Econ 2009

[only_human]

New young, enthusiastic, vigorous, teachers without tenure won't have a place in these fiscally messed up years unless we can get rid of some of the bad older teachers that are paid more and take up space. That was my point.

As for sewage and other essential services being neglected over sexier or scarier services, that is not going to be fixed by throwing money that way. That is like watering a whole lawn to get the flowers on the walkway. You can do it but there is not enough money to go around.

Just a couple of years ago, we finally stopped paying a telephone luxury tax that was established over one hundred years ago to help pay for the Spanish American war, since 1898! Now is the time to fix a few things. When money got tight, all the Ponzi started getting caught. Similarly, now is the chance to fix some of the other ways cash is spent with only trickles getting to some of the things we need. If the cash is reduced and the things we need are all of a sudden not funded, then the ticks that are still sucking the blood out of the system stand out in greater contrast. Nothing will be fixed if sufficient money exists to remove the current pain without making changes.

[__HRB__]

Originally Posted by Uncwilly

There are plenty of quality civil servants that are not taking their vacation days, because the work has to get done, much less unpaid furlough days.

Really?

Originally Posted by Uncwilly

I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government.

Oh, I see!

Without the dmv we wouldn't have cars, because permits build houses, inspections generate wealth, and monopolies are efficient!

You forgot to mention that without somebody handing out visas, people wouldn't know how to travel, and without meter-maids people wouldn't know where to park!

Originally Posted by only_human

New young, enthusiastic, vigorous, teachers without tenure won't have a place in these fiscally messed up years unless we can get rid of some of the bad older teachers that are paid more and take up space. That was my point.

Geez, what happened to the new young, enthusiastic, vigorous, teachers the gummint hired 30 years ago?

Thank you for pointing out why private schools are doing so much better at teaching children: if your business-model is to generate income for teachers, you go out of business.

Originally Posted by Oscar Wilde

Nothing that is worth knowing can be taught.

[ewmayer]

Originally Posted by Uncwilly

Just because you have seen a few stinking rotten apples, are you willing to throw out the baby with the bath water? I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government. Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system). Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are. FAA doesn't want to staff up too much with controllers before the old ones retire (because of budget issues), hope you don't want to fly.
Hope you don't drive through a municipality that has problems with street light/lighting workers, or street paving crews.

Or want your child to go to a state university, those lazy government professors. Or know someone that will wind up at an under funded county run emergceny hospital.

Uncwilly, I don't think anyone in their right mind wants a collapse in state government functioning - but to frame the real issue, I suggest you ask yourself the same question I've been asking myself for the past few months: "CA state budget more than doubled since 2000 - what did all that extra spending buy?"

Were all those state services you mention woefully underfunded in 2000? (I certainly don't recall that being the case). Was state infrastructure in a state of collapse relative to today? (Ditto.) Was inflation running in the double-digits the past decade? (No - except maybe in housing prices, and taxes on those drove a large portion of the budget windfall). So - where did all that extra spending go? *That* is the real issue, and many of the answers are appalling - google "Vallejo city employee wages and benefits" to see what I mean. And the problem is the kind of unsustainable spending Vallejo was doing is just an example of what's been going on statewide the past decade.

Moron of the Week: I've been exceedingly remiss in my awarding of this coveted prize, for which I apologize. But this week, even though it`s only just begun, has already given us such a stellar candidate, I decided it was high time to hand out another MotWee:

U.S. Recession May Have Ended in April, Barclays' Knapp Says: Chart of Day: The longest U.S. recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital.

Sounds like someone's been smoking far too many of Mr. Obama's "green shoots". I guess besides unemployment, other macroeconomic measures such as consumer spending & debt, industrial output, housing starts, business lending and that wacky "GDP" thing are all now considered lagging indicators, as in "We here at Barclay's Bullish Decree that Great Recession is Officially Over, so get with it, world economy!"

[only_human]

Originally Posted by only_human

...
Or how about this lovely chestnut?
U.S. threatens to rescind stimulus money over wage cuts Because the state government cut unionized home healthcare workers pay from maximum of $12.10 per hour to a maximum of $10.10 in order to save a mere 74 million, California's $6.8 billion in stimulus money is at risk.

The Obama administration seems to have backpedaled and sent out mixed messages on this. One official says that a letter was sent out "inadvertently."
White House officials say no decision has been made to rescind state's stimulus payment

The announcement is at odds with what state officials said they had explicitly been told. Gov. Arnold Schwarzenegger's administration said they were notified by senior Obama staff on May 3 that California's plan to cut wages for unionized home healthcare workers violated the law that authorized the stimulus package.

[ewmayer]

Krugman Says V-Shaped Recovery Anticipated in Markets `Extremely Unlikely': Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.

