The Illuson of Economic Recovery, Major Indicators Point Towards Further Collapse
Economics / Great Depression II Jul 26, 2010 - 04:12 AM GMTBy: Bob_Chapman
The talk of recovery pervades insider thinking. The major media worldwide plays the same refrain. This is a desperate attempt to befuddle the public with misdirected propaganda to preserve confidence in a system that is in a state of collapse. As CNBC leads the charge, loss of faith in the system grows with each passing day. In spite of control of the major media by elitists, talk radio and the Internet hammers away incessantly with the truth influencing more and more 24/7 worldwide. As a result of the success of the alternative media a good many investors realize we have a systemic credit crisis that has turned into a debt crisis as well.
The residential real estate collapse is still collapsing with no end in sight. That has been joined by a commercial credit crisis, which has forced banks, Wall Street and corporate America to keep two sets of books – Europe and England as well. We called the beginning of the top of the residential real estate in the summer of 2005, warning our subscribers it was time to begin to move out of real estate and to personally rent. We were the first to make that call as a few others followed six months or more later. The failure of Bear Stearns was soon followed by Lehman Bros., and a crisis of confidence was underway.
The immediate move was to save the banks, Wall Street, insurance and elitist corporate America. A number of programs were initiated, some of which are still in place. During the crisis worldwide a number of people began to accumulate cash. Some cash in hand, some in money market funds and some in gold and silver related assets. During this period lenders called loans and an unprecedented de-leveraging took place that affected every investment. As a result today such cash and cash like holdings are more than 50% higher than they were five years ago. The system is under pressure, and was it not for government deficit spending of $1.6 trillion and the infusion annually of some $2 trillion by the Federal Reserve the system would have long ago collapsed into deflationary depression.
The Dow fell to 6550 in March of 2009 and then with the above spending rallied back to 11,200. During that one-year timeframe many investors left the market pouring into cash, money market funds and gold and silver related assets. There was certainly no incentive to buy bonds at zero interest rates and the market had again become too dangerous.
We are some 14 weeks away from congressional elections, which could be the most important in history. Will the electorate dump the duplicitous incumbents to try to regain control of their country and their freedom? We won’t know until we get there. If voters do not turn out these crooks we cringe to contemplate the future.
Talk today centers around a stillborn recovery that never quite held on long enough to materialize. Five quarters of 3% to 3-1/2% growth traded for $2.5 trillion. Money and credit was thrown at the system again, and again it didn’t work. Keynesianism at its finest.
The housing purchase subsidies are gone, and real estate sales and prices are again falling. Even with interest rates near 4-1/2% for a 30-year fixed rate mortgage there are few takers in the hottest sales period of the year. There are four million houses in inventory for sale or 1-1/2 years supply. That figure could be 5 to 6 million by yearend, as builders’ build 545,000 more unneeded homes. More than 25% of mortgages are in negative equity. Excess mortgage debt is $4 trillion and headed much higher. Government is so desperate that they have begun to take punitive action against those whose homes are under water, but they can still make the payments, but are bailing out. What a disincentive for anyone to buy a house. Will debtors prison be far behind?
There certainly have been strategic defaults, but not as many as government would have you believe. Twenty-five percent of all borrowers are stuck with negative equity, which we expect will worsen. That could mean a wealth loss of some $4 trillion. Obviously, homeowners are hoping for higher prices. If that does not happen you can expect more walk-away foreclosures. There are already four million homes for sale and many more could be on the way. Plus, more than 500,000 more new homes are being added to saleable inventory annually. Next year will be another bad year for builders. Some will fail and others will merge. Government is having ongoing meetings with three major builders in an effort to nationalize the industry, as they will do with banking. Government is doing the worst thing possible. It reminds us of Sovietization. The only thing government has going for it is that underwater homeowners usually do not default until they are down 62% from equity, but that could change. Interest rates at 4-5/8% for a 30-year fixed rate mortgage should keep them in their homes for now, but if interest rates rise that plus could become a negative. That leads us to believe that interest rates will stay that way for a long time. As a result the Fed must keep interest rates at zero for a long time to have millions of mortgages kept from falling into foreclosure.
At $15.3 trillion the world’s holdings of US dollar denominated assets in ten years rose from 60% of GDP to 108%. This in part has been caused by a never-ending current account deficit. This factor alone makes one wonder how the US dollar can be a strong international reserve currency.
