Sunday, April 3, 2011

notes on the week ended april 2nd

another week, another handful of threats to shutdown the government...first, the 6th continuing resolution of this fiscal year, the one that was passed march 18th to fund govt operations for 3 weeks, expires on the 8th of april; also, the treasury expects the debt ceiling to be hit sometime after the 15th of this month with no legislative increase in sight...on the budget for the remainder of this year, the majority of the congresscritters are still holding out for deeper cuts in the social safety net and other programs they have decided are ideologically repulsive, such as the IRS and the weather bureau, and their position has become even more intractable, with house majority leader cantor insisting on no more continuing resolutions till they get their way...and a coalition of senate freshmen, who couldnt even spell budget before november, are now threatening to filibuster any attempt to raise the debt ceiling...but to stop borrowing now, during a recession, is practically impossible: most of the budget is non-discretionary (entitlements, interest) and defense, all the other discretionary programs could be cut and we'd still need $700 billion more to get through this year... apparently, someone finally clued them in as to the arithmetic, so late this past week all 47 republican senators signed on to a constitutional amendment to balance the budget, which among other things would cap government spending at a 1966 pre-medicare level of 18% of GDP, and require a 2/3s majority of both houses to pass any tax increase...and unless they get that, they wont budge on the debt ceiling...so if you've ever questioned as to whether there has ever been a more dysfunctional form of government than ours in the history of the planet, it looks like you got your answer this week...

last week we thought the bank-centric foreclosure fraud settlement might be unraveling; this week it looks to be unraveling in the wrong direction...some of the 50 state attorney generals opined that writing down underwater mortgages and lowering payments might create adverse incentives for borrowers, and banksters, including jamie dimon, immediately agreed...the banks have submitted a counter proposal which cuts their losses even further...and the FDIC plan to force issuers of securitized mortgage bundles to keep 5% for themselves (the so called "skin in the game" proposal) will exempt banks if they sell the loans to Fannie or Freddie...

the case-shiller home price index for the 3 months ending january was released this week, and average prices for the 20 cities were down again, .2% from last month's report, and 3.1% lower than a year ago...cumulatively, prices are now 31.4% below their peak...and there was another report from LPS (Lender Processing Services) showing that 8.8% of mortgages were delinquent, and another 4.2% were in foreclosure...of those in foreclosure, 30% had not made a payment in 2 years, and 49% had not paid on their mortgage for 18 months...foreclosure inventories are 7.8 times historical “norms”... if you're a chart junkie, their pdf report has 42 pages of charts & tables on every aspect of the home mortgage situation, 2 of which are included here (click charts)...there was also a report out from the census bureau, indicating that 13% of the homes in this country are vacant, with maine & vermont showing the most empty houses, which some attributed to the number of vacation homes in those states 

the first friday in the month also brings us the official unemployment report from the BLS, and for the second month in a row more than enough jobs were added by the private sector to accommodate the normal additions to the labor force...nonfarm payrolls increased by 216,000, which still doesnt come close to the rate we'd need to get out the hole anytime soon... to put that number in perspective, during the clinton years, even when there was already "full employment", the economy continued to create an average of 250,000 jobs a month...the headline number of 8.8% unemployed is only lower because less people are counted as being in the labor force... if people give up looking for work, that official unemployment rate will drop...the percentage of working age individuals who actually have jobs is still stuck at 58.4%, and that has barely budged over the course of the last 18 months...dean baker produced an interesting chart of what job creation in a normal recovery looks like...going back to 74-75, it seems that about 500,000 jobs per month are normally created coming out of a trough, and there's even one unexplained outlier month where a million & half jobs were created...

    among those who are unemployed, the average length of time out of work has risen to a new record again this month, at 39 weeks...the average wage across the economy remained the same as last month at $22.87, and up only a penny from january...since wages are actually down when adjusted by the BLS inflation measure, economists are siting this as proof that inflation cant possibly exist...the government estimates there are 1.4 million "99ers", who have run out of rations and who dont count; the National Employment Law Project puts this number at 3.9 million...a separate report from the census bureau gave the percentage of families afflicted by unemployment at 12.4%...a new plan to create jobs by two harvard economists was advanced by house speaker boehner this week; the plan is to layoff a large number of public sector workers and cut salaries of the rest; then reduce benefits for those out of work, ultimately forcing the unemployed to work for lower pay...with wages thus reduced, companies will then be able to hire more people and bring the employment rate back up...you may think that sounds crazy, but i wouldnt dismiss it out of hand; a similar crazy idea by an economist named laffer that lowering taxes would increase revenues was the beginning of the policies that dug the debt hole we now find ourselves in...

