Posted tagged ‘spending’

Warning – Economic Storm Clouds Gathering

October 5, 2009

mushroom_cloudI scan a lot of econ news every day. Today’s econ news is making me a little nervous, though, because there seems to be an awful lot of reports of very, very bad news. And it’s not just awful predictions from the usual doom & gloom crew. It’s coming from everywhere. And that makes me think it’s very likely that another economic hurricane is on the way.

 So take whatever steps you need to take to protect yourself as much as possible. It sounds like whatever is coming could hit any day.

 Three Government Reports Point to Fiscal Doomsday

 Soros Says US Banking System Basically Bankrupt

 Joseph Stiglitz The Market Is Irrationally Exuberant

 World Bank could run out of mone’ within 12 months

 INSIDERS CONFIRM THAT THE RALLY IS FAKE, ECONOMY IS GETTING WORSE

 Peter Schiff Agrees with Jim Rogers, Invest in Gold and Commodities

 HSBC Chief Warns Of Second Downturn

 CAUTION Stock Market Crash -Collapse Dead Ahead Say Faber, Rogers, Dent and Celente

 Bob Prechter Quite Sure Market Will Crash And Break March Low

 Entering the Greatest Depression in History: The Bank for International Settlements (BIS) Warns of Future Crises

 Note: Apparently, the BIS is a sort of uber-central bank. From this article (emphasis mine):

In September of 2009, the BIS reported that, “The global market for derivatives rebounded to $426 trillion in the second quarter as risk appetite returned, but the system remains unstable and prone to crises.” The BIS quarterly report said that derivatives rose 16% “mostly due to a surge in futures and options contracts on three-month interest rates.” The Chief Economist of the BIS warned that the derivatives market poses “major systemic risks” in the international financial sector, and that, “The danger is that regulators will again fail to see that big institutions have taken far more exposure than they can handle in shock conditions.” The economist added that, “The use of derivatives by hedge funds and the like can create large, hidden exposures.”

 The day after the report by the BIS was published, the former Chief Economist of the BIS, William White, warned that, “The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession,” and he further “warned that government actions to help the economy in the short run may be sowing the seeds for future crises.” He was quoted as warning of entering a double-dip recession, “Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised.” He added, “The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

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US Deficit Over $1 Trillion for the First Time Ever

July 13, 2009

debt_star1

AP WASHINGTON – Nine months into the fiscal year, the federal deficit has topped $1 trillion for the first time.

The imbalance is intensifying fears about higher interest rates and inflation, and already pressuring the value of the dollar. There’s also concern about trying to reverse the deficit — by reducing government spending or raising taxes — in the midst of a harsh recession.

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to nearly $1.1 trillion.

The deficit has been propelled by the huge sum the government has spent to combat the recession and financial crisis, combined with a sharp decline in tax revenues. Paying for wars in Iraq and Afghanistan also is a major factor.

The country’s soaring deficits are making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.

“These are mind boggling numbers,” said Sung Won Sohn, an economist at the Smith School of Business at California State University. “Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run.”

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.

Congress already approved a $700 billion financial bailout and a $787 billion economic stimulus package to try and jump-start a recovery, and there is growing talk among some Obama administration officials that a second round of stimulus may be necessary.

This has many Republicans and deficit hawks worried that the U.S. could be setting itself up for more financial pain down the road if interest rates and inflation surge. They also are raising alarms about additional spending the administration is proposing, including its plan to reform health care.

President Barack Obama and other administration officials, including Treasury Secretary Timothy Geithner, have said the U.S. is committed to bringing down the deficits once the country has emerged from the current recession and financial crisis.

As if a deficit of more than $1 Trillion wasn’t bad enough, “Debt Day” (the point in the fiscal year when government spending exceeds revenue) was less than three months ago. Zero to -1 Trillion in less than three months.

How much deeper in debt can we go? A lot deeper if the federal government insists on going through with Cap & Trade, Universal Health Care, and maybe – just maybe – another round of stimulus.

Shhh – you can almost hear the Chinese from here…Spend, baby, spend!

Obama Says US Debt Load Unsustainable

May 15, 2009

000-0404012252From Bloomberg:

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Now he figures it out? Now? After tripling the deficit, spending billions trillions on bailouts and “stimulus” that achieved pretty much nothing and continuing the biggest federal power grab in history? Riiiiiight….

There is one way Obama can prove he believes even one word of what he said yesterday – cancel all the new spending in his 2010 budget that we cannot afford. If he would restrict the federal government to spending only the money it actually has, I would believe he has seen the light.