In just six years from 2001 to 2006, mortgage debt grew to $14.5 trillion - a credit expansion unheard of in history. In the past almost two years government borrowings have grown 49% just slightly more than the 45% in 1934-35. The Keynesian game is the same, it is just the time frame is different.
Over a 20-year time frame total US credit rose from $13 to $52 trillion, or to 370% of GDP. A good part of these credit excesses have been exported to the rest of the world and they are increasing exponentially; almost 160% just in the last six years, or to $8.5 trillion.
The deliberate move to expose Greece’s problems, which those in government and finance had been aware of for years, backfired and exposed all the problems in Europe in the process. The impact of Greece, and the elucidation of the depth of problems in Portugal, Ireland, Italy and Spain curtailed the so-called global recovery and exposed extraordinary weakness in the euro zone throughout the EU and Eastern Europe. That in turn will ultimately cause problems for the US dollar and the pound. There is now no question that the dollar rally is over and the question is when will the dollar retest the 74 area on the USDX? The leverage in banking is still 40 times deposits and we see no way to easily reduce that. We believe dollar reflation will have to be the answer for the Fed.
The financial terrorists that inhibit our banking system and Wall Street still remain confident that inflation caused by quantitative easing won’t show up for years, if ever. What else can the Fed and ECB do except use stimulus? The sovereign debt contagion in 20 major countries and as many creditor countries, is not going to go away anytime soon. These are systemic, structural problems. We certainly do not see the likelihood of the dollar proving any safe harbor. Those who have flocked to the perceived safety of the dollar are going to be very unhappy with the results.
Many countries are enmeshed in major debt and in the case of the US the debt is colossal. It is hard for markets to appreciate this in Europe, the UK and US. The problems of the credit crisis are not over and there won’t be a recovery, unless the Fed injects $5 trillion into the economy. That will keep the economy going sideways for two years as inflation rises. Small and medium sized business cannot get loans, so they cannot expand and hire. About 23% of large corporations may expand and hire. Offshore US corporations have far too much excess capacity already. As you all know there are many speed bumps on the road ahead. You had better be prepared for them.
Switching gears again, we find very little coverage of the problems in Eastern Europe. Hungary is a good example. Financial exposure is Austria $37 billion, Germany $32 billion, Italy $25 billion, Belgium $17.2 billion and France $11 billion. This kind of exposure to the banking systems of these countries could be very painful. It will be interesting to see if national governments, or the ECB step in as they did in Greece, and manage the problems. The world should be paying attention because there are 20 major countries in the same dilemma. The sovereign debt crisis is just getting underway as observed with foresight. There has been no containment and 56% of Hungarian real estate loans are in Swiss francs. The problem, which we have been citing for some time, could cause a domino effect across Europe and we wonder if the solvent nations and the ECB can handle the debt rescue. Our answer is no. The next shoe to drop could be in this region and surprise almost everyone.
We have to laugh at the amateurish journalists who work for government agencies. There are a number of them that pop up here and there from time to time to give you what government wants you to hear. We caught on to this in the late 1970s. We lived in a town where a certain writer supposedly lived. He had a P.O. Box there and we found out from the postmaster that his mail was picked up weekly by a spooky guy who then mailed it elsewhere. From time to time this journalist pops up, in far away places, or in a very important position, usually with a counterpart. In this case it was with a well-known friend of many years who we know is part of British intelligence’s controlled opposition.
The commercial paper market rose $2.4 billion last week to $1.100 trillion. We now have another $34 billion unemployment benefit extension. Congress, in spite of coming elections, were terrorized into extension. Our representatives and senators do not care a wit about deficits nor do they have any understanding of economics, finance and the dollar. They know deflation has to be avoided at all costs. It neutralizes the financial sector and politicians. More than 50% of Americans feel we are entitled to full employment, no inflation and early retirement, as government deficits expand. Is this not the Keynesian way?
The only answer, as we pointed out before, is for the nations to have a meeting, execute global currency revaluation and devaluation and placing gold perhaps at $10,000 an ounce to back the dollar or some substitute currency. If the choice was the dollar then we’d have to have to see just how much gold the US really has. What it doesn’t have it would have to purchase. In that process the Federal Reserve should be relieved of its charter and its functions returned to the US Treasury. That would stop the unlimited issuance of money and credit.
That could be accompanied by legislation to enact tariffs on goods and services. This would stimulate the economy, create jobs, return production and services and get America going again. This would stop asset price inflation. The current free trade situation is like Smoot-Hawley in reverse a devastation of the US economy.