you may have heard that the president gave a speech on energy policy this week, in conjunction with the release of a white house "blueprint for our energy future"; there wasnt really anything new in it; it was "all of the above" and more, including nuclear & more domestic drilling, to "cut our dependence on foreign oil", the same thing every president since nixon has promised...in the two days after the speech, nymex oil rose to a 30 month high at 108.31, and the price of brent, which is the price most US refineries are paying, topped $118...rising fuel and food prices was one reason given for the 10 point decline in consumer confidence – the tenth largest drop on record for the reuters UofM survey (you may recall i mentioned that the conference board changed it's methodology to give higher reading; even so, its also at a 5 month low)...the Saudis now report that because of all the largess they spread throughout their country to head off dissent, their break-even price for oil is now $20 higher, so i wouldnt expect them to be supportive of any call for cheaper oil supplies...they've also announced a $100 billion investment in solar energy...

in japan, it appears that attempts to salvage the nuclear reactors at fukushima have failed, and now they are suggesting it could take years before the situation is stabilized...3 isotopes of plutonium have been found in the soil around the facility, and levels of radioactive iodine in the groundwater have been confirmed at 10,000 times the legal limit...highly radioactive water has also been leaking directly into the ocean through what is described as an 8 inch crack in one of the storage pits, and they are now starting to talk of entombing the entire site in concrete, such as was done with chernobyl; ive seen two reports that equipment was being assembled for that purpose...

    in the affected areas around the plants, throughout northeast japan, widespread fuel & power shortages plague what was once one of the most civilized countries on the planet; all commercial lighting is off, public buildings are unheated, & trash is piling up because the trucks lack fuel; similarly, some companies cannot get back to work because their employees cant get gas...in addition to fukushima, 3 other nuclear plants, 6 coal generators and 11 oil-fired power plants were initially shut down, and power is only gradually being restored...a 4th japanese refinery was brought back into operation this week, leaving 2 still shut down...

    some of you have already received various reports of radioactive iodine-131 being measured in rainfall, and as of now ive seen such for florida, the carolinas, PA, massachusetts, WA & california, so it would seem that the fallout from fukushima pretty much covers the country; in addition, I-131 has been found in milk in the spokane, WA area...my thought is that my generation likely received much higher doses due to the widespread atmospheric testing when we we kids, and anecdotally knowing of a number of thyroid maladies among my contacts, i did a quick search for an epidemiological study and sure enough, found one referring to thyroid disease in the US as an epidemic, with a 42% increase in incidence between 1975 & 1996, which was expected to increase as the population ages...not that it's any reassurance, but i cant believe that fallout from japan could be any worse that what we dusted on ourselves in the 50s...

a few quick notes on europe: a half million brits demonstrated in London against the government's spending cuts, bring the city to a standstill...the german green party won important provincial elections which threaten merkel's govt and co-operation in the euro-bailout...the three little PIGs all had their credit ratings downgraded this week, so the borrowing costs for all hit new records, although spanish & italian spreads improved.. ireland completed the stress tests on their banks, and four banks will need to raise 24 billion euros, so likely they'll be nationalized, bringing the total cost of their bank bailout to $100 billion, which, on a per capita basis, is about ten times what our bank bailout was; also, portugal revised its reported deficit upwards "due to accounting errors"...on friday, internal disagreements within the ECB held up the medium-term funding facility which was to be announced....

as you can gather, the past week has been exceptionally busy in almost all the areas i normally cover, with the housing & the unemployment reports coming in the same week, crosscurrents of budget debates & proposed compromises, as well as continued deterioration in japan....there is no way i can do justice to any one topic, so if there's gonna be a week you should go to my blog for the whole story on any of it, this is probably it...

a part of my mailing from last week, along with a slightly expanded commentary, was assembled into a guest post for Angry Bear last sunday, and posted there by rebecca wilder as Guest Post: "RJS Analysis - Japanese Disaster Impact"...yesterday, a collection of esoteric links from GGO was similarly posted on angry bear as Government deficits and MMT; for the most part, it’s responses from a number of Modern Monetary Theorists to a couple of recent krugman posts critical of MMT…

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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