reputation for union job security and blue chip benefits as a powerful lure.

GE announced the new jobs last week and started accepting applications through a website Monday. Wednesday was the deadline. The jobs are being added to a new second shift early next month to assemble Energy Star washing machines in Building 1 at the historic Louisville complex.

Roughly 80 percent of applicants report factory experience, Freeman said. That is not surprising, given the recession so far has slashed 8,000 manufacturing jobs from the region’s economy, Dufrene said.

“There is an abundance of potential employees with manufacturing-related skills,” Dufrene said.

The rough profile of applicants, most of them former factory workers, suggests many lack sufficient education to apply for more than minimum wage jobs in the current job market.

Half lacked a high school diploma. Just 5 percent of the applicants said they had a bachelor’s degree or higher. and

GE employs roughly 2,100 hourly and 2,000 white collar workers at Appliance Park. Now, about 440 workers labor on the first shift making washing machines in Building 1.

Applicant Shane Hopkins, 48, hopes his factory experience provides an edge.

Until mid-August, he said he maintained presses at a plastics factory. Now, Hopkins said he picks up occasional work as a flooring contractor for a cousin.

He still pays $300 per month to keep health care benefits for himself and his wife, an independent contractor for a Ford Motor Co. parts supplier at the Louisville Assembly Plant. Hopkins anticipates she’ll be out of work next year, when the plant closes for retooling.

A year from now, “her job ain’t going to be there,” Hopkins said. “I am thinking seriously about going to McDonalds, just for the benefits if nothing else.”

Reporter Jere Downs can be reached at (502) 582-4669.

The Myth of the Obama Mandate 2008

The supporters of Barack Obama like to point to his 9.5 million vote margin of victory over John McCain in last year's election as evidence of his mandate for change. But viewed from the perspective of the percentage of the popular vote he won, the rookie will have to do a whole lot better in office than he has to date to move into the "mandate" ranks with Johnson, Nixon, Reagan, Eisenhower, and FDR. In the only poll that counts, Obama has no more claim to a mandate than Carter in '76, GW Bush in 2004, nor Reagan in 1980.

1964 Johnson 61.05

1972 Nixon 60.67

1984 Reagan 58.77

1956 Eisenhower 57.37

1952 Eisenhower 55.18

1944 Roosevelt 53.39

1988 GHW Bush 53.37

2008 Obama 52.87

1980 Reagan 50.75

2004 GW Bush 50.73

1976 Carter 50.08

1960 Kennedy 49.72

1948 Truman 49.55

1996 Clinton 49.23

2000 GW Bush 47.87

(Gore) (48.38)

1968 Nixon 43.42

1992 Clinton 43.01

Perhaps more to the point, however, is the fact that John McCain would be president today but for 1,383,540 more votes properly apportioned in the nine formerly red states which went to W in 2004. Mandates don't hang in the balance of so few votes out of over 30 million cast. The cracker thin margins of victory for Obama in those states for 2008 are as follows (rounded to the nearest thousand):

Colorado 215,000

Florida 236,000

Indiana 28,000

Iowa 147,000

Nevada 121,000

New Mexico 126,000

North Carolina 14,000

Ohio 262,000

Virginia 235,000.

These handfuls of people made all the difference for Obama, but he had to outperform his predecessor John Kerry in those states by 3,036,289 votes to get them while his opponent McCain had to underperform his predecessor Bush by 191,852 votes at the same time. Neither eventuality is likely next time. The Republican candidate in 2012 won't have a record of alienating the base as a maverick and won't take four weeks to cash a check, nor another four to allocate it correctly, because she won't be McCain. And the Democrat candidate will not be able to run on a platform of change because we'll all have had plenty enough of that already. And staying the course won't work either because large numbers of chronically unemployed people who've lost their homes won't find that prospect very appealing.

There's a reason sales of firearms and ammunition are up over 30% since Obama got elected. There's a reason the normally undemonstrative and silent majority recently marched on Washington. There's a reason town hall meetings this summer witnessed excessive hyperventilating. And "mandate" isn't one of them.

An Open Letter to President Obama

Dear President Obama:

You are the thirteenth President under whom I have lived and unlike any of the others, you truly scare me.

You scare me because after months of exposure, I know nothing about you.

You scare me because I do not know how you paid for your expensive Ivy League education and your upscale lifestyle and housing with no visible signs of support.

You scare me because you did not spend the formative years of youth growing up in America and culturally you are not an American.

You scare me because you have never run a company or met a payroll.

You scare me because you have never had military experience, thus don't understand it at its core.

You scare me because you lack humility and 'class', always blaming others..

You scare me because for over half your life you have aligned yourself with radical extremists who hate America and you refuse to publicly denounce these radicals who wish to see America fail.

You scare me because you are a cheerleader for the 'blame America ' crowd and deliver this message abroad.

You scare me because you want to change America to a European style country where the government sector dominates instead of the private sector.

You scare me because you want to replace our health care system with a government controlled one.

You scare me because you prefer 'wind mills' to responsibly capitalizing on our own vast oil,coal and shale reserves.

You scare me because you want to kill the American capitalist goose that lays the golden egg which provides the highest standard of living in the world.

You scare me because you have begun to use 'extortion' tactics against certain banks and corporations.

You scare me because your own political party shrinks from challenging you on your wild and irresponsible spending proposals.

You scare me because you will not openly listen to or even consider opposing points of view from intelligent people.

You scare me because you falsely believe that you are both omnipotent and omniscient.

You scare me because the media gives you a free pass on everything you do..

You scare me because you demonize and want to silence the Limbaughs, Hannitys, O'Reillys and Becks who offer opposing, conservative points of view.

You scare me because you prefer controlling over governing.

Finally, you scare me because if you serve a second term I will probably not feel safe in writing a similar letter in 8 years.

Lou Pritchett

Former Vice President

Procter and Gamble