The massive injection of money and credit have to end and they will end. We will return to a gold standard and the way back will be painful.
Increased housing commitments swelled U.S. taxpayers' total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday.
The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government's pledges to supply capital to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and to guarantee more mortgages to the support the housing market.
The International Monetary Fund Executive Board weighed in on central banks' strategies for battling asset bubbles, saying they might want to use interest rates as a tool to prick such bubbles. The financial crisis has prompted reassessments of central banks' efforts to address bubbles. The IMF urged tougher regulation, such as stricter capital requirements, restrictions on banks' use of short-term loans and higher collateral requirements. Beyond that, interest-rate policy might have to be used, the IMF said.
A fiscally conservative Democrat who chairs the U.S. Senate's budget committee on Wednesday said he supports extending all of the tax cuts that expire this year, including for the wealthy.
"The general rule of thumb would be you'd not want to do tax changes, tax increases. until the recovery is on more solid ground," Senator Kent Conrad said in an interview with reporters outside the Senate chambers, adding he did not believe the recovery has come yet. Each day, $4 trillion dollars of currency are traded. For international businesses and travelers, trading dollars for other currencies serve a legitimate purpose. However, nearly 80 percent of these transactions are undertaken by a handful of major banks. Experts agree that most of these transactions are made for purely speculative purposes.
Wealthy traders and big financial institutions make huge bets on the fluctuations in currency value, and they can make massive profits if their bets are correct. This type of speculation helped to worsen the recent financial crisis and serves no purpose other than to make a few people and institutions even richer.
Today, I introduced H.R. 5783, the Investing in Our Future Act. My legislation would simply impose a small tax of 0.005 percent on these currency transactions. The money raised would be put toward investments in children, global health and climate change mitigation. Studies estimate a worldwide 0.005 percent tax on dollar transactions would raise $28 billion a year and reduce currency speculation by 14 percent.
Earlier the NAR released the existing home sales data for June; here are a couple more graphs. The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.
Inventory increased 4.7% YoY in June. This is the third consecutive month of a year-over-year increases in inventory, and this is the largest YoY increase since early 2008. This increase in inventory is especially bad news because the reported inventory is already historically very high, and the 8.9 months of supply in June is well above normal. The months-of-supply will jump in July as sales collapse probably to double digits - and a double digit months-of-supply would be a really bad sign for house prices.
Sales (NSA) in June 2010 were 8.3% higher than in June 2009, and also higher than in June 2008. With the expiration of the tax credit, I expect to see existing home sales below last year starting in July. In fact I expect sales in July to be well below last year, and probably the lowest since 1997 (or so). This was another weak report. Sales were slightly above expectations (5.37 million at a seasonally adjusted annual rate vs. expectations of 5.3 million), but the YoY increase in inventory and the increase in months-of-supply are the real stories. If months-of-supply increases sharply as I expect, then there will be additional downward pressure on house prices.
ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion. Yet neither liquidations, nor redemptions, nor mutual fund capitulation, nor lack of liquidity, nor lack of human traders, nor rumors that it is all one big scam, can tame the market's most recent bout of irrational exuberance: in a time when equity funds had to redeem over $7 billion in stocks, the stock market surged by 90 points! Just like last week, despite huge order blocks of selling pressure, the fact that volume is so light and liquidity so tight, the market succeeds in ramping ever higher, now that the few remaining carbon-based market participants have reverse engineered the key algo "predictive" front-running mechanisms, and manage to fool them that there is bid side interest, into which all domestic equity mutual funds manage to sell en masse. Soon enough there will be little left to sell, which will, paradoxically cause a much overdue market crash. (It is a bizarro market for a reason). And even as equity mutual funds are running on fumes (explains Bill Miller's call of desperation yesterday), all the money in the world continues to rush into credit funds: the past week saw inflows into every single bond category, with a total of $5.8 billion going into all taxable bond funds. We are gratified that behind the fake equity facade of "alliswellishness", everyone is pulling their money out of stocks with an increased sense of urgency. Retail has had it with this pathetic shit show of a market: the computer can front run each other for all anyone cares. We are fairly confident that the Obama administration will not have a soft spot in its heart to bail out the quant community... unless, of course, Rahm Emanuel discovers some way to unionize algorithms and give them voting rights.
Conceding that they can't find enough votes for the legislation, Senate Democrats on Thursday abandoned efforts to put together a comprehensive energy bill that would seek to curb greenhouse gas emissions, delivering a potentially fatal blow to a proposal the party has long touted and President Obama campaigned on.
