Econ 2009

[ewmayer]

Originally Posted by garo

1. I take exception to the constant maligning of Keynes. Read some of his work. It is is being horribly mis-characterized by Mish. Among other things, Keynes called for a smaller government in good times and bigger in bad times.

Well, we seem to be getting the latter in spades - problem is, even (or perhaps especially, at least in terms of hypocrisy) we haven't ever gotten the former in any times I can remember, good or bad. At the state level, here in CA the budget doubled since 2000 - and despite the "draconian" cuts in the recent budget agreement, there were really very few cuts relative to that 2x bloating, and instead we get higher taxes (CA income tax already almost 10%) and financial hocus-pocus bullcrap like "$5 billion in revenues from borrowing against expected future state lottery proceeds."

Maybe you're right and it's not so much Keynes as the neo-Keynesians running the stimuluses-R-us bailout circus in Washington DC, but if Keynes really believed that any bureaucracy could ever willingly shrink itself - especially in good times (when it's most apt to bloat beyond belief), he was incredibly naive.

2. BRK losing AAA is a joke, If there is any company in the US that deserves a AAA it is BRK. It is supremely ironic that BRK and GE lose AAA on the same day.

Note it was only Fitch that downgraded BRK - and in my opinion they have some very valid concerns about Berkshire's derivatives exposure, not to mention the whole "no company deserves a AAA rating in the current economic climate" thing. If you think BRK is so great, you're welcome to buy a share or two. ;)

[__HRB__]

Originally Posted by garo

1. I take exception to the constant maligning of Keynes. Read some of his work. It is is being horribly mis-characterized by Mish. Among other things, Keynes called for a smaller government in good times and bigger in bad times.

Pure Keynesian theory was replaced in 1937 by the neoclassical synthesis in an attempt to explain both short-term (keynesian) equilibria and long-term (classical) equilibria.

Reading Keynes as part of the history of economics is OK. Advocating that a modern policy be based on a theory that was debunked 70 years ago, is a recipe for disaster.

The fundamentals of Keynesianism:

Originally Posted by John Maynard Keynes

In the long term, we're all dead.

...therefore we must spend as if there were no tomorrow, and not care about future generations holding the bag.

Paradoxically, especially among conservationists Keynesian politics remain as popular as ever! (From which you may conclude that conservationists are dishonest fools.)

[garo]

1. I'm not advocating Keynes as the panacea. All I am saying is that to label the current bunch of clowns as Keynesian is wrong. They did not save during the good times or take any counter-cyclical measures which is part of Keynesian economics.

2. Again , not saying the BRK deserves AAA but that it must be a crazy universe these rating agencies inhabit where GE and BRK are classified the same. But hey Ambac and Mbia were AAA long past their sell by date.

[__HRB__]

Originally Posted by garo

They did not save during the good times or take any counter-cyclical measures which is part of Keynesian economics.

That's true.

Now, which certified public astrologer do you suggest should be made secretary of forecasting to predict the frequency & amplitude of the next cycle?

I might also suggest that we ignore all those charlatans trying to deceive the administration with superstitious nonsense such as 'spending resonance' or 'binge spending-recession hangover causality'.

[rogue]

AIG execs should do this

[__HRB__]

Originally Posted by rogue

AIG execs should do this

http://jonathanturley.org/2009/03/17/the-ultimate-bailout-senator-proposes-suicide-pact-with-business/

"The problem is of course that ten of his colleagues immediately demanded $10 billion for the study of Seppuku techniques and the creation of Seppuku centers as part of the proposed second bailout bill."

More here:

http://www.reason.com/blog/show/132278.html

(Yes, I'm blatantly promoting futile libertarian agenda)

[ewmayer]

Housing starts unexpectedly surge: Government report shows construction of new homes jumped 22% in February.

NEW YORK (CNNMoney.com) -- Initial construction of U.S. homes unexpectedly surged in February, after falling for eight months, according to a government report released Tuesday.

Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. It was the first time housing starts increased since June, when they rose 11%.

Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com. Still, starts are down more than 47% from February 2008, when over 1.1 million new homes broke ground.

New construction of single-family homes, considered the core of the housing market, increased 1.1% to an annual rate of 357,000 versus 353,000 in January.

February's increase was driven by a nearly 80% increase in construction of multi-family homes. New construction of buildings with 5 or more units increased surged 80% to 212,000 from 118,000 in January.

My Comment: Barry Ritholtz over at The Big Picture gives a more sensible take on the numbers, noting that the alleged "rebound" was only with respect to January`s all-time lows, and the fact that most of what little activity there is appears to be concentrated in multifamily dwellings points to a "secular shift in trend from buying to renting" - again more a confirmation of the depth and likely length of the recession than anything else.


Credit Card Issuers Choke U.S. Businesses With Higher Rates, Credit Limits: Susan Woodward isn’t renewing the lease on her music boutique and internet cafe in Jackson Hole, Wyoming, after nine years. The reason: doubling interest rates on her credit cards.

