America Slides Deeper Into Depression as Wall Street Revels
December was the worst month for US unemployment since the Great Recession
by Ambrose Evans-Pritchard
The Telegraph/UK: Monday, January 11, 2010
The labour force contracted by 661,000. This did not show up in the headline
jobless rate because so many Americans dropped out of the system. The broad
U6 category of unemployment rose to 17.3pc. That is the one that matters.
Wall Street rallied. Bulls hope that weak jobs data will postpone monetary
tightening: a silver lining in every catastrophe, or perhaps a further
exhibit of market infantilism
The home foreclosure guillotine usually drops a year or so after people lose
their job, and exhaust their savings. The local sheriff will escort them out
of the door, often with some sympathy -- just like the police in 1932,
mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.
Realtytrac says defaults and repossessions have been running at over 300,000
a month since February. One million American families lost their homes in
the fourth quarter. Moody's Economy.com expects another 2.4m homes to go
this year. Taken together, this looks awfully like Steinbeck's Grapes of
Judges are finding ways to block evictions. One magistrate in Minnesota
halted a case calling the creditor "harsh, repugnant, shocking and
repulsive". We are not far from a de facto moratorium in some areas.
This is how it ended between 1932 and 1934, when half the US states declared
moratoria or "Farm Holidays". Such flexibility innoculated America's
democracy against the appeal of Red Unions and Coughlin Fascists. The home
siezures are occurring despite frantic efforts by the Obama administration
to delay the process.
This policy is entirely justified given the scale of the social crisis. But
it also masks the continued rot in the housing market, allows lenders to
hide losses, and stores up an ever larger overhang of unsold properties. It
takes heroic naivety to think the US housing market has turned the corner
(apologies to Goldman Sachs, as always). The fuse has yet to detonate on the
next mortgage bomb, $134bn (£83bn) of "option ARM" contracts due to reset
violently upwards this year and next.
US house prices have eked out five months of gains on the Case-Shiller
index, but momentum stalled in October in half the cities even before the
latest surge of 40 basis points in mortgage rates. Karl Case (of the index)
says prices may sink another 15pc. "If the 2008 and 2009 loans go bad, then
we're back where we were before - in a nightmare."
David Rosenberg from Gluskin Sheff said it is remarkable how little traction
has been achieved by zero rates and the greatest fiscal blitz of all time.
The US economy grew at a 2.2pc rate in the third quarter (entirely due to
Obama stimulus). This compares to an average of 7.3pc in the first quarter
of every recovery since the Second World War.
Fed hawks are playing with fire by talking up about exit strategies, not for
the first time. This is what they did in June 2008. We know what happened
three months later. For the record, manufacturing capacity use at 67.2pc,
and "auto-buying intentions" are the lowest ever.
The Fed's own Monetary Multiplier crashed to an all-time low of 0.809 in
mid-December. Commercial paper has shrunk by $280bn ($175bn) in since
October. Bank credit has been racing down a hair-raising black run since
June. It has dropped from $10.844 trillion to $9.013 trillion since November
25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money
is contracting at over 5pc.
Professor Tim Congdon from International Monetary Research said the Fed is
baking deflation into the pie later this year, and perhaps a double-dip
recession. Europe is even worse.
This has not stopped an army of commentators is trying to bounce the Fed
into early rate rises. They accuse Ben Bernanke of repeating the error of
2004 when the Fed waited too long. Sometimes you just want to scream. In
2004 there was no housing collapse, unemployment was 5.5pc, banks were in
rude good health, and the Fed Multiplier was 1.73.
How anybody can see imminent inflation in the dying embers of core PCE, just
0.1pc in November, is beyond me.
Mr Rosenberg is asked by clients why Wall Street does not seem to agree with
his grim analysis.
His answer is that this is the same Mr Market that bought stocks in October
1987 when they were 25pc overvalued on Shiller "10-year normalized earnings
basis" - exactly as they are today - and bought them at even more overvalued
prices in 2007, long after the property crash had begun, Bear Stearns funds
had imploded, and credit had its August heart attack. The stock market has
become a lagging indicator. Tear up the textbooks.
© Copyright of Telegraph Media Group Limited 2010
From: "Sara D. Roos" <email@example.com>
Sent: Monday, January 11, 2010 6:57 PM
Full Body Scans to Double as Annual Checkups
Solution to Airport Security, Health Care Woes
WASHINGTON (The Borowitz Report) In what some in the White House are
calling a "win/win" solution to the nation's airport security and
health care reform problems, starting next month U.S. airports will
begin conducting full body scans that will double as annual physical
President Obama announced the breakthrough solution, telling
reporters, "With this all-purpose exam, we will be able to find
everything from a hidden weapon to a spot on your lung."