Instead, Democrats will push for a more limited measure that would seek to increase liability costs that oil companies would pay following spills such as the one in the Gulf of Mexico. It also would create additional incentives for the development of natural gas vehicles and would provide rebates for products that reduce home energy use. Senate Democrats said they expected to find GOP support for the bill and pass it in the next two weeks.
Democrats have not ruled out pushing for a more extensive measure when Congress returns from its August recess or in the session after the November midterm elections, although it's not clear that any of the Democrats or Republicans who now oppose a more expansive measure would change their minds. Republicans have long argued that the bill, by seeking to limit emissions, would lead to higher energy costs, a view that some conservative Democrats have also taken.
The decision to abandon the proposal was another concession to the difficult political environment that party leaders face, as many rank-and-file congressional Democrats are wary of casting any votes that could be used in Republican attacks.
The number of Massachusetts residents filing for bankruptcy soared in the first half of 2010, as the continued weak economy left thousands of homeowners unable to pay their mortgages or sell their properties.
Nearly 12,000 people filed for bankruptcy in the first six months of this year, 25 percent more than in the first half of 2009, according to data released yesterday by the Warren Group, a Boston real estate information company. That is the largest number of Bay State filings for a six-month period since Congress overhauled the nation’s bankruptcy laws in 2005.
Goldman Sachs Group Inc. told U.S. investigators, which counterparties it used to hedge the risk that American International Group Inc. would fail, according to three people with knowledge of the matter.
The list was sought by panels reviewing the beneficiaries of New York-based AIG’s $182.3 billion government bailout, said the people, who declined to be identified because the information is private. Goldman Sachs, which received $12.9 billion after the 2008 rescue tied to contracts with the insurer, has said it didn’t need AIG to be rescued because it was hedged against the firm’s failure.
“We want to know the identity of those parties, partly just to know where American taxpayer dollars went, but partly to assess Goldman’s claim,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, in a Senate hearing this week. “We cannot evaluate the credibility of their claim that they had nothing at stake one way or the other in the AIG bailout.”
The recently passed Donk (Dodd-Frank) Finreg abomination, which nobody has yet read is finally starting to disclose some of the interesting side effects of its harried passage. Such as that the rating agencies may have suddenly become extinct. As the WSJ's Anusha Shrivastava discloses: "The nation's three dominant credit-ratings providers have made an urgent new request of their clients: Please don't use our credit ratings." The Moodies of the world suddenly have good reason to not want their name appearing next to those three A letters (at least in Goldman CDO and bankrupt sovereign cases) out there: "The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately." In other words, "advice by the services will be considered "expert" if used in formal documents filed with the Securities and Exchange Commission. That definition would make them legally liable for their work, meaning that it will be easier to sue an firm if a bond doesn't perform up to the stated rating." And since ratings are officially a part of a vast majority of Reg-S filed documentation, the response by issuers has been a complete standstill in new issuance, especially asset-backed underwriting and non-144A high yield issues, as the raters evaluate how to proceed. Alas, as there is no easy fix, underwriters' counsel and issuers will promptly uncover new loopholes and ways to issue bonds without the rating agencies' participation. Did Moody's and S&P just become extinct?
BP PLC, the company battling a record oil spill in the Gulf of Mexico, agreed to sell assets in North America and Egypt to Apache Corp. for $7 billion as part of its plan to raise cash to fund liabilities.
The deals with Apache include BP’s Permian Basin holdings in Texas and Southeast New Mexico as well as gas properties in Western Canada, London-based BP said yesterday. BP also agreed to sell Western Desert business concessions and an East Badr El-din exploration concession in Egypt.
The announcement comes after BP said it plans to sell some $10 billion of assets over 12 months to help pay for damages related to the Gulf of Mexico oil spill, caused by the explosion of its Macondo well on April 20. BP said it expects the deals to be closed in the third quarter.
U.S. mortgage applications jumped last week as demand for loans to purchase homes rose for the first time in five weeks, the Mortgage Bankers Association said on Wednesday.
In addition, demand for home refinancing loans hit the highest level in 14 months as interest rates reached their lowest in at least 20 years, the industry group said.
The data provided a glimmer of hope for a housing market that has been struggling since the expiration of popular homebuyer tax credits.
