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Bad Meat

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Jun 192010

MAD MEAT! How Securitized Lending Collapsed the Financial System, Eric Von Berg (a commercial property mortgage banker and was the President of the California Mortgage Bankers Association during the heat of the market who has been watching “Regulatory Reform” as a member of the Commercial Board of Governors of the Mortgage Bankers Association of America). This is an absolutely must read! It has a few pages of set up to a fable of sorts, but when you get to page 6 of the slide presentation, it becomes laser sharp and funny. To wit:

The disclosures were typically so numerous and far fetched that the real risks were overlooked…

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Hat Tip to Naked Capitalism

Jun 052010

I’ve seen some eye-poppin’, credulity-stretchin’ accounts in my time. The report “The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis,” just released by the Congressional Budget Office, ranks with the most extreme. It claims that the budgetary cost (which corresponds roughly to expected losses) of the Fed rescue facilities launched during the financial crisis is approximately $21 billion. Moreover, its peculiar formulation (”fair value subsidies”) conveys the misleading impression that this was the extent of the central bank’s support to the financial services industry.

In a (weak) defense to the CBO, my understanding (and readers are welcome to correct me) is that the office is tasked to execute analyses as they are framed. In other words, if the CBO is asked to opine on a particular matter, it has to deal with only the questions posed to it. It is not permitted to tweak the inquiry or broaden the focus to provide more insight.

The closest thing to a statement of scope and objectives comes in the Preface and it is remarkably thin. The most important remark:

The report also presents estimates of the risk-adjusted (or fair-value) subsidies that the Federal Reserve provided to financial institutions through its emergency programs.

CBO Issues Fed-Flattering Propaganda

It takes brains

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May 152010

The geniuses are at it again: Hide your wallet!

AP
GM wants to re-enter auto financing
Tom Krisher
Tuesday May 11, 2010

DETROIT (AP) — General Motors Co. executives want their own auto-financing arm so they can offer more competitive lease and loan deals, according to a person briefed on their plans.

The executives want to buy back the auto financing business from the former GMAC Financial Services or start their own operations, said the person, who asked not to be identified because the plans have not been made public.

A top GM executive has told dealers about the plans, the person said.

GM sold a 51 percent stake in GMAC Financial Services in 2006 when it was starved for cash. The new owners, led by private equity firm Cerberus Capital Management LP, ran into trouble in 2008 with bad mortgage loans and had to be bailed out by the federal government, which now owns 56 percent of the company.

Earlier this month, GMAC changed its name to Ally Financial.

GM dealers say that since GMAC is responsible for making its bottom line look good, it is less likely to lose money by offering to finance sweet lease deals or zero-percent financing. A GM-owned auto financing business would be more likely to “take a bullet” for the company to sell more cars and trucks, the person said.

Competitors, such as Ford Motor Co. or Toyota Motor Corp., control their own financing arms.

GM spokesman Tom Wilkinson said Tuesday that the company would not comment on speculation….

“Of Rats and Sinking Ships”

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Apr 102010

Larry Summers is reportedly leaving later this year, and Andrew Cockburn reports that Rahm Emanuel, Obama’s acutely verbal Chief of Staff is said to be looking for other employment, preferably a high paying job on Wall Street with little work and enormous perks and privileges.

This is the sort of thing that one would expect to be happening at the end of the first term of a President, five years into the job. Perhaps that event is being moved up because Obama is likely to be a one term president, in one of the most spectacular flame outs from high, and in retrospect misplaced, expectations since the Segway.

Obama was clearly the wrong man for the job. He might have been the kind of reformer for the good times, when you really do not need him, dedicated to getting the various squabbling parties to hold hands and sing Kumbaya. Unfortunately, a crisis demands leadership, and Obama is all fluff in that department. Leaders lead, they do not hold other people up as the leaders, and take them to task for their failure to do the risky things when their leader hides behind a non-existent consensus. I hate to say this, but both Clinton and W were far superior leaders, unfortunately with deeply flawed visions and moral compasses.

The Democrats are most likely looking at a November massacre in the election, unless some event occurs to pull the nation together such as an externally focused crisis.

The problem of course is that if one looks at the alternatives, there are none too attractive in the Republican Party which is also deeply tarnished with the financial corruption that actually came to full flower under their stewardship with George W. And part of the reason that legislation for reform languishes is that the Republicans are openly in the camp of the corporatocracy, and obstructing any nascent reform attempts from a small core of independent minded legislators.

Is it time for a Third Party as some have suggested? Maybe, although it seems more likely to me that it will take a much greater degree of pain and collapse for America to wake up and reform its system, from the Media to Washington to Wall Street. Splinter parties at the extremes appear probable in the short term.

And then who knows what might be slouching towards Pennsylvania Avenue, its moment come round at last?

http://jessescrossroadscafe.blogspot.com/2010/04/failed-presidency-and-country-adrift.html

Originally published at Robert Reich’s Blog

For almost a year now, Democratic pollsters have been pointing out how much the public hates the bank bailout and despises Wall Street. But there was no reason for Democratic leaders in Congress or the White House to pay much attention. After all, it was a Republican president and a Republican Congress that came up with the bank bailout plan to begin with. Some stalwart Republicans had grumbled about it, of course, but Republicans have always been on the side of Wall Street and big business and weren’t likely to call for strong measures to prevent the Street from getting into trouble again.

Larry Summers and Tim Geithner scuttled Paul Volcker’s plan to separate the banks’ commercial and investment functions, and didn’t want to limit the size of banks or the risks they could take on. Summers and Geithner have wanted to get the banks back to profitability as soon as possible. And Dems in Congress have had no stomach to take on Wall Street, a major source of campaign funding.

But suddenly the winds are blowing in a different direction over the Potomac. The 2010 midterms are getting closer, and the Dems are scared. Their polls are plummeting. The upsurge in mad-as-hell populism requires that Democrats become indignant on behalf of Americans, and indignation is meaningless without a target. They can’t target big government because Republicans do that one better, especially when they’re out of power. So what’s the alternative? Wall Street.

Perhaps I’m being too cynical. Maybe the Obama and congressional Democrats are now ready to give up Wall Street trickle-down economics and focus on Main Street trickle-up. “There are two ideas of government,” said William Jennings Bryan at the Democratic National Convention in Chicago in 1896. “There are those who believe that you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.” He couldn’t have said it better.

Sic transit America?

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Jan 162010

Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington

If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.

In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”

Self-doubt tarnishes Brand America

The Truth About Jobs That No One Wants To Tell You

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Oct 032009

Unemployment will almost certainly in double-digits next year — and may remain there for some time. And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before (I’m in the last category, now that the University of California has instituted pay cuts). And there’s yet another person who’s more fearful that he or she will be next to lose a job.

In other words, ten percent unemployment really means twenty percent underemployment or anxious employment. All of which translates directly into late payments on mortgages, credit cards, auto and student loans, and loss of health insurance. It also means sleeplessness for tens of millions of Americans. And, of course, fewer purchases (more on this in a moment).

Unemployment of this magnitude and duration also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues weilding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets. It’s already started. Next year is a mid-term election. Be prepared for worse.

So why is unemployment and underemployment so high, and why is it likely to remain high for some time? Because, as noted, people who are worried about their jobs or have no jobs, and who are also trying to get out from under a pile of debt, are not going do a lot of shopping. And businesses that don’t have customers aren’t going do a lot of new investing. And foreign nations also suffering high unemployment aren’t going to buy a lot of our goods and services.

And without customers, companies won’t hire. They’ll cut payrolls instead.

Which brings us to the obvious question: Who’s going to buy the stuff we make or the services we provide, and therefore bring jobs back? There’s only one buyer left: The government.

Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.

Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.

When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn’t even know what a debt was, but it kept me up at night.

My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.

You see? The most important thing right now is getting the jobs back, and getting the economy growing again.

People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then – after people are working and the economy is growing – we can pay down that debt.

But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.

The Truth About Jobs That No One Wants To Tell You by Robert Reich

It’s Unemployment, Stupid!

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Sep 212009

Pittsburgh protesters demand G20 do more for jobs
Forbes
“We’re not going to accept a jobless recovery,” said Larry Adams, a postal worker who came from Jersey City, New Jersey, for the protest. …

The expansion of international “supply chains” from Asian factories to American consumers has certainly created global trade imbalances and international currency flows that are not necessarily sustainable over the long run. A readjustment of the world economy, not a slackening demand for inexpensive consumer products, strikes me as the greatest threat to the Wal-Mart business model. And, for its part, the chain is already adapting to new circumstances. In recent years, Wal-Mart has expanded well beyond the borders of North America into Europe, Mexico and Asia. It imports factory goods from China and also operates its own retail stores there. But the stores look very different from their American counterparts. In Kunming, near the border with Myanmar, Wal-Mart rents space inside its store to independent vendors, who pay $1.20 per day to hawk Yunnan coffee, tobacco bongs filled with local rice wine and condiments made from eggplant, soybeans and ginger. The atmosphere is “festival-like, even chaotic,” as vendors shout out their wares, sometimes through loudspeakers or while pounding on drums, and customers crowd a stall to fish pears out of a solution of sugar, salt and licorice root–”a Wal-Mart store sans Wal-Martism,” according to sociologist Eileen Otis. Another Chinese employee explains his loyalty to the company by suggesting that Sam Walton was, in fact, a student of Chairman Mao who “adopted the revolutionary strategy of ‘the countryside encircling the city.’&nthinsp;” And so the revolution continues.

How Wal-Mart’s Ruthlessness Led to Its Undoing – Jefferson Decker, Nation

“the short period of American triumphalism, where we dominated the global scene. That period is over”.

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Sep 042009

Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’
By Michael McKee

Sept. 4 (Bloomberg) — The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said.

“It’s not clear that the U.S. is recovering in a sustainable way,” Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Economists and policy makers are expressing concern about the strength of a projected economic recovery, with Treasury Secretary Timothy Geithner saying two days ago that it’s too soon to remove government measures aimed at boosting growth.

Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn — an occurrence that economists call a “W-shaped’ recovery.

“There’s a significant chance of a W, but I don’t think it’s inevitable,” he said. The economy “could just bounce along the bottom.”

Stiglitz said it’s difficult to predict the economy’s trajectory because “we really are in a different world.” He said the crisis of the past year was made worse by lax regulation that allowed some financial firms to grow so large that the system couldn’t handle a failure of any of them.

Big Banks

“These institutions are not only too big to fail, they are too big to be managed,” he said.

Finance ministers and central bankers from the Group of 20 nations meet in London Sept. 4-5 to lay the groundwork for a summit in Pittsburgh later this month, where leaders will consider measures to overhaul supervision of the financial system…

With so much excess capacity, the American economy faces a short-term threat of disinflation and possibly deflation, Stiglitz said. Wages may even decline, given recent high productivity and the likelihood of an extended period of high unemployment, he said.

Longer term, he said the Fed’s aggressive monetary policy will mean inflation becomes the greater threat. “With the magnitude of the deficits and the balance sheet of the Fed having been blown up, it’s understandable why there are anxieties about inflation,” he said.

While the Fed says it has the tools to deal with it, there are still concerns, Stiglitz said. Because monetary policy takes six to 18 months to have its full effect, the central bank will have to begin withdrawing monetary stimulus on the basis of forecasts.

The Fed’s record on its economic forecasts isn’t enough to reassure investors and, as a result, the U.S. currency may suffer, he said.

Dollar ‘Weakness’

“Whether or not they’re able to do it, the uncertainty today about whether they can do it can contribute to the weakness of the dollar,” Stiglitz said. “That’s one of the reasons there is increasing interest around the world in discussing alternatives to the dollar system.”

Stiglitz, who is a member of a United Nations commission that will study the global financial system and currency regimes, said “the logic is compelling” for a new global currency.

The current system creates instability, weakens global confidence, and is fundamentally unfair to developing countries that are in essence lending the U.S. trillions of dollars and bearing the risk, he said.

“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”

While some think it would hurt the U.S. to no longer be able to borrow cheaply in dollars, “that era is over,” he said. “We’re moving to a more multi-polar world.”

Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.

An example for the USA

The Sorry State Of American Manufacturing No Responses »

Aug 172009

Amazing German Machines May Lead Europe Out of Recession

Germany’s heavy reliance on exports caused serious problems for the country when the global economic crisis dried up orders. However, its obsession with manufacturing could soon help drive growth. By merging electronics and mechanics, German factories could drive the Continent’s revival.

As U.S. deficits increased, global investors edged away from the dollar into the German mark, the Japanese yen, the Swiss franc, the Euro, and more recently baskets of Asian currencies.

Which brings us to today. Only goodwill (defined both as an accounting term and as political deference to military might) now supports the U.S. dollar as a reserve currency, which is what allows the United States to issue dollar-denominated bonds in world money markets.

It is this borrowing capacity that allows the Obama administration to bailout the banking industry, offer to pay for universal health care, fight colonial wars in the Middle East, stimulate the economy, send billions to Egypt and Israel, buy out General Motors, and subsidize every windmill start-up company in Nancy Pelosi’s home district. (Madoff’s problem was that he failed to set himself up as a country. He otherwise understood deficit spending.) But the shell game requires full faith in the dollar.

For those riding out financial storms by “sitting on cash,” here is what’s under your seat: in recent months U.S. federal debt has grown to $11.3 trillion, almost equivalent to gross domestic production. About one quarter of this indebtedness, or $2.8 trillion, is held abroad, and China and Japan hold just under half of those assets (liabilities to Uncle Sam).

Elsewhere on the American balance sheet is another $11.4 trillion in household debt, an annual trade deficit of about $725 billion, and a federal budget deficit that is estimated in 2009 to be approaching $1.8 trillion. That’s if the economy grows at 3 percent.

Off-balance sheet risks, what accountants call contingent liabilities, include about $10 trillion in new bailout guarantees (Fannie Mae, Bear Stearns, Countrywide, and whatever the administration launches as its New Deal of the Day). None of the above includes the unfunded liabilities of Social Security ($41 trillion), which, by comparison, make the shares of Lehman Brothers and AIG look like Scottish bonds held for widows and orphans.

The geese laying the golden eggs of U.S. financial stability are the printing presses of the U.S. Treasury, and, for now, those collecting them in their Easter baskets include a number of countries and regions perhaps tiring of American arrogance, if not of the drop in the dollar’s value. Who would blame such popular targets of moral abuse as China, Russia, Switzerland, Arabia, or Latin America for dumping their dollar-denominated assets?

All that lies between the U.S. dollar and a financial Armageddon is the Faustian house of credit cards under which Asian economies invest their trade surpluses in U.S. Treasury instruments — to keep the dollar strong, their own currencies weak, and purchases brisk between the likes of Wal-Mart and the Asian Greater Co-Prosperity Sphere.

Sooner than we think, China and Japan, like all nervous creditors, may send the United States a letter, suggesting that, henceforward, if Washington needs to borrow money, the bonds be issued in renmimbi, yen, or a basket of Asian currencies (a Pacific Euro).

Wall Street bankers did the same to the farm interests in the late nineteenth century, when they insisted that debt be based on a gold standard, as opposed to “free silver.” President Obama may be as eloquent as William Jennings Bryan. But at that point he will need to use all his oratory for the business of selling junk bonds.

The Dollar: Running On Reserve – Matthew Stevenson, newgeography

The end of the recession will merely be the start of a long, painful journey, says Edmund Conway.

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Jul 092009

t’s a game of far more than two halves: more tactical than cricket, more stomach-churning than boxing and more complex than bridge. Throughout a magnificent summer of sport, one competition has lasted longer than any other, and generated the most heated debate. Its goal? To guess when the recession will end.

Every week, it seems, has brought new economic indicators, good or bad. Indeed, the whole thing has recently descended into farce: first, economists were tripping over themselves to declare that we were heading for a “V-shaped” recovery, in which we soared out of the downturn at speed. Then they realised that the economy had contracted in the first three months of the year at the fastest rate since, most probably, the 1930s (the quarterly figures don’t go back that far), and started talking about “double dips”.

When Recovery Comes, It Won’t Feel Like It – Ed Conway, Daily Telegraph

The Dollar’s New Best Friend

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Jun 262009

Last Tuesday, Brazil, Russia, India, and China–the so-called BRIC nations–met in Yekaterinburg, Russia, for what was supposed to be an anti-American gabfest. The main agenda item for the first formal meeting of the four largest developing economies was the future of the dollar. In recent months, Beijing and Moscow have led a global charge against the greenback, and Brasilia has been a willing co-conspirator in the effort. The BRIC post-summit communiqué referred to the world’s currency problems but, to the surprise of observers, did not attack the dollar head on.

What happened? Beijing, apparently, stopped the other nations cold. The Chinese called the tune at the Moscow meeting–their economy is almost as large as the other three combined–and so the surprisingly nonconfrontational tone of the BRIC official statement mirrored Beijing’s recent climbdown on the currency issue.

The Chinese government in the last few weeks seems to have radically changed its tune on this issue. In March, Zhou Xiaochuan, the head of China’s central bank, called for the replacement of the dollar as the world’s reserve currency in a widely reported text released to the public. In May, however, Beijing officials took a different tack, going out of their way to talk about the dollar’s unique status.

Beijing: The Dollar’s New Best Friend – Gordon Chang, Weekly Standard

UPDATE: 1:28 PM EDT

China Reiterates Call for New World Reserve Currency

FROM BLOOMBERG:

June 26 (Bloomberg) — China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent.

‘Unlikely’ Shift

“It’s extremely unlikely the dollar will be replaced as the reserve currency,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “A currency needs to be internationalized and that requires a fully convertible capital account, which China doesn’t have. The second is that it needs to be adopted.”

At the end of 2008 the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF in Washington.

On June 13, Russian Finance Minister Alexei Kudrin reassured investors of the country’s confidence in the greenback by saying it was “still early to speak of other reserve currencies.” Brazilian Finance Minister Guido Mantega said on June 10 the government’s decision to switch some reserves into IMF bonds wasn’t aimed at weakening the dollar.

Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show.

Diversifying Holdings

China has started to pare its holdings, trimming them by $4.4 billion to $763.5 billion in April, the first monthly reduction since February 2008, according to U.S. Treasury Department data. Figures for May have yet to be released.

“There may be signs here of tensions mounting between the PBOC’s economic concerns over China’s holdings of dollars and the Chinese government’s diplomatic reasons for doing so,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, wrote in an e-mail.

Russian President Dmitry Medvedev, Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva called for a “more diversified” monetary system to reduce dependency on the greenback at a June 16 meeting in the Russian city of Yekaterinburg. In May, China and Brazil began studying a proposal to move away from the dollar and use yuan and reais to settle trade instead.

Group of 20

Group of 20 leaders on April 2 gave approval for the IMF to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the agency uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest. This month, Russia and Brazil announced plans to buy $20 billion IMF bonds, while China said it is considering purchasing $50 billion.

“Special drawing rights of the IMF should be given full play, and the international body should manage part of its members’ reserves,” the central bank report said.

IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take the “revolutionary” step of making SDRs a reserve currency over time.

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

Widening the Basket

The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44 percent for the dollar, 34 percent for the euro and 11 percent each for the yen and the pound. It doesn’t include the yuan.

The dollar’s dominance of global finance buffeted developing nations last year. Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all but the safest, most easily traded assets, such as Treasuries and the dollar. A shortage of the U.S. currency forced central banks to pump reserves into their economies.

“The excessive reliance on the credit of several sovereign currencies have added to the extent of risks and crises,” the central bank report said. “A currency with stable value in the long term is required.”

Last Updated: June 26, 2009 08:35 EDT

Jobs: Even Less Is ‘Made in America’

A State of Distress, Our phony middle class, The Sorry State Of American Manufacturing No Responses »

Jun 092009

So while the stock market was buoyed by May’s less-than-expected overall job losses, many saw the report as grim. “The concern is that we’re replacing $25-an-hour jobs with $12-an-hour jobs,” says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland. Morici says this trend has been going on for decades in the U.S., but that “the recession is exacerbating this weakness in the economy.”

How Many Well-Paying Jobs Persist?

There are many reasons the U.S. manufacturing sector has been in decline. In GM’s case, the cuts reflect the long slide in the company’s sales and market share. Job automation and competition from countries with lower wage rates contribute to the general problem. And economists such as Morici also cite the low valuation of China’s currency, which makes it much cheaper to produce goods in China than in the U.S. “Manufacturing, including the auto sector, has been clobbered by China’s [monetary] policy,” says Morici, who is critical of President Barack Obama’s policy toward that country. “The U.S. is appeasing, not challenging China.”

Tig Gilliam, CEO of the North American group of temporary-help giant Adecco (ADEN.VX), disputes the notion that just because the service sector is doing better than manufacturing, growth will come only in low-wage jobs. “Some of the strongest industries for job growth are bookkeeping, finance, health care, and education,” he says. “They’re not all graduate-degree jobs, but they’re well-paying jobs.”

Jobs: Even Less Are ‘Made In America’ – Moira Herbst, Business Week

ILLITERACY IN HIGH PLACES

by Paul Craig Roberts

If a person lives long enough, he can watch everyone forget everything they learned.

Everyone includes Federal Reserve Chairmen, economists, Bank of America “strategists,” and even Bloomberg.com.

Federal Reserve Chairman Ben Bernanke thinks he can hold down US long-term interest rates by purchasing mortgage bonds and US Treasuries. Sixty years ago the Federal Reserve understood that this was an impossible feat. After an acrimonious public dispute with the US Treasury, in 1951 the Federal Reserve forced an “Accord” on the government that eliminated the Fed’s obligation to monetize Treasury debt in order to hold down long term interest rates.

President Truman and Treasury Secretary John Snyder wanted to protect World War II bond purchasers by preventing any rise in interest rates, which would mean a decline in the price of the bonds.

The Fed understood that monetizing the debt to hold down interest rates meant loss of control over the money supply. The policy of suppressing interest rates could only work until the financial markets anticipated rising inflation and bid down the bond prices. If the Fed responded by buying more Treasuries, the money supply and inflation would rise faster.

Since Fed Chairman Bernanke announced his plan to purchase $1 trillion in mortgage and Treasury bonds in order to help the housing market with low interest rates, interest rates have risen. When will the Fed remember that printing money does not lower long-term interest rates?

According to Bloomberg (June 3), Bank of America strategists are recommending that investors buy Fannie Mae bonds because the rise in interest rates means the Fed will ramp up its purchases in order to prevent rising interest rates from adversely impacting the struggling housing market. When will financial gurus remember that printing money does not lower interest rates?

Treasury Secretary Geithner is another economic incompetent. He told China that he stood for a “strong dollar,” but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar. He simultaneously told China that their investments in US Treasury bonds were safe.

His Chinese university audience, being economically literate, laughed at Geithner. It apparently did not dawn on the US Treasury Secretary that if Chinese money is rising in value relative to the US dollar, the value of Chinese investments in dollar-denominated US Treasury bonds is falling.

Congressional Democrats are proving themselves to be as stupid as the Republicans. According to the Associated Press, the Democrats have reached agreement to appropriate another $100 billion to continue the wars in Iraq and Afghanistan through the end of the year. What are the Democrats thinking? The federal budget for this year is already 50% in the red. Why add another $100 billion to the red ink, which has to be monetized, thus causing inflation, higher interest rates, and a weaker dollar.

The red ink that Washington is generating is a far greater threat to Americans than any foreign “enemies.”

The hubris is extraordinary. A bankrupt government that has to send its Treasury Secretary begging to China thinks it can spend limitless amounts in a futile effort to control the culture, mores, and political system of distant Afghanistan.

Jobs: Even Less Is ‘Made in America’

Our phony middle class, The Sorry State Of American Manufacturing No Responses »

Jun 062009

Jobs: Even Less Are ‘Made In America’ – Moira Herbst, Business Week

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