 I won’t be holding my breath.

Happy Debt Day!

April 26, 2009

Today is the day in the federal government’s current fiscal year when the spending exceeds revenue. In other words, today is the day the government begins living on credit for the rest of the fiscal year (about half of which still remains).

Last year’s Debt Day didn’t arrive until August 5th – 3 months later than this year. And next year?

A steep decline in revenue from a multitude of business losses, bankruptcies and individual taxpayer job losses combined with the most expensive federal budget ever submitted, means we’ll be lucky to get through the first three months of fiscal year 2010 before Debt Day arrives again.

February Economic Picture

March 1, 2009

Lots of economic news in February 2009, so let’s look at it in several categories.

Federal Government

News about federal government spending came at a head-spinning pace in February, with enough twists and turns to satisfy the most intense rollercoaster fans.

Feb 17: Obama signs $787 billion stimulus bill

Feb 18: Some GOP Governors Consider Refusing Stimulus Money

Feb 19: Obama announces Housing Bailout at $275 Billion

Feb 19: CNBC’s Rick Santelli wants to have a tea party

Feb 23: Obama convenes a “Fiscal Responsibility Summit”, says it’s time to clamp down on federal expenditures

Feb 24: Obama addresses joint session of Congress, says he intends to cut deficits in half over the next four years

Feb 25: House OKs $410B spending

Feb 26: Obama unveils his first budget –  $1.75 trillion deficit for the 2009 fiscal year

There are problems with Obama’s budget – for one, it depends on revenue by 2012 from carbon emission trading, a program that does not yet exist.

It also expects 3.2% growth in GDP next year, an enormous increase given the most recent figures of a 6.2 percent decline in the last quarter of 2008.

And Obama’s plan to raisetaxes on the wealthiest 2% of taxpayers to pay for his expensive domestic agenda is more wishful thinking. According to this Wall Street Journal editorial, he could take everything they earn, and it still won’t be enough.

Obama’s budget: huge ambitions, huge obstacles.

The Fed

 Federal Reserve Chairman Ben Bernanke testified before the Senate Committee on Banking, Housing and Urban Affairs on February 24, 2009.

He was asked by Senator Evan Bayh what he thought about the anger brewing among people who feel the federal government’s “housing rescue plan” is unfair.

Bernanke responded with the “your neighbor’s house is burning but it’s his fault” analogy. “You could punish him by refusing to send the fire dept and then he would learn his lesson, but unfortunately in the process you’d have the entire neighborhood burning down,” said Bernanke.

Read more…

There is a big flaw in Helicopter Ben’s analogy. We, the neighbors of this careless person who started a fire, have already paid our taxes to have a fire department. Calling 911 to have the fire put out should not entail any additional expense. In the meantime, my neighbors and I could be hosing down our own houses to prevent them catching fire.

What Mr. Bernanke and the federal government are proposing is that we buy a whole fleet of new fire engines, build a couple of new fire stations, then hire and train new firefighters while our neighborhood goes up in flames.

 But Helicopter Ben has no problem bailing out bad borrowers. The moral hazard does not matter, in his opinion.

He’s also confident he can prevent runaway inflation even though the Fed has dramatically increased the money supply in response to this crisis correction. Why do I not feel even the tiniest bit reassured?

Treasury

zombies_aheadLots of talk in February about nationalization of banks, particularly Citigroup. Even though Senate Majority Leader Harry Reid insists “It’s not nationalization” , Treasury Secretary Tim Geitner gave Citi another $25 Billion of taxpayer money in exchange for “preferred stock”. Timmy paid Citi $3.25 a share for these stocks – the same stocks that are selling on Wall Street for $1.50 a share (Dow closing Feb. 27, 2009). Nice terms if you can get ’em.

But that’s not likely to be the end of it. Citi still faces enormous new losses and investors are not reassured by this latest infusion from the TARP. Citigroup may become the next AIG   (watch for AIG to come begging again in the first days of March).

Mike Shedlock (aka “Mish”) has a good analysis of the Government – Citigroup dealings here.

Treasury also announced that it has provided $429 million to 29 banks in the latest batch of investments under the TARP. Details available here.

Bank of America’s balance sheet doesn’t look good – loans are valued at $44.6 billion less than what its balance sheet says, according to the bank’s annual report released Feb 27 and the losses BofA incurred with their purchase of Merrill Lynch are worse than they thought – about $500 million worse.

Fannie Mae reported a sixth straight quarter of losses – $25.2 billion in Q4 2008.

Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.