The Mortgage Bankers Associations said its seasonally adjusted index of mortgage applications USMGM=ECI, which includes both purchase and refinance loans, increased 7.6 percent for the week ended July 16.
The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.9 percent.
The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.59 percent, down 0.10 percentage point from the previous week, and the lowest level ever recorded in the survey, which has been conducted weekly since 1990.
Interest rates were also below their year-ago level of 5.31 percent.
"The strength in purchase applications comes from government loans, likely indicating that prospective buyers are drawn by the lower down payment requirements," Michael Fratantoni, the MBA's vice president of research and economics, said in a statement.
The seasonally adjusted purchase index USMGPI=ECI, a tentative early indicator of home sales, increased 3.4 percent after hitting a 13-year low the previous week. Demand, however, is down about 42 percent since the homebuyer tax credits expired.
The state Senate yesterday passed a bill to help Massachusetts residents who are sued by debt collectors protect their property and assets from seizure. Under the bill, which would need approval by the House, banks and creditors who win judgments against debtors in the state courts cannot seize a person’s car unless it is worth more than $7,500 up from $700 today. The exemption would be $15,000 for elderly and disabled people. Funds in bank accounts would be protected up to $2,500, up from the current $125 level.
The bill, sponsored by Senator Patricia D. Jehlen, was spurred by a 2006 Globe Spotlight series that found debt collectors routinely seizing cars and other property from people who had fallen behind on credit card bills. Current law is so outdated that it says collectors must let debtors keep, among other things, two cows and 12 sheep. In addition to raising the dollar value on property exemptions, the Senate bill prohibits collectors from seizing Social Security or disability income a practice that is illegal under federal law, but common among unscrupulous collectors.
Kenneth C. Wilson, a lawyer at Lustig, Glaser & Wilson in Needham who is part of a group of Massachusetts collection lawyers, said the industry did not oppose the Legislature’s updating of property exemptions. He said the group won some concessions, such as eliminating a measure that would have required notice to be sent to debtors in their native language.
The last time a state defaulted on its bonds, it took eight years and the federal government’s help to come up with a remedy.
When Arkansas defaulted on its bonds in 1933, the politicians and investors talked about the same things we would talk about today. The state blamed underwriters for allowing it to sell too many bonds. Investors compared the willingness to repay debt with the ability to pay, and weighed the advantages of bonds backed by a pledge of taxing powers to those secured by specific revenue.
Unlike today, nobody thought the federal government should come to the rescue.
To be sure, the municipal market was a much different place in the 1920s and 1930s. States and localities borrowed about $1 billion in long-term debt each year (compared with $400 billion now), credit research was in its infancy, and the practice of bond law was only about 50 years old. The 10-year bond call wasn’t as common as it is today, and there were no prohibitions on the number of times issuers could refund their bonds. The market was less codified and more contentious.
The framework of the story is eternal: too much debt, too little time.
“We have a state ranking 46th in per-capita wealth in 1929, ranking first in per-capita indebtedness,” was how state Senator Lee Reaves summed up the matter in a 1943 article for the Arkansas Historical Quarterly. “Under the best of circumstances it would have been difficult to meet payments on the mounting debt.”
The U.S. financial-regulation bill may halt the already diminished market for asset-backed securities by increasing liability risk for credit raters, a securitization-industry group and bank analysts said.
The legislation, set for signature by President Barack Obama, eliminates credit-rating companies’ shield from lawsuits when underwriters include their assessments in documents used to sell debt. Moody’s Investors Service and Fitch Ratings have already told Wall Street that because of an increased risk of being sued, they will no longer let underwriters use ratings in bond-registration statements.
The change, if combined with an existing Securities and Exchange Commission rule that restricts sales of asset-backed debt without ratings in offering documents, will put a “flash freeze” on the market, said Tom Deutsch, executive director of the American Securitization Forum. His concerns are shared by analysts at RBS Securities Inc.
“A number of transactions that had been planned for the upcoming weeks have been shelved indefinitely given this proposal,” Deutsch said in an interview yesterday. “The transactions legally cannot go forward.”
Public pension funds have accused Moody’s, Fitch and Standard & Poor’s of helping to fuel the financial crisis by giving top rankings to mortgage bonds that plunged in value when the U.S. housing market collapsed in 2007. Congress scrutinized the firms at hearings and tried to hold them more accountable by making it easier for investors to sue for inaccurate ratings.
The Senate voted 60 to 40 on Tuesday to restore emergency jobless benefits to the millions of people who have been out of work for more than six months.