Speculation government spending packages and interest-rate cuts worldwide will reinvigorate the global economy has helped the MSCI World Index rally 37 percent since falling to its lowest since 1995 on March 9. The U.S. Standard & Poor’s 500 Index surged 34 percent in that time.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”

My Comment: Regular readers of this thread will not be surprised when I say I`m with Krugman on this one - it may not turn out to be quite as bad as Japan`s "lost generation" after their RE bubble burst, but the policymakers in the U.S. are almost item-by-item repeating the failed measures attempted by Japan (ZIRP, massive stimulus make-work spending, bailouts for the banks) and hoping for a radically different outcome. The U.S. economy has the advantages of being much more diverse and flexible and we don`t have the problem compounded by a shrinking workforce (although we do have the problem of a rapidly increasing number of retirees), but our debt overhang is vastly larger.

In another recent op-ed Krugman also notes the "dangerous signs of complacency" with respect to the banking sector in a recent NY Times op-ed, even citing the very same idiot banker I took to task at the bottom of my post of 05 May:

What we’re really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health.

...But what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading.

Does anyone remember the case of H. Rodgin Cohen, a prominent New York lawyer whom The Times has described as a “Wall Street éminence grise”? He briefly made the news in March when he reportedly withdrew his name after being considered a top pick for deputy Treasury secretary.

Well, earlier this week, Mr. Cohen told an audience that the future of Wall Street won’t be very different from its recent past, declaring, “I am far from convinced there was something inherently wrong with the system.” Hey, that little thing about causing the worst global slump since the Great Depression? Never mind.

Those are frightening words. They suggest that while the Federal Reserve and the Obama administration continue to insist that they’re committed to tighter financial regulation and greater oversight, Wall Street insiders are taking the mildness of bank policy so far as a sign that they’ll soon be able to go back to playing the same games as before.

So as I said, while bankers may find the results of the stress tests “reassuring,” the rest of us should be very, very afraid.

[Fusion_power]

The headlines this morning are telling. One says that U.S. retail sailes are down. Another says mortgage foreclosures were above 300,000 for second month. A third is about stock market "volatility". Without going into the arguments over the state of the economy, the hucksters who keep saying we are recovering are sitting on a bed of nails.... or is that needles.

Anyone who believes this recession will be a V down and then back up looks to be in for some bad news.

No word at all from GM though their stock price is telling us something. Are we listening?

DarJones

[ewmayer]

Originally Posted by Fusion_power

The headlines this morning are telling. One says that U.S. retail sailes are down. Another says mortgage foreclosures were above 300,000 for second month. A third is about stock market "volatility". Without going into the arguments over the state of the economy, the hucksters who keep saying we are recovering are sitting on a bed of nails.... or is that needles.

Anyone who believes this recession will be a V down and then back up looks to be in for some bad news.

No word at all from GM though their stock price is telling us something. Are we listening?

Links to articles about the retail sales figures below - note again that economists consider the latest drop to be a "surprise", just like anything that doesn't fit their preconceived notions of a quick V-shaped recession followed by a roaring consumer-led recovery. Foreclosure spike also not a surprise to anyone who's been paying attention and knew that the "green shoots" of the recent drop in foreclosures was strictly an artificial astroturf rug covering a onetime spate of foreclosure moratoria by lenders awaiting details of the new administration's overblown "Hope for Homedebtors" initiatives and a lengthening of past-due standards by mortgage lenders (e.g. loans now need to be 120 days past-current to be marked delinquent, as opposed to the previous 60 days) in an effort to paper over the ongoing deterioration in their loan portfolios. It seems to have been part of a concerted "green shoots" campaign between the government and the financial/housing sector, one of whose chief aims apparently was to boost the share prices of the financials in advance of the phony "stress test" results, thus making it easier for said firms to raise the "more modest than expected" new-capital amounts indicated by the stress tests by issuing new shares. In that sense, it was a resounding success, as share prices of the 19 stress-tested too-big-to-fail institutions more than doubled since their early March lows - for some like Citgroup and BofA, share prices have increased 3,4,5-fold in the past 2 months. They thus get a several-week window to recapitalize relatively cheaply before the government-mandated moratorium on bad economic news expires. (Or before it simply becomes too much bad stuff to pretend away).

As far as what GM`s share price may be telling us, Mish's take (shared by many other folks not buying into the green-shoots propaganda) is that bankruptcy now appears inevitable, that the GM execs who dumped their shares this week are all but stating that the shares are worthless, and perhaps most importantly, that a successfully restructuring under Chapter 11 is far from a given.

-----------

Retail Sales in U.S. Unexpectedly Drop as Unemployment Cuts Into Purchases: Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to boost their savings.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Excluding auto dealers, sales fell 0.5 percent.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. As long as the biggest part of the economy is constrained, any recovery from the worst recession in at least half a century is likely to be subdued.

My Comment: Please, stop it with the "unexpectedly" already ... What, you thought all those millions of newly unemployed folks would use their newfound leisure time to go shopping? Notice also the pattern of revisions ... consistently, as with the BLS and unemployment, the numbers are geting revised to the "worse than initially announced" side in the following months. So either their models suck eggs, or there is a concerted effort to put lipstick on the initially-announced numbers, the ones that garner headlines. It`s like printing a bigus news story on page A1 of the paper, then quietly retracting it a couple days later in the fine print at the bottom of page A17.


