The Agonist - Economics: USA

Treasury Yield Plunge Sends Warning

Sat, 21 Nov 2009 09:39:05 -0800

By RANDALL W. FORSYTH | MORE ARTICLES BY AUTHOR
Collapse in note yields suggests economic distress will keep Fed on hold well into 2010 or beyond.

IT'S THE CRASH YOU DIDN'T HEAR. Not in the price of any security market, but in short-term U.S. Treasury yields.

Treasury bills once again were trading at negative interest rates Thursday, a mind-boggling state of affairs that hasn't existed since the panic late last year. That followed the collapse of Lehman Brothers and the assorted knock-on effects, notably the run on money-market funds after the Reserve Fund "broke the buck."

More significantly, the yield on the two-year Treasury note -- the most actively traded security on the planet -- fell to 0.669% Thursday, within a hair of the low of 0.657% set in the dark days of last December, according to data on Barrons.com's Market Data Center.

But now, the economy is supposed to be well on the way to recovery, in contrast to late last year when it seemed we stood on the precipice of a second Great Depression. The Dow is back above 10,000 and bulls claim all's right with the world. Why, then, would any rational investor be willing to lock up money for two years for the paltry return of less than two-thirds of 1%?
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Wacky things have happened before in the T-Bill market. Over the turn of the year from 2008 to 2009, investors were so skittish about where they stashed their cash that they effectively paid Uncle Sam to hold it, resulting in negative yields on T-bills. Other times have seen odd happenings in the T-bill market, usually during times of stress when investors wanted only the safest assets.

Unlike T-bills, which have only weeks to run until maturity, the two-year note embodies market expectations for interest rates. Longer-term yields are simply the sum of successive short-terms; all else being equal, you should earn the same from two consecutive one-year notes as a two-year note. Nobody knows what the future holds, of course, so what the second year will yield is just a guess.

Five cities that will rise in the New Economy

Sat, 21 Nov 2009 00:08:52 -0800

Ron Scherer | Fort Collins, CO | Nov 20

CSM - From Seattle to Huntsville, Ala., five cities are poised to prosper in the New Economy because of exports, innovation, clean technology, and healthcare.

In Houston, the Texas Medical Center is expanding so quickly that it will soon become the seventh largest downtown in the US. By itself. The hospital complex brims with restaurants, shops, and hotels, and employs 100,000 people – the population of Billings, Mont.

In Seattle, the erector-set cranes along the waterfront and big forklifts at the airport are loading exports into containers with the constancy of a piston: plywood to Beijing, halibut and crab to Tokyo, Granny Smith apples to Moscow. Last year, Washington was the only state to ship more goods to China than it receives.

In Fort Collins, Colo., town fathers are aggressively transforming the heart of the city into a zone that generates as much electricity as it consumes – making it a showcase for the city’s quest to become the Silicon Valley of clean energy.

As the United States emerges from the worst recession in 80 years, a new economy is taking root that will help create the next tier of powerhouse cities in America. Just as the Industrial Revolution of the late 1800s and the Information Age of the past 40 years helped shift the urban and regional balance of power in the US, forces are now at work that will shape who prospers in the economy of tomorrow.

No one yet knows the exact contours of the New Economy. It is more Monet than Rembrandt. But experts say that certain characteristics are already visible on the canvas that will give cities advantages in attracting new jobs and industries.

UC Berkeley protest ends with 41 arrests

Fri, 20 Nov 2009 20:22:12 -0800

Sandra Gonzales | Berkeley, CA | November 20

San Jose Mercury News - In a striking scene of civil disobedience, dozens of students barricaded themselves inside a UC Berkeley building for more than 11 hours Friday to protest a 32 percent increase in student fees.

The dramatic display ended Friday evening with dozens of arrests, climaxing a week of civil unrest mirrored at other campuses around the state, including Davis and Santa Cruz, where hundreds marched for the third day Friday to decry one of the biggest fee hikes in UC history.

But it seemed unlikely that the protests are having any impact. Repeated budget cuts to the 10-campus system forced UC regents this week to raise the cost of an undergraduate education above $10,000 a year by next fall, triple the cost of a decade ago. The move followed a 10 percent hike earlier this year, employee furloughs and other cuts that UC leaders say are necessary because of a 20 percent drop in state funding.