It is much easier politically to extend unemployment benefits and other entitlements than to institute the necessary reforms and restructuring that is needed to refurbish the US economy and financial system.
A USA TODAY/Gallup Poll finds that a majority of retirees say they expect their current benefits to be cut, a dramatic increase in the number who hold that view. And a record six of 10 non-retirees predict Social Security won't be able to pay them benefits when they stop working. Skepticism is highest among the youngest workers: Three-fourths of those 18 to 34 don't expect to get a Social Security check when they retire.
The Justice Department has concluded its two-year investigation into the Bush administration's firing of U.S. attorneys and will file no charges, people close to the case said Wednesday.
The investigation looked into whether the Bush administration dismissed the nine U.S. attorneys as a way to influence investigations. The scandal contributed to mounting criticism that the administration had politicized the Justice Department, a charge that contributed to the resignation of Attorney General Alberto Gonzales.
The people who spoke do The Associated Press about the case did so on condition of anonymity because an official announcement has not been made.
In 2008, the Justice Department assigned Nora Dannehy, a career prosecutor from Connecticut with a history of rooting out government wrongdoing, to investigate the firings. One of the people who spoke to the AP, a lawyer, said Dannehy called him Wednesday afternoon and told him no charges would be filed.
Much of the investigation focused on the firing of New Mexico U.S. attorney David Iglesias and whether the Bush administration misled Congress about his and other firings. Iglesias was fired after the head of the state's Republican Party e-mailed the White House to complain that the U.S. attorney in New Mexico was soft on voter fraud. The GOP official asked that Iglesias be replaced so that the state could "make some real progress in cleaning up a state notorious for crooked elections."
Harriet Miers, then White House counsel, said in testimony to House Judiciary Committee investigators that presidential political adviser Karl Rove was "very agitated" over Iglesias "and wanted something done about it."
Rove has said he played no role in deciding which U.S. attorneys were retained and which were replaced, that politics played no role in the Bush administration's removal of U.S. attorneys and that he never sought to influence the conduct of any prosecution. [Again, we are robbed of justice within a system that totally ignores the Constitution. Bob]
Battered by high unemployment and record home foreclosures, most Americans seem to have lost faith in another fundamental part of their personal finances: Social Security.
A USA TODAY/Gallup Poll finds that a majority of retirees say they expect their current benefits to be cut, a dramatic increase in the number who hold that view. And a record six of 10 non-retirees predict Social Security won't be able to pay them benefits when they stop working.
Skepticism is highest among the youngest workers: Three-fourths of those 18 to 34 don't expect to get a Social Security check when they retire.
Three out of every four lobbyists who represent oil and gas companies previously worked in the federal government, a proportion that far exceeds the usual revolving-door standards on Capitol Hill, a Washington Post analysis shows.
Key lobbying hires include 18 former members of Congress and dozens of former presidential appointees. For other senior management positions, the industry employs two former directors of the Minerals Management Service, the since-renamed agency that regulates the industry, and several top officials from the Bush White House. Federal inspectors once assigned to monitor oil drilling in the Gulf of Mexico have landed jobs with the companies they regulated.
With more than 600 registered lobbyists, the industry has among the biggest and most powerful contingents in Washington. Its influence has been on full display in the wake of the BP oil disaster: Proposals to enact new restrictions or curb oil use have stalled amid concerted Republican opposition and strong objections from Democrats in oil-producing states.
The Senate voted 59 to 39 Wednesday to restore emergency jobless benefits to millions of people who have been out of work for more than six months.
House leaders said they will ratify the measure Thursday and send it on to the White House, where President Obama plans to immediately sign it.
The bill would authorize states to provide retroactive support to an estimated 2.5 million people whose unemployment checks have been cut off since federal benefits expired June 2. It would also make available up to 99 weeks of income support through the end of November to millions more who have exhausted state benefits, which typically last for 26 weeks. Advocates for the unemployed say it could be several weeks in some states before the checks are in the mail.
The vote comes after a months-long battle over whether to pay for the $34 billion measure or add that sum to the nation's mounting national debt. Both parties have agreed in the past not to pay for emergency jobless benefits during periods of high unemployment, in part because cutting spending or raising taxes to cover the cost could depress economic activity.
Sales of U.S. previously owned homes fell in June for a second month, adding to evidence the market will slump as the effects of a federal tax credit fade.