Read more

 FDIC

On the last FDIC Friday in February, regulators closed two more banks, bringing the total of failed banks for 2009 to 16.

The good news is that the rate of failures per week seems to have slowed down a bit. The bad news is that the FDIC’s list of troubled banks has grown to its highest level since 1994.

CNNMoney reported that bank failures may cost the FDIC $80 billion. That’s a predicted $65 billion in bank failures between 2009 and 2013 added to the $18 billion cost of 2008 failures.

Stock Market

 February was another losing month for Wall Street. Stocks ended the month at 12-year lows and if you look at the percentages, the decline in stocks has already hit Great Depression levels – a 50+ percent decline from the beginning of the crash.

Also worth noting that it isn’t just the financial stocks that are losing ground anymore. The downward trend is spreading to manufacturers and makers of basic consumer goods.

Finally, to be filed under “a picture is worth a thousand words”, the latest update to the “Four Bad Bears” graph (the grey line is the Great Depression, the blue line is the current recession:

Read the details and view the larger version of the graph here.

Retail

Expect more store closings and layoffs. Reports that came out in February from major retailers show huge 4th quarter losses:

Home Depot reports 4th-quarter loss of $54M

Lowe’s 4Q profit falls 60 percent

J.C. Penney reports 51 percent slide in 4Q profit

Sears 4Q profit falls 55 percent on charges

Macy’s reports 59 percent drop in 4Q profit

Saks Fifth Avenue – $98.75 million 4Q Loss

Gap: Sales & Earnings Down, Stores to Close

Office Depot posts $1.54 billion loss for 4Q

Department stores are unlikely to recover this year. Their primary goal is more likely to be avoiding bankruptcy and having to go out of business completely. On a personal note, I sure hope J.C. Penney survives – it’s one of my favorite stores for affordable, quality merchandise.

Other Economic News

U.S. GDP fell off a cliff in Q4 2008.

The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday — the largest revision since the government started keeping records in 1976.

Read more

The decline of 6.2 percent is the worst decline since the depths of the 1982 recession.

Consumer confidence fell to a new low in February.

The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.

The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.

Read more

Even Warren Buffett says the economy will be ‘in shambles’ for 2009.

It’s not just that Americans are losing confidence in the economy, they’re scared about where the nation is headed.

Seventy-three percent of those questioned in a CNN/Opinion Research Corporation survey released Monday say they’re very or somewhat scared about the way things are going in the United States. That’s six points higher than in an October poll.

Read more

February Charts from Calculated Risk

Here are a few that stood out for me. See the full report and all the charts at the Calculated Risk blog.

January Employment Report

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 598,00 in January, and the annual revision reduced employment by another 311,000 in 2008. The economy has lost almost 2.5 million jobs over the last 5 months!

The unemployment rate rose to 7.6 percent; the highest level since June 1992.

Year over year employment is now strongly negative (there were 3.5 million fewer Americans employed in Jan 2008 than in Jan 2007).

 

January Retail Sales

This graph shows the year-over-year change in nominal and real retail sales since 1993.

Although the Census Bureau reported that nominal retail sales decreased 10.6% year-over-year (retail and food services decreased 9.7%), real retail sales declined by 10.9% (on a YoY basis). The YoY change decreased slightly from last month.

 

January Capacity Utilization

The Federal Reserve reported that industrial production fell 1.8 percent in January, and output in January was 10.0% below January 2008. The capacity utilization rate for total industry fell to 72.0%, the lowest level since 1983.

The significant decline in capacity utilization suggests less investment in non-residential structures for some time.

 

Vehicle Miles driven in December

This graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early ’70s and 1979-1980 oil crisis. As the DOT noted, miles driven in December 2008 were 1.6% less than December 2007, so the YoY change in the rolling average may start to increase.

 

Case Shiller House Prices for December

This graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 28.3% from the peak.

The Composite 20 index is off 27.0% from the peak.

 

Unemployment Claims

This graph shows weekly claims and continued claims since 1971.

The four week moving average is at 639,000 the highest since 1982.

Continued claims are now at 5.11 million – another new record (not adjusted for population) – above the previous all time peak of 4.71 million in 1982.

Wrapping Up

Here’s one bit of good news after all the bad – gold is getting close to $1000 per troy ounce. Silver is also on the rise again.

That’s a lot to absorb for one short month so I’ll close with this a little music.

First, the classic “Sixteen Tons” performed by Tennessee Ernie Ford.

And finally, Jimmy Buffett performing his new song “A Lot To Drink About”