Still, students continued to try to make their voices heard.

"We have tried going to Sacramento, we've tried less direct and less confrontational ways of getting our voices heard," said UC Davis student Laura Mitchell of Palo Alto, who on Thursday joined a march of hundreds of students to the campus administration building, Mrak Hall. On Wednesday, police arrested 51 protesters there.

Taking back our money

Fri, 20 Nov 2009 13:10:46 -0800

I was trying to think of ways that we could possibly take down as many financial problems as we can while simultaneously bringing the power back to the people. That is, going through our own channels rather than the official process that has proven itself to be ineffective.
I was mulling bank bailouts, "too big to fail" and the notion of money as power when it hit me. What if we just took all of our money out of big banks and put it into local community banks and credit unions? This would greatly strengthen the community, rewarding banks that actually stick to banking, keep money local and even help bolster small business loans, while forcing the large banks to break down. Sure, things would be hairy at first and it wouldn't be pretty, but wouldn't it be a better situation in the long run?
If we could actually organize ourselves to do such a thing, it would be an impressive display of our power to those who sit in their towers. We are the ones who decide who gets our money.
Yes, I know that this also happened in 1929, but if it were a more organized process this time around, there might be a way to make this work in our favor. Anyway, I just wanted to bring the idea up, see what all of you had to say about it, pros? cons? Is it possible to make it work, or would it just ruin everyone simultaneously? All I know is that we have to do something, taking back our control this way might actually be palatable to a great many people.

House Financial Services Committee Passes Paul-Grayson Amendment to Audit the Fed

Fri, 20 Nov 2009 09:33:48 -0800

Michael Smallberg | Nov 20

POGO - The House Financial Services Committee voted 43-26 yesterday afternoon in favor of an amendment introduced by Reps. Ron Paul (R-TX) and Alan Grayson (D-FL) that would remove restrictions preventing the GAO from auditing the Federal Reserve. The amendment was modeled after Rep. Paul’s long-standing bill to audit the Fed, which was co-sponsored by over 300 Members in the House and supported by POGO and many other groups.

The vote on the final passage of the financial regulatory package to which the Paul-Grayson amendment is attached has been delayed until after Thanksgiving. Nonetheless, yesterday’s vote signals a defeat for Rep. Mel Watt (D-NC), who had introduced an alternative amendment that would have limited the scope of the GAO’s audits.

Kudos to FDL: FDL Statement on the Committee Passage of H.R. 1207, the Paul-Grayson Bill to Audit the Fed

Recession shows shortcomings in U.S. economic data

Fri, 20 Nov 2009 08:49:27 -0800

By Emily Kaiser and Nancy Waitz - Analysis

WASHINGTON (Reuters) - The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.

The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.

The most likely culprit is the so-called "birth-death" model, which the Labor Department uses to estimate how many companies were created or destroyed.

That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain.

One characteristic of this recession is that it has hit small businesses especially hard, driving down demand and choking off vital sources of credit at the same time.

Obama's administration is scrambling to try to prop up small business -- it hosted a summit on that topic on Wednesday -- because those companies are essential to bringing the jobless rate down from its current 10.2 percent, having accounted for the lion's share of new job growth in recent years.

Government data has difficulty gauging the health of smaller firms because there are simply too many of them, leaving officials to rely on surveys and models that are hit and miss.

Jan Hatzius, an economist at Goldman Sachs in New York, thinks that is distorting not only the employment data, but also figures for retail sales, durable goods and even the biggest economic indicator of all -- gross domestic product.

House Panel Votes to Advance Paul Plan on Fed Audits

Thu, 19 Nov 2009 19:12:10 -0800

Scott Lanman | Washington | November 19

Bloomberg - A U.S. House committee advanced a proposal to remove a three-decade ban on congressional audits of Federal Reserve interest-rate decisions, a measure backed by a lawmaker who has called for the abolition of the central bank.