Purchases of existing houses dropped a less-than-forecast 5.1 percent to a 5.37 million annual rate, figures from the National Association of Realtors showed today in Washington. The number of transactions will be “very low” in coming months, reflecting the end of the government incentive, the group’s chief economist said in a news conference.
The index of U.S. leading indicators fell 0.2 percent in June, the second decline in three months, signaling the world’s largest economy will cool.
The decrease in the New York-based Conference Board’s gauge of the prospects for the economy in the next three to six months compares with the median estimate for a 0.3 percent decline in a Bloomberg News survey of economists and follows a 0.5 percent gain in May.
More Americans than projected filed applications for unemployment benefits last week, a sign firings remain elevated even as the economy is expanding.
Initial jobless claims jumped by 37,000 to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The survey median projected claims would climb to 445,000. The number of people receiving unemployment insurance and those getting extended payments dropped.
The figures underscore projections that a lack of jobs will restrain consumer spending, the biggest part of the economy, and lead to slower growth in the second half of the year. It will probably take a “significant amount of time” to restore the almost 8.5 million jobs lost in 2008 and 2009, Federal Reserve Chairman Ben S. Bernanke told Congress yesterday.
“Underlying demand for labor is fairly sluggish,” said Omair Sharif, an economist at RBS Securities in Stamford, Connecticut, who had forecast claims would rise to 460,000. “If that continues, it will have an impact on wages and salaries and clearly have some negative implications for consumer spending.”
Stocks held gains after the report and Treasuries remained lower. Futures on the Standard & Poor’s 500 Index were up 1.2 percent at 8:47 a.m. in New York, and the yield on 10-year notes was 2.91 percent compared with 2.88 percent late yesterday.
The rebound in part reflects the unwinding of decreases in the prior two weeks as fewer factories closed for mid-year retooling than the government estimated. The influence of the manufacturing closures will probably take another week or two to wash out of the numbers, a Labor Department spokesman said.
The forecast was based on the median projection of 42 economists surveyed. Estimates ranged from 420,000 to 460,000. The Labor Department revised the prior week’s figure to 427,000 from a previously estimated 429,000.
The four-week moving average, a less volatile measure than the weekly figures, climbed to 456,000 last week from 454,750, today’s report showed.
The number of people continuing to receive jobless benefits dropped by 223,000 in the week ended July 10 to 4.49 million. The figure does not include the number of Americans receiving extended benefits under federal programs.
Those who’ve used up traditional benefits and are now collecting emergency and extended payments decreased by about 368,000 to 3.93 million in the week ended July 3 after Congress failed to pass legislation extending the assistance.
The US Treasury still continues to issue about $200 billion in coupon debt each month.
Mortgage rates fell to a new record low for the fourth time in five weeks. But low rates haven't been enough to lift a struggling housing market.
The average rate for 30-year fixed loans this week was 4.56 percent, down from 4.57 last week, mortgage company Freddie Mac said Thursday. That's the lowest since Freddie Mac began tracking rates in 1971.
The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years. The rate on the 15-year fixed loan dropped to 4.03 percent, down from 4.06 percent last week and the lowest on records dating back to 1991. Rates have fallen since the spring. Investors worried about the European debt crisis have shifted money into the safety of Treasury bonds. That has forced those yields down. Mortgage rates tend to track yields on Treasury debt.
However, low rates have yet to spark home sales and refinancing activity remains moderate. Sales of previously occupied homes fell in June and are expected to keep sinking. The National Association of Realtors said Thursday that last month's sales fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million.
The housing market stalled after federal tax credits for homebuyers expired at the end of April. Home sales have dropped off, homebuilder confidence has waned and consumer sentiment is in the dumps.
It's unlikely low mortgage rates will bolster housing. Rates have hovered near historic lows for more than a year, so many people have already taken advantage of them to buy or refinance a home.
And many of those who haven't wouldn't qualify for a loan. They either owe more than their homes are worth, have shaky credit or have lost their jobs. To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
Rates on five-year adjustable-rate mortgages averaged 3.79 percent, down from 3.85 percent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.70 percent from 3.74 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac's survey averaged 0.7 a point for 30-year, 15-year and 1-year loans. The average fee for 5-year loans was 0.6 of a point.
A decline in unemployment in 39 U.S. states and the District of Columbia last month is another sign that job seekers are giving up the hunt, not that the labor market is strengthening, experts said. Only 21 states posted a net job gain in June, compared with 41 in May, the Labor Department said. Nationwide, private employers added 83,000 workers.