“My business is seasonal, so we count on credit to stock the store at the end of the slow season and prepare for the busy season,” said Woodward, who canceled her Citibank and Capital One credit cards in February after learning that rates would climb to 19 percent from 10 percent. She said she always made timely payments and kept low balances.

Almost three-quarters of U.S. companies with fewer than 500 employees are experiencing a deterioration in credit or credit- card terms at a time when half of them depend on credit cards as a primary source of financing, according to a December survey of 250 firms by the National Small Business Association, a trade group with more than 150,000 members.

My Comment: Sounds like the banks are so desperate for short-term profits that they are willing to alienate huge amounts of long-term business. Punish your best customers by doubling their interest rates - great business model there, guys. This reminds me so very much of the contraction in venture capital spending during the dotcom bust ... in the heady years of the dotcom bubble the VCs were tripping over each other to throw money at anyone who had a silly "webby-sounding" name and a website ... then once things predictably went south, it was nigh-impossible to find funding for even really good ideas. Banks doing the same thing today - as a result of their own easy-credit excesses of the past 5 years, now they're busy throwing the baby out with the bathwater.


Will the Fed prop up the Treasury markets?: The Fed won't cut short-term rates at its next meeting, but look for long-term rates to drop if the central bank announces plans to buy Treasurys.

NEW YORK (CNNMoney.com) -- The Chinese are getting nervous about buying U.S. Treasurys. Does that mean it's time for the Federal Reserve to start buying long-term notes?

The answer could come as soon as Wednesday, when the U.S. central bank concludes a two-day meeting. The Fed has said in its last couple of statements that it was prepared to buy long-term Treasurys as a way to try to further help the economy. But so far, it hasn't given any details about how much it would buy, or when it would start doing so.

The meeting comes in the wake of Friday's comments from Chinese Premier Wen Jiabao, who expressed concern that the more than $700 billion in Treasury debt his country holds is at risk of seeing its value fall due to rising budget deficits here.

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," said Wen at his annual news conference on Friday. "To speak truthfully, I do indeed have some worries."

If the Fed started buying 10-year Treasury notes, that wouldn't do anything to reduce risk tied to soaring U.S. budget deficits.

But it would provide some support for the value of the bonds, especially if the Chinese start to pull back on purchases as some economists are expecting.

So far, that hasn't happened. The Chinese Treasury holdings have increased by nearly $250 billion, or just over 50%, over the 12 months ending in December. And according to a report from the Treasury Department released Monday, China bought an additional $12.2 billion in Treasurys in January.

My Comment: (I`ll try to ignore the awkward-lookingness of "Treasurys" used in lieu of "Treasuries" - oops, too late) ... Here in the world of main street finance such a scheme is called "using one credit card to pay off another" ... and while the Chinese so far have not visibly reduced their purchases of U.S. debt, with their growing need to use their capital reserves to keep their own economy from sliding into depression, it is probably just a matter a time. Also, several other countries of note *have* reversed course recently and cut back on Treasury purchases. Between that and Premier Jiabao`s publicly voiced concerns about U.S. fiscal policy, that would seem to constitute an unmistakable shot across the bow of the good old U.S.S. Profligate.


The axman comes to Google: New finance chief Pichette has few Web credentials - but a lot of experience cutting costs.

(Fortune Magazine) -- In retrospect, Google investors should have realized last June that the search giant's era of hypergrowth was over. That's when the company announced that Patrick Pichette, the top operations executive at BCE, parent of Canada's biggest phone company, would be Google's new chief financial officer.

Pichette isn't your typical tech executive: He didn't cut his teeth in Silicon Valley, and his web credentials are thin. No, the far more relevant experience on Pichette's resume was the time he spent heading up a three-year cost-cutting and efficiency drive that reduced operating costs at Bell Canada by $2 billion.

That's right: Google (GOOG, Fortune 500), among the most chaotic, profligate, unfocused, engineering-oriented, and self-proclaimed recession-resistant of organizations, had reached outside the Googleplex for a real business executive and charged him with ensuring that Google's freewheeling culture wouldn't become its own worst enemy.
0:00 /2:42Picky hiring in Silicon Valley

Call it, in the words of redoubtable analyst Mary Meeker, "Right guy, right time." Just as Google's business has shown unmistakable signs of slowing, Pichette, a 46-year-old Canadian who was a Rhodes scholar and a McKinsey consultant in his younger days, has begun to make his mark.

Since he started as CFO on Aug. 1, Google has shut down numerous projects, facilities, and perks, from the seemingly trivial - an unneeded gourmet caf at its headquarters, the annual companywide ski trip - to the significant. The latter includes the termination of a major effort called Lively, a virtual-environment product that mimicked Second Life, and the shuttering of a failed acquisition, dMarc Broadcasting, through which Google had attempted to broker radio advertising. In January, Google publicized its first layoffs, the termination of 100 recruiters made redundant because the company has dramatically reined in its hiring.