The House Financial Services Committee today, in a 43-26 vote and a second voice vote, attached the amendment for a broad audit of the Fed to legislation creating a council of regulators to monitor systemic risk. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.

Fed Chairman Ben S. Bernanke has opposed the Paul legislation, saying it may result in interference with monetary policy. The panel’s vote increases the possibility that Congress will reverse the ban on audits of interest-rate decisions. The broader bill on financial regulation is subject to a vote by the committee, then must be approved by the House and Senate and signed into law by President Barack Obama.

“It’s going to be seen as weakening the independence of monetary policy with consequent negative implications,” Barney Frank, the Massachusetts Democrat who chairs the committee, told reporters after the vote. “People are going to be worried about the impact on the dollar, on the interest rate.”

Frank, who opposed the Paul measure, said the issue “may be revisited” when the legislation reaches the House floor.

h/t Zero Hedge: Paul-Grayson Amendment To Audit The Fed Passes Overwhelmingly By 43-26
Grayson Remarks On The Passing Of The Paul-Grayson Amendment As Well As A Full List Of Voters

The books cashing in on the crash

Thu, 19 Nov 2009 18:51:10 -0800

Sean O'Grady | Nov 20

The Independent - When the masters of the universe came crashing down to earth last year, the reverberations were felt far beyond Wall Street and the City. Sean O'Grady surveys the best of the books that explode the myth that greed is good

One of the few welcome consequences of the global recession has been a modest upsurge in economic literacy, or at least interest. That's not to be exaggerated; most people still don't know their asset-backed securities from the elbows, but at least we're making some attempt to redress that deficit of understanding.

No previous economic crisis has brought forth such a crop of words – over 3,000 new books, a few more reprints, trillions of column inches of newspaper, magazine and web pieces, official reports, not to mention a Facebook page devoted to "Recession Survivors" and those Twittering and blogging their way to an understanding of seismic changes. OK, it isn't much to throw into the balance when you have mass unemployment, the derangement of national finances and the destruction of the world's banking system on the other side, but at least we are creeping towards some acknowledgement of what went wrong, and why. That's something.

So, what to read? A bit like the bewildering complexity of "exotic derivatives" that helped to get us into this mess (and which the bankers themselves never understood), the choice seems endless. It really boils down to which of the three prevalent treatments of the crisis you prefer: the anecdotal, the analytical or the apoplectic.

The downside of a weak dollar

Thu, 19 Nov 2009 06:52:34 -0800

MarketWatch First Take

Nov. 13, 2009, 2:03 p.m. EST
The downside of a weak dollar
Commentary: Inadvertently driving a bigger trade defici

By MarketWatch

SAN FRANCISCO (MarketWatch) -- The latest international trade numbers border on blasphemy.

For the generations of college kids who learned the ABCs of global economics from Paul Samuelson, a weak dollar is supposed to tip the balance of trade in favor of the nation's exporters. So why is the trade deficit exploding?

The dollar has lost 16% of its value against six other major currencies since March. In one quarterly report after another, companies doing business abroad showed they padded their profits every time they converted sales in local currencies back into U.S. dollars -- effectively enjoying the equivalent of a price hike without actually hiking prices.

The weaker greenback also gives American companies a competitive edge over the foreign rivals when bidding on big projects.

So why in the world did the U.S. trade deficit widen in September? Not just a little, either.

The Commerce Department reported Friday the deficit surged 18% to $36.5 billion from $30.8 billion in August, its biggest one-month jump since 1999. Read about the September trade gap.

What gives?

The answer is pretty easy, really: Oil. Despite the nation's manic obsession with bank bailouts and unemployment, crude oil remains its Achilles heel.

Senate Democrats introduce $849 billion healthcare reform bill

Thu, 19 Nov 2009 06:11:56 -0800

Brad Knickerbocker | Washington | November 18

CSM - Though the congressional debate and legislative sausage-making are far from over, the Senate took a major step Wednesday in putting forth a $849 billion healthcare reform bill.

The bill, launched by Senate majority leader Harry Reid – and vigorously opposed by Republicans – aims to provide health insurance for 94 percent of all Americans, including 31 million people now uninsured.