The Securities and Exchange Commission (SEC) Inspector General (IG) David Kotz has agreed to a request from Rep. Darrell Issa, the Ranking Member of the Oversight and Government Reform Committee, to broaden his current investigation examining the SEC’s decision to move forward with action against Goldman Sachs “to include the circumstances surrounding the timing of the SEC’s settlement reached with Goldman on July 16, 2010.”
“A recent article about the Goldman settlement in the Wall Street Journal reported further details, which, if true, raise additional concerns about the factors affecting the timing of the Commission’s settlement of its case against Goldman,” Issa wrote in a July 22nd letter to Inspector General Kotz.
Fred Barnes in a WSJ op-ed piece: The Vast Left-Wing Media Conspiracy
Everyone knew most of the press corps was rooting for Obama in 2008. Newly released emails show that hundreds of them were actively working to promote him.
You can’t make up stuff like this! The debate in Ann Arbor, where firefighters are being laid off due to a multimillion dollar budget deficit, is over an $850,000 piece of art. That's how much the city has agreed to pay German artist Herbert Dreiseitl for a three-piece water sculpture that would go in front of the new police and courts building right by the City Hall. [No wonder the US is in a fiscal mess!]
If in addition to 85% of the economic data releases in the past month coming below expectations was not enough, the ECRI leading indicator has just came below the critical threshold of -10%, which according to Rosenberg has virtually assured recessions based on data from the past 50 or so years, hitting an annualized rate of -10.5%. And since even the index creators (and Ivy League tenured professors) are openly refuting the adverse implications of their own index (when they, and everyone were praising it when it topped out at 27.80 a year ago), one can be sure this is a rather dramatic data point.
The Securities and Exchange Commission moved to defuse turmoil in the bond markets caused by ratings firms' refusal to allow their credit ratings to be used in deal documents.
Late Thursday the agency said it would temporarily allow bond sales to go ahead without credit ratings in bond offering documents, a move that would end an effective stalemate between ratings agencies and issuers.
The two sides had been at odds over changes enacted Wednesday in the landmark financial reform bill. The new law regards bond-ratings firms as "experts" and holds them liable for the quality of their ratings.
With the financial system on the verge of collapse in late 2008, a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners. Now, the federal authority on banker pay says that nearly 80 percent of that sum was unmerited.
In a report to be released on Friday, Kenneth R. Feinberg, the Obama administration’s special master for executive compensation, is expected to name 17 financial companies that made questionable payouts totaling $1.58 billion immediately after accepting billions of dollars of taxpayer aid, according to two government officials with knowledge of his findings who requested anonymity because of the sensitivity of the report. The group includes Wall Street giants like Goldman Sachs, JPMorgan Chase and the American International Group as well as small lenders like Boston Private Financial Holdings. Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses, the people with knowledge of his findings said, and he has singled out Citigroup as the biggest offender.
Even so, Mr. Feinberg has very limited power to reclaim any money. He can use his status as President Obama’s point man on pay to jawbone the companies into reimbursing the government, but he has no legal authority to claw back excessive payouts.
A new study released Wednesday estimates that 20% of Americans suffered a significant economic loss last year - the highest level in the past 25 years.
The new Economic Security Index looks at the interaction of three key variables that have a direct bearing on a person's economic security: income loss, medical expenses and debt. The index, which tracks data since 1985, shows that economic insecurity has risen across all groups, not just among low-income families and those without much education.
The index was constructed by Yale political scientist Jacob Hacker and a team of researchers, and the project was funded by the Rockefeller Foundation.
The ESI defines people as economically insecure when their situation meets two criteria. First, within a year's time they have lost 25% or more of their available gross income. Available gross income is the money they have left over after paying for medical costs and debt. Second, they don't have enough in an emergency fund or other liquid reserves to make up the difference.
Hacker noted that it can typically take between six to eight years to restore one's available income to its previous level. Meanwhile, a survey cited by Hacker found that 48% of Americans said last year they only had enough resources to carry them for two months before experiencing any economic hardship.
According to the index, which is based primarily on Census Bureau data, 12.2% of Americans were economically insecure in 1985. By 2009, Hacker and his team estimate that 20.4% of Americans could be classified that way. The actual number of people affected increased by more than half, from 28 million in 1985 to roughly 46 million by 2007, the last year for which hard numbers were available.
Global Research Articles by Bob Chapman
© Copyright Bob Chapman , Global Research, 2010
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