My Comment: Isn't it amusing to see so many companies who loudly proclaimed their alleged "recession-proofness" despite never having experienced a significant economic downturn, suddenly find out that they`re not immune? That`s right, dear, "my job is recession-proof" ... I might no longer be *holding* it at the end of the recession, but the job itself will be just fine, or something.

[Fusion_power]

So what is on the economic horizon? I've asked myself this repeatedly to try to get a grip on the direction our country is going.

We built a fleet of Spanish Galleons and now they are sinking right and left in the economic storm. Paired Galleons Freddie Mac and Fannie Mae are precipitously canted. Getting them back on an even keel will take about $130 Billion for Freddie and $80 Billion for Fannie. There is no way to be certain of those figures, it just represents the total hole on their balance sheet if the housing market continues to go south. Don't forget that Freddie has major exposure to Mortgage Backed Securities.

The bank Galleons Citi, J.P. Morgan, B of A, Wells Fargo, etc. are listing to port. Their balance sheet is overweighted with a combination of MBS and Credit Default Swaps. In essence, they are zombie galleons trying real hard to take a deep breath and open their eyes. In desperation, they are reeling in credit lines for anyone and everyone they think has a possibility of causing them a loss. Their next hurdle will be quarterly reports. Expect major fudging of numbers. The one thing they do NOT want to do is have to write down their toxic assets to par value because doing so will reveal them as insolvent, i.e. the emperor is not wearing any clothes!

The average Joe on the deck is about to have to walk the plank. He is being pink slipped overboard because the galleons know that every pound counts and tossing more bits of meat to the sharks will keep them afloat for a few minutes longer. The rough part for Joe is that his family sinks or swims with him. Expect unemployment to hit between 12 and 15 percent over the next 9 months. Fortunately, there is a very real possibility that Joe will be able to pick up a ride on a small boat. Several of them are zipping around the bay with sails spanking and foam flying. The one bright spot in the economy, and that only by comparison with the big businesses, is the small businesses with less than 10 employees that produce goods and services people are still buying.

The Insurance Galleon, AIG, is having conniptions. No matter how much ballast the taxpayers add, it keeps trying to go under stern first. They have $180 Billion and by all indications will need at least $50 Billion more. Their plight is made worse by all the fatcats who keep grabbing barrels of fish and jumping overboard with a paddle in hand. A barrel of fish floats nicely so they are rowing for shore with determination. Unfortunately, Congress is making a real stink about the removal of ballast from the galleon and threatening to confiscate the barrels of fish before the fatcats can come ashore. I don't know what the Captain thought he was doing, but giving bonuses to the fatcats really has the fat in the fire. There is no way on earth to justify a bonus barrel of fish when your ship is on fire and sinking. He should have let the fatcats sue and then a court could have told the fatcats to go away hungry.

And last but not least we get to the good ships GM and Chrysler. Did I say good ships? Oops. Change that to overballasted galleons. Unfortunately these galleons are weighted down with rocks in the form of employee entitlements and benefits to such an extent that the deck is barely above the waterline. Taxpayers keep adding ballast to replace the rocks but the galleons are settling lower and lower in the water. The bailout so far has been $17.4 Billion of ballast to replace rocks and these galleons have requested $22 Billion more. Now I may not be the most astute galleon observer around, but I suspect they are seriously underanticipating the real amount of ballast needed. In fact, before it is done, I would expect at least $60 Billion of ballast required to get rid of enough rocks to keep these galleons afloat. The Captain of the GM Galleon says that hauling him out on the drydocks will make him break into pieces. I say 'so be it'. You are just a galleon and when you are gone, someone will build another galleon to replace you. Hopefully they will build it of sturdier material!

I am reminded that Hitler was an avid horoscope follower. In his final days, his astrologer came to him with "good news!" the stars are favorable for everything you do or words to that effect. Do you get the idea some of the economists are astrologers?

Now do you start to see some of the reasons we should scuttle these Galleons?

DarJones

[garo]

Excellent post Fusion_power.

[__HRB__]

http://www.washingtonpost.com/wp-dyn...031803201.html

The [...] lesson is that no matter how bad you think market capitalism is, the federal government has proved it is worse. Congress originally banned these very bonuses, then stripped the ban out of the stimulus bill and is now threatening confiscatory taxes on the lawful recipients. The Treasury knew about the bonuses and vouched for their legality but now wants double the money back somehow. How, exactly, the Treasury expects any straight-thinking financial entity to enter into a voluntary public-private "partnership" to solve the financial crisis given this track record is a mystery to me.

[S485122]

Originally Posted by __HRB__

Ceterum censeo: opinionem cheesheadi est stupido et esse delendam.

Am I the only who is chocked by the continuing insulting and bashing of another forum member ?

HRB : could you please stop this ? I really think you go to far.

Thanks,

Jacob