The measure reportedly would require most Americans to carry health insurance, require large companies to provide coverage for their employees, and prohibit insurance companies from denying coverage because of preexisting medical conditions.

A senior Democratic leadership aide told the Associated Press that Congressional Budget Office analysis showed the bill would reduce federal deficits by a total of $127 billion over 10 years.

[...]

A key subject of debate – in addition to a public option and the impact on the federal deficit – is abortion. The House-passed bill includes the so-called “Stupak amendment” offered by Rep. Bart Stupak (D) of Michigan, which tightens current restrictions on the use of federal funds for abortion services.

Newsweek reports that abortion language in the Reid bill is less restrictive than Stupak. But it could well reappear as House-Senate negotiators try to work out their differences in conference committee.

[...]

Reuters reports that the debate is expected to begin on Nov. 30, after the Thanksgiving holiday next week, and last for at least three weeks.

Audit Faults New York Fed in A.I.G. Bailout

Tue, 17 Nov 2009 05:26:08 -0800

Mary Williams Walsh | Washington | November 16

NYT -
The Federal Reserve Bank of New York gave up much of its power in high-pressure negotiations with the American International Group’s trading partners last year, according to a government report made public on Monday.

Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.

UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.

But UBS’s good-faith gesture was quickly drowned out by Goldman Sachs and the top French bank regulator. They argued, with others, that it would be improper and perhaps even criminal to force A.I.G.’s trading partners to bear losses outside of bankruptcy court.

The banks and the regulator were confident that the New York Fed was not willing to push A.I.G. into bankruptcy, because earlier in the fall the New York Fed had stepped in with $85 billion to prop up the insurer.

The New York Fed, led then by Timothy F. Geithner, who is now the Treasury secretary, therefore had little leverage in the negotiations, according to a post-mortem of what has emerged as the most inflammatory episode in the rescue of A.I.G.

The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.

Recession causes more families to go without food

Tue, 17 Nov 2009 02:51:15 -0800

Tony Pugh | Washington | Nov 17

McClatchy - The number of U.S. households that are struggling to feed their members jumped by 4 million to 17 million last year, as recession-fueled job losses and increased poverty and unemployment fueled a surge in hunger, a government survey reported Monday.

These "food-insecure" households represent about 49 million people and make up 14.6 percent, or more than one in seven, of all U.S. households. That's the highest rate since the U.S. Department of Agriculture began monitoring the issue in 1995.

Additionally, more than one-third of these struggling families — some 6.7 million households, or 17.2 million people last year — had "very low food security," in which food intake was reduced and eating patterns were disrupted for some family members because of a lack of food.

In phone interviews, more than two-thirds of people with very low food security said they went hungry from time to time, and 27 percent of these adults said they didn't eat at all some days.

These families make up 5.7 percent of U.S. households, again the highest rate since 1995, up from 4.1 percent and 4.7 million households in 2007.

Politicians Have Filled the Pipeline with Pain for Middle America

Sun, 15 Nov 2009 20:59:44 -0800

The announcement of financial overhaul legislation in the U.S. Senate this week smacked of irony as its author, Senator Chris Dodd—the recipient of a sweetheart rate on his own home mortgage—announced a sweeping 1,136 page piece of legislation to “protect consumers.” It appears at this point that the protection consumers and Middle America really need is from this nation’s politicians, who have too long lined their pockets with campaign contributions from big business and who have allowed financial institutions to fleece Middle America.

It wasn’t but a couple of years ago that big business and congress all but eliminated the ability of consumers to effectively discharge their debts in bankruptcy proceedings. At the same time, banks and financial institutions were making loans to borrowers who clearly could not qualify. Banks, financial institutions and credit card companies continued extending generous limits on credit cards and lines of credit to consumers. Now be fair, much of the mortgage activity came from Democrats in congress who believed that everyone had an inalienable right to own a home, evidently whether they could afford it or not. And naturally, Republicans, who long ago sold their soul to big business, positioned their bank and financial institution contributors for all of the mortgage business.

Middle America knew and assumed the risk that what goes up would someday come down, perhaps crashing down, which it did. But when it did and as many Americans lost and continue today to lose their jobs, bankruptcy was and is simply not an available option. Our politicians and big business have virtually eliminated it as an effective option for many consumers.

Now, consumers that are interested in honestly reworking their mortgages cannot even get a return phone call from their lender, and if they do they are told they do not qualify for any sort of loan modification.

So here we are—after encumbering themselves with mortgages they cannot afford, credit cards and credit lines they cannot pay down, financial institutions have the shameless and arrogant audacity to raise consumers’ credit card interest rates to 30%. Clearly, consumers have to take a certain degree of responsibility for their own condition, but how did our elected members of congress and the senate allow big business to systematically repeal consumer protections at virtually every turn?

Middle America really needs to understand how and why our politicians have allowed financial institutions to raise credit card interest rates to a level that is clearly usury. No consumer knowingly consents to a 30% interest rate, regardless of whether there’s a meaningless disclosure on the back of his or her monthly credit card statement on page 3 in tiny type font. Nor do consumers knowingly consent to what has become an ordinary practice by banks and financial institutions of charging consumers $35 for overdraft protection or checks returned due to insufficient funds. Sure, consumers can choose to bank elsewhere, but the practice of fleecing consumers with fees has become so universal by financial institutions that consumers really have no choice.

Without bankruptcy as a viable option for many in Middle America, there is plenty of pain left in the pipeline for years to come as consumers will remain enslaved with unmanageable consumer debt. With no end in sight, consumers will continue to labor under the heavy load of mortgages on devalued homes they cannot afford, credit card bills they cannot pay, and no available remedy in a bankruptcy court that can set them free to start over. It appears that consumer protection is dead and caveat emptor is alive and well.

A. Muser
http://americanmuser.wordpress.com/

Modern-day cattle rustling reaches record levels

Sun, 15 Nov 2009 03:05:30 -0800

Lita Beck | Nov 15

Raw Story - A crime as old as the West is taking off again like a stampede as cattle rustlers armed with wire cutters and cattle trailers crisscross country roads.

"We've got some awful good cowboys, you know," said Marvin Willis, Texas Special Ranger. "They can load the cattle in a hurry."

For the second year in a row, cattle rustling may reach record levels. There were 6,404 cattle thefts in Texas in 2008 and only 2,400 thefts in 2007, according to the Texas & Southwestern Cattle Raisers Association.

A modern-day posse of more than two dozen Texas Rangers -- including Willis -- is charged with tracking down cattle thieves.

But it's nothing like the old Westerns, Willis said. Willis called the modern-day outlaws "common thugs."

"If it wasn't cattle, it would be something else they'd be stealing," he said.

Ranchers such as Sammy Ward said they fear the increase in cattle thefts is tied to the economic recession.

"But I think the worse the economy gets, you're going to see more," he said.

The victims are often small ranchers, and the loss cuts deep.

UN investigator accuses US of shameful neglect of homeless

Fri, 13 Nov 2009 02:55:59 -0800

Chris McGreal | Los Angeles | Nov 13

The Guardian - UN special rapporteur says wealthy US ignoring deepening homeless crisis while pumping billions into bank rescues

• Investigator meets homeless victims of American dream

UN special rapporteur Raquel Rolnik says the burden falls most heavily on the very poor, leaving the extent of the housing crisis invisible to many in the US. Photograph: Mario Tama/Getty Images A United Nations special investigator who was blocked from visiting the US by the Bush administration has accused the American government of pouring billions of dollars into rescuing banks and big business while treating as "invisible" a deepening homeless crisis.

Raquel Rolnik, the UN special rapporteur for the right to adequate housing, who has just completed a seven-city tour of America, said it was shameful that a country as wealthy as the US was not spending more money on lifting its citizens out of homelessness and substandard, overcrowded housing.

"The housing crisis is invisible for many in the US," she said. "I learned through this visit that real affordable housing and poverty is something that hasn't been dealt with as an issue. Even if we talk about the financial crisis and government stepping in in order to promote economic recovery, there is no such help for the homeless."

She added: "I think those who are suffering the most in this whole situation are the very poor, the low-income population. The burden is disproportionately on them and it's of course disproportionately on African-Americans