After scanning a passenger, Mr. Obama said, "We will either give you
a clean bill of health or wrestle you to the ground."
The President added that instituting the body scan/checkup could ward
off some terrorists right from the start, "because a lot of them will
balk at the $25 co-pay."
But according to Davis Logsdon, who studies terrorism and health care
reform at the University of Minnesota, the body scans may attract
more terrorists than they deter: "If there's one complaint that
terrorists have about al-Qaeda it's that they have lousy benefits."
Elsewhere, a new book claims that actor Warren Beatty slept with
13,000 women, making him the second-ranked golfer in the world. More
McCain Gets It, Obama Doesn't
By Robert Scheer
Truthdig: January 6, 2009
Maybe I got it wrong. During the presidential campaign I wrote columns
blasting Sen. John McCain for siding with the big bankers on deregulation,
citing his choosing ex-Sen. Phil Gramm, currently a vice chairman of the
Swiss-owned banking giant UBS, as his presidential campaign chair. Barack
Obama, on the other hand, repeatedly blasted Gramm and the
Gramm-Leach-Bliley Act, which the Texas Republican had pushed through
Congress, with President Bill Clinton's support-legislation that repealed
the Glass-Steagall Act and radically deregulated the financial industry.
But now the roles are reversed, and it is McCain who, along with Sen. Maria
Cantwell, D-Wash., has sponsored a bill to repeal Gramm's legislation, while
Obama seeks to preserve it.
The Gramm legislation, which permitted the merger of investment and
commercial banks into too-big-to-fail corporations (including Citigroup and
AIG, two financial giants that had to be bailed out by taxpayers), was
thought by Obama the candidate to be a key cause of the meltdown. But as
president he reappointed the Clinton-era officials who had sided with Gramm
in ending sensible banking regulations that had protected the public for 70
years and made the U.S. banking system the envy of the world.
Rather than restore Glass-Steagall, the Obama-backed banking regulation bill
passed last month by the Democratic majority in the House went along with
the desire of Wall Street lobbyists to prevent the breakup of the big
conglomerates and to block control of their massive trading in the
derivatives that proved to be so toxic.
The result, with some deceptive reformist window dressing, is a pro-Wall
Street business-as-usual cop-out, and the Senate version is likely to be
more of the same. Fortunately, there is a better way, and thanks to the
McCain-Cantwell bill and a companion one authored by Rep. Maurice Hinchey,
D-N.Y., in the House, there is still a chance at serious financial
regulation through the restoration of the key provisions of Glass-Steagall.
How odd that it now remains for McCain to stand up to the oversize banks.
". I want to ensure that we never stick the American taxpayer with another
$700 billion-or even larger-tab to bail out the financial industry," McCain
proclaimed in introducing his legislation. ". This country would be better
served if we limit the activities of these financial institutions."
But just the opposite happened under the great bailout. The big investment
houses of Goldman Sachs and Morgan Stanley were allowed to suddenly attain
the status of commercial banks in order to qualify for federal bailouts, and
the once staid commercial Bank of America was encouraged by the Fed to buy
out the investment house Merrill Lynch. As a result, banking has never
before been concentrated in so few hands. As Rep. Hinchey put it:
"Today, just four huge financial institutions hold half the mortgages in
America, issue nearly two-thirds of credit cards, and control about 40
percent of all bank deposits in the U.S. In addition, the face value of
over-the-counter derivatives at commercial banks has grown to $290 trillion,
95 percent of which are held at just five financial institutions. We cannot
allow the security of the American economy to rest in the hands of so few
Those derivatives, that hodgepodge collection of securitized debt-including
mortgages of most American homes-are at the heart of the problem, and they
are not regulated in any significant way by the legislation supported by the
administration. It's no wonder, since Lawrence Summers, the president's top
economic adviser, was not only a key proponent of reversing Glass-Steagall
in the Clinton White House but also supported the Financial Services
Modernization Act, passed a year later, that summarily exempted those
suspect derivatives from any regulation.
Although Obama has blasted "fat cat bankers on Wall Street," it is time for
those who elected him to ask for more than rhetoric. And to ask that of the
Democratic leaders of the House, who refused to allow a vote on Hinchey's
amendment to include the restoration of Glass-Steagall in their so-called
Wall Street Reform Act. Introducing it as a separate bill, Hinchey stated:
"The repeal of the Glass-Steagall Act was done to help large banks become
enormous and to line the pockets of banking executives with more money than
most Americans could ever dream of earning in their lifetime. . This bill
would help right the ship and return our country to the days when banks
either participated in commercial lending activities or investment
activities, but not both."
There is much logic in preventing commercial banks, which carry the
hard-earned savings of depositors and a federal guarantee of their worth,
from engaging in the high-roller risk-taking of investment banks.
If McCain now gets it, why doesn't Obama?