California Home Prices to Fall 36% More, Fitch Says: California home prices may decline by another 36 percent over the next year to 18 months, more than any other state, Fitch Ratings said.

My Comment: Put a fork in CA's state budget, because it`s finished - tax revenues will continue falling for several years at least, and with $20B+ per year deficits accumulating at the current outlay levels, something has to give in a very big way.


`Good Bad' Economy Inspires Americans to Splurge in Sign Slump May Ease: Brooke and Doug Sterenberg booked a seven-day, $2,800 cruise to the Bahamas on Carnival Corp.’s ship the Conquest, with its three-deck-high Twister water slide. It’s the family’s reward for Doug keeping his job.

“He made it through the first round of layoffs” at the Houston unit of bankrupt chemicals maker LyondellBasell Industries AF SCA, said Brooke, a 37-year-old mother of two. “We feel like we can’t control what’s going to happen in the future. No matter what, our family deserves a week away.”

My Comment: Excuse me, but that`s the most idiotic thing I`ve heard all week - well, at least since Monday`s MotWee award to the Barclay`s analysts who declared the recession over. You may not be able to control your husband`s odds of avoiding future rounds of layoffs, but you have *complete* control over this kind of discretionary spending. But hey, it`s the American way - live it up now, run up those credit cards, and if ol` Dougie gets layed off from his already bankrupt company, just default on your mortgage and credit cards and let the banks and the taxpayers pick up the tab. As far as I`m concerned, in times like these, my "reward" for keeping my job is ... my job. did you even consider perhaps socking that money away into the kids` college fund? No, of course you didn`t.

And speaking of credit-card defaults...

Advanta’s Card Shutdown May Imperil Customers, Debt Holders

May 12 (Bloomberg) - Advanta Corp., the credit-card issuer for small businesses, may leave 1 million customers scrounging to find new lenders and debt holders facing losses of 35 percent after the company shut down accounts to preserve capital.

Advanta will cease lending June 10 after uncollectible debt reached 20 percent as of March 31, according to a statement and filings yesterday by the Spring House, Pennsylvania-based firm. The lender earmarked $1.4 billion to buy back securitized card loans with offers of 65 cents to 75 cents on the dollar.

This would be the first so-called early amortization of a trust since 2003, according to JPMorgan Chase & Co. analyst Christopher Flanagan.

“Early amortization has been viewed as a catastrophic event for issuers,” Scott Valentin, an analyst at Friedman Billings Ramsey & Co., said today in a research note. Advanta’s filing said that the charge-off rate for uncollectible loans may increase after accounts are closed. Valentin said that’s likely because “the cards have substantially less utility to cardholders,” cutting the incentive to keep up with payments.

“They’re hoping they can stay alive barely until the environment changes,” said David Robertson, president of the Nilson Report, the Carpinteria, California-based industry newsletter. This is “a big sign that the credit-card industry has problems that are going to be around for several years.”

Advanta was the 11th-biggest U.S. credit-card issuer at the end of 2008 with about $5 billion in outstanding balances, and the only major lender focused on small business borrowers, Robertson said.

My Comment: Note that CC defaults hit firms which lend the money, like Advanta and many regional banks - transaction processors like Visa and Mastercard only suffer from the contraction in consumer spending and credit by way of reduced processing-fee revenue.

[cheesehead]

"Treasury wants more financial regulations"

http://news.yahoo.com/s/ap/20090513/...ury_regulation

The Obama administration is asking Congress to extend its oversight of the financial system to include the shadowy market of derivatives, the kind of complex financial instruments that helped bring down the giant insurer AIG.

In a draft two-page letter to congressional leaders, the Treasury Department says it wants to create a central electronic-based system that would track the buying and selling of derivatives. It also wants to ensure that financial firms selling the instruments have enough capital on hand in case they default and subject them to stringent standards of conduct and new reporting requirements.

. . .

[ewmayer]

Originally Posted by cheesehead

"Treasury wants more financial regulations

Maybe they should start with their buddies over at the Federal Reserve:

Federal Reserve Cannot Account For $9 Trillion In Off-Balance Sheet Transactions

[cheesehead]

Originally Posted by ewmayer

Maybe they should start with their buddies over at the Federal Reserve:

Federal Reserve Cannot Account For $9 Trillion In Off-Balance Sheet Transactions

From that article:

Originally Posted by Tyler Durden

(P.S. Zero Hedge uses the term "anyone" generically, with the presumption that the Fed's Inspector General should traditionally receive most memos on memorandum items that deal with a dollar sign and +/- 12 zeros after it).

Hmmm... maybe the problem is that the missing amounts don't have many zeros in them, like $123,456,789,012. Only one zero, so that might slip under the radar?

Or maybe the existence of digits 1-9 needs to be brought to Durden's attention to offset the column title's hypnotic influence?

[ewmayer]

The Economy in Pop Culture: Comic Art - Monty, 4 May: