Sunday, September 25, 2011

notes on the week ended Sept 24th

if you thought the resolution of the debt ceiling impasse put threats to shut down the government behind us, you're out of luck...it kinda snuck up on me, too, because i forgot the fiscal year ends on sept 30th, and a new budget for the new fiscal year has yet to be considered...so in much the same pattern as they budgeted half of last year, when the government was funded in 7 separate fits & starts, they planned to pass another continuing resolution to fund the government under the same budget as last years until Nov 18th, when the fiscal merry-go-round would take another spin...but the trouble facing congress with a straight up continuing resolution now is that FEMA, the disaster relief agency, has run out of money; the agency has already held up thousands of longer-term rebuilding projects — ie, repairs to sewer systems, roads and bridges in spring flood & tornado ravaged areas — to provide immediate relief to those flooded out by hurricane Irene & tropical storm Lee, and they'll be totally out of money next week...normally, disaster relief funding is added to the budget automatically as needed; however, this time the tea party contingent demanded offsetting spending cuts, which they want to take out of a loan program to help car companies build fuel-efficient vehicles & other energy funding, in order to approve adding an estimated $3.65 billion (less than the $6.9B requested) of needed funds to the disaster relief agency...a package was put together by boehner & cantor in the house, & on the first go round 48 republicans joined  the democrats in defeating it (some because they wanted more disaster aid for their districts, some cause they wanted larger cuts)...a second try with deeper cuts finally passed the House on friday, but its been called "dead on arrival" in the democratically controlled senate...oh, did i mention that congress is planning on going on recess this coming week to celebrate the jewish new year?

as promised, obama revealed his "Plan for Economic Growth and Deficit Reduction" on monday; also titled "Living Within our Means and Investing in our Future" (80pp PDF), there seemed to be some confusion as to what it actually was, as it was variously reported as a $4 trillion debt reduction plan, a debt reduction plan with $3 trillion in savings, and $1.5 trillion of new taxes...with different figures quoted in the press release & by the president in his speech, the confusion is understandable, as depending on what budget baseline is used, the bottom line results can be different; for instance, this white house plan claims a trillion of savings over 10 years from the winding down of the wars in the middle east, and claims a deficit reduction for the tax that would be imposed on those making over $250,000 when that part of the bush/obama tax cuts expire; most budget wonks would consider current law, & the expiration of the bush/obama cuts, to be included in the baseline, so to extend the tax cuts for those earning less than $250K would be scored as increasing the deficit...the plan did leave out the previously floated increase in the Medicare eligibility age, & although it claims it can cut $320B in "waste, fraud & abuse" from medicare & medicaid, it doesnt mention social security...the centerpiece of the plan, and the only thing that's really new, goes by the name of the "Buffett Rule" which will limit tax deductions to 28% and raise rates on capital gains for millionaires so that they pay taxes at the same rate as the rest of us; the conservative tax foundation ran four sample tax returns with adjusted gross incomes from $240K to $10 million as they would change under the rule, so in looking at those, you can get an idea how much the limit on deductions raise taxes of those in the high income brackets...what you have to understand, though, is that this is not really a budget proposal that will pass congress, its a campaign document; obama is taking a populist "tax the rich" stand, which he'll likely be using in speeches from now till next november as he tries to paint the republicans as defending lower taxes for the wealthy...so with the silly season upon us, it's hard to imagine any that any fiscal policy will be forthcoming that could make a serious dent in unemployment or the deteriorating condition of the social safety net in the foreseeable future...

so we're left with hoping something beneficial will come from monetary policy, and it was the Fed's decision during their two day FOMC meeting to swap $400 billion of short term treasury notes for longer term bonds, dubbed "operation twist" that was the major economic news of the week...this wont be an expansion of the Fed's holdings, or another round of "quantitative easing" as some who believe in the effectiveness of monetary policy were hoping for, rather, the intention is that by buying Treasuries with maturities of 6 to 30 years they will lower interest rates for all those long durations, and especially for mortgages; indeed, it was likely anticipation of this well-telegraphed action that was the likely cause of the record low mortgage rates we've seen over the past few weeks... actually, it was what preceded & followed the meeting that was more newsworthy; first, there was an attempt by the republican leadership to dissuade the Fed from taking any action, as just before the meeting was to get under way a letter was sent to bernanke by mcconnell, boehner, kyl & cantor which basically stated that the Fed should take no further action to lower long-term interest rates or otherwise stimulate the economy; this was widely panned as an attempt to politicize the Fed & interpreted on the left as a ploy to keep the economy lousy through the election...then, one word in the Fed's press release following the FOMC meeting was widely interpreted as the cause for the 600 point selloff in the stock market; significant, as in "there are significant downside risks to the economic outlook"; now far be it from me to guess why the market moves one way or the other, but if investors had been seeing the economic outlook through rose colored glasses until the Fed threw cold water on them, we're in a world of hurt...

there are some possible downsides to the Fed's "operation twist"; the most obvious is that retirees and pension funds will be stuck with low returns on fixed-income investments for the foreseeable future; there's already been talk of many older workers forced to work past normal retirement age because expected returns on their savings hasnt materialized, and ive seen estimates that pension funds, most of which at still operating with funding assuming a 7% or 8% annual return, are underfunded by over a trillion to as much as 3 trillion dollars...retail banking with also take a hit with a flat yield curve, as the differential between what banks charge for loans and their cost of borrowing will shrink (not missed by the market, as banks stocks were hit worse than other sectors); some more subtle contrary suggestions are that negative real interest rates may actually reduce consumption as people save more to achieve their personal goals, and the possibility that companies will borrow defensively & sit on more cash due to the low negative carry of doing so with a flat yield curve...

there werent many economic reports this week that i normally follow, but to quickly mention the few that were announced; existing home sales were up 7.7% in august from july on a seasonably adjusted basis, which was better than expected; new home starts were down 5% in august for july on that same basis, and first time claims for unemployment at 423,000 were down from last week's revised upward number, leaving the 4 week average virtually flat at 421,000...the IMF was out with its latest edition of its "World Economic Outlook" and US growth was forecast to be below 2% through 2012, and the growth forecast for the rest of the world was slashed as well...the links on my GGO blog should cover the other news pretty well, with environmental, energy & european news links following those to what ive introduced here & other domestic economic stories...

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


Monday, September 19, 2011

notes on the week ended Sept 17

i'm slowly becoming aware that we may have been duped by the "American Jobs Act" that was hustled on us last week...recall that i noted that obama had intended to propose a means of "paying" for it this week, and that plan was revealed this week to include around $400 tax hikes on the wealthy and cuts to tax deductions for those making over $250,000, along with closing of some cherished loopholes for oil & gas companies & corporate jet owners - just about all of which the republicans have sworn on a stack of their bibles to oppose...so obama is, in effect, tying his "jobs plan" to tax increases that he knows cant pass the house...why would he do that?  my thinking is that the entire package may be a political charade; let walk through it: obama proposes a "jobs bill" of which half is tax cuts for everyone paying into social security, and the rest is programs which would on their face gain popular support; he ties it to the tax increases which he knows will be defeated by the house republicans, & then he can campaign against their obstructionism...and rumors are that he will also propose $2 to $3 trillion in additional deficit reductions over the next ten yearsincluding changes to medicare & medicaid, as if he's trying to outflank them at that as well....maybe im becoming too cynical, but i've been reading enough from those with white house connections to know that obama's political advisors have always trumped the advocacies of those cabinet members with alternate agendas, such as the EPA...the fact that most of the ideas in the "jobs act" were rehashed & repackaged from the first stimulus should have been a clue; obama doesnt even have any senior cabinet level economic advisors on board any more; alan krueger, who has been characterized as less than dynamic, has been nominated to chair the council of economic advisors but is not confirmed, while peter orszag left for citigroup, economists christy romer, larry summers, & austan goolsbee returned to teaching, & jared bernstein turned to blogging, all which should tell you something about the degree of influence they were able to wield when they were on the inside...

at any rate, i suspect at least the payroll tax cut that is currently in place will be salvaged from this "jobs" proposal, and it may even be expanded, because the last thing the republicans in congress want to face is an accusation from their right that they hiked taxes (as it will be characterized even though it would just be allowing last december's tax cut to expire) and end up with a primary challenge from the tea party contingent..

Deep Poverty Rate Highest on Record

there was a major report released by the census bureau on tuesday "Income, Poverty, and Health Insurance Coverage in the United States: 2010" (PDF) which was received significant coverage by the MSM & in the blogosphere, with most of the focus on the headline poverty records that were set last year: 46.2 million of us -- 15.1% or nearly 1 in 6 Americans - fell below the gross income level that the government defines as the poverty level: $22,314 a year for a family of four (as i understand it, that figure is arrived at by a simplistic Johnson era computation whereby a family was considered below the poverty threshold if they spent more than a third of their income on basics such as food, and the census is working on a new metric developed by the Natl Academy of Science which is expected to show a higher rate)...the number of families in poverty is now the highest since the census bureau started keeping track of the number in 1959, and the poverty rate of 15.1%, a full percent higher than 2009, is a rate not seen since 1993...moreover, 6.7% of us lived in a household wherein the income was less than half the poverty line, a serious number that received little coverage, & which was the highest severe poverty rate on record…Unemployment Insurance Has Been a Critical Anti-Poverty Program in This Downturnthe poverty numbers would have also been much worse had not unemployment insurance kept over 3 million out of poverty, but for many, those rations have been running out…recall the unemployment allowance was extended to cover those unemployed for 99 weeks instead of the standard 26 with the first stimulus package in 2009, and extended again at the end of 2010 to cover this year, expiring Dec 31…but since many of the unemployed first lost their job during the mass job cuts during 2009, they’ve been running out this year, and hence weren’t captured in this 2010 report, so it’s clear that its already in the cards for these poverty rates to set new records in next years report…as the government keeps no records of them, Mish estimated the number of unemployed who’ve exhausted their rations to be over 3 million, which is consistent with other estimates i've seen...

this census report also covered household income, and those numbers show what we already suspected; real median household income is declining; in 2010 it was $49,445, a 2.3 percent decline from the 2009 median, and down 6.4% from the prerecession level; but it's actually been declining for the entire decade, as last years median income was 7.1% lower than the high set in 1999; for working age households, it was the lowest since 1994...most of the media reported these household income figures from the main report, but they dont tell the whole story; the census also published a number of supplements, including a slide deck with graphs (pdf) and one for individual income, which showed the median income per worker was $26,197, meaning half of the population made less than that…of course, the average income was higher at $38,337, because the higher income workers pulled up the average...men fared worse; adjusted for inflation, the median male now makes less than he did 43 years ago, in 1968....in addition, a census blog post indicated 69.3 million, or about 30% of households were "doubled up"; meaning more than one generation of adults were living under one roof...while many were elderly and some were unrelated, a significant number were young workers & unemployed of ages 25 to 34 still living with their parents, which is up 25.5% since 2007, & now at 14.2% of that age group…the census post notes that if their poverty status were determined by their own income, 45.3% of them would have been in poverty as well...

Long-Term Erosion of Job-Based Health Insurance Coverage Countinues

there was not much change in the number of americans with health insurance; in 2010, 49.90 million americans (16.3%) were without health insurance vs. 48.99 million (16.1%) in 2009, but much of that was because 1.8 million more were covered by government insurance plans; medicare coverage rose 2.1% to 44.3 million, and Medicaid, the program for the poor, increased 1.5% to 48.6 million...as you can see by the chart, employer-sponsored health insurance has declined 10% over the past decade…the fact that life expectancy has gone up since social security was introduced is often given as a reason to raise the retirement age; but the reason it's gone up is that we have had better health care; the population as a whole is no more healthy than it ever was, and by some metrics, our national health is worse...the often mentioned "fix" for medicare, to raise the eligibility age from 65 to 67, will leave many uncovered when their health is failing, and as ignored health problems are likely to develop into something more serious, could end up costing more in the long run...

to briefly mention the economic reports out this week: retail sales showed no increase in august from july, and both june's & july's increases were revised down; preliminary consumer confidence for Sept from thomson reuters, still dismal, edged up a bit, but a separate report from Credit Suisse showed confidence among the wealthy was at its lowest since Mar 2009, which bodes ill for retail, as the top 5% of us by income account for 37% of all consumer outlays...also boding ill for retail, inbound container traffic for was down at the LA & long beach ports in august, when pre-christmas shipping should have caused an increase...small business sentiment was also down for the 6th consecutive month...the first two regional Fed manufacturing surveys, from the NY & Philly Feds, both showed further contraction and were also worse than expected, although national industrial production reported by the Fed was up 0.2% in august...first time unemployment claims were up again last week, to 428,000, and the two previous weeks were also revised up again...the consumer price index was up 0.4% for august, and 3.6% annually, and bill mcbride at calculated risk estimates from the CPI-W part of that report that social security cost of living adjustments will be 3.5%...there was a 33% surge default notices preliminary to foreclosure in august, primarily in the non-judicial states, and mostly driven by Bank of America...CoreLogic reported 10.9 million mortgages, or more than two in nine, had negative equity in the 2nd quarter; according to the Fed's 2nd quarter flow of funds report, household real estate assets are down $6.6 trillion from the peak...and according to Freddie Mac, the 30-year fixed mortgage averaged 4.09 percent, a new all-time low, and the 15-year fixed mortgage, often used for refinancing, also reached a new record low for the week, averaging 3.30 percent...

there was a lot of news out of europe, and early in the week indications were almost certain that greece was about to default...but on thursday, coordinated action by five major central banks (the Fed, the ECB, & those of japan, england & the swiss) to provide liquidity to the european banking system seemed to stem the hemorrhaging a bit; even so, greek one year rates remained above 100% on friday (they had been up to at least 146%) and the next tranche of loans to greece was postponed, so there is still no resolution to the greek situation…if you want the whole play by play of the week in europe, there's about 80 links on europe at the end of this week's blogpost

i also want to briefly mention the unemployment report from the UK, because their austerity program, much like we are about to embark on, has been in effect all year, and may be predictive of what we will face...they lost 80,000 jobs total in the period ending july, and even though their private sector added 31,000, government cutbacks of 110,000 were the largest on record...& thats with a population of 61 million, one fifth ours...and something else austerity will do for you; last week, combined effects of declining income & inflation resulted in the UKs disposable income falling to the lowest since 1921

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


Sunday, September 11, 2011

obama’s “jobs” plan, et al

i imagine you all know that obama gave a nationally televised speech before a joint session of congress on thursday evening as a kickoff to his new proposed stimulus program, which is going by the name of the American Jobs Act; although no one in the administration used the world stimulus, the elements of the proposal are very similar to the allocations in the first stimulus, aka the American Recovery and Reinvestment Act, but roughly 3/5 the size: tax cuts for individuals & business, aid to the states, infrastructure, & an extension of unemployment benefits...as rumors all week pointed to a package of around $300 billion, which i characterized as pathetic when i first saw it, the $447 billion final figure was at least a surprise to the upside...even though neutral analysts (mark zandi of moody's & macroadvisors) expect it will boost GDP growth over 1% in 2012, there are elements of it im not convinced will accomplish much in the way of job creation even if it should get thru congress intact, which is by no means guaranteed...

just as a lot of ARRA was misdirected (ie, 37% of it was tax cuts, including the sneaky $15 a paycheck less withholding), the biggest element of this package has a similar misdirection: a full $175 billion of this package is a one year extension & expansion of the payroll tax cuts first enacted in the december mcconnell-obama plan-- according to the white house factsheet, this 3.1% cut will provide a 2012 tax cut of $1,500 to a typical family earning $50,000 a year...unlike most economists i normally agree with, i've never been too hot on tax cuts as a job-creating stimulus; they believe - and their models tell them - that tax cuts stimulate job creation by putting spending money into the hands of consumers; the theory is that as consumers spend, the increase in demand for products causes companies to ramp up production & hire more workers...although that might have been the case at one time, i dont think it works too well in our global economy...think about the first stimulus, where everyone was getting that extra $15 dollars each paycheck; typically, most of that weekly stipend was spent at walmart, & hence employed the chinese...similarly, i dont see much hiring resulting from that part of the "jobs act" although it may take some pressure off tight household budgets, and employ an extra walmart clerk and dockworker at the margin...(understand i'm only using walmart/chinese as a metaphor for the typical generic purchase of imported consumer goods) ..the other major tax cut that's part of this proposal is a cut of 3.1% of the payroll taxes paid by businesses on their first $5 million in payroll, and a full one year holiday of 6.2% on new hires - again, i can't see how this will create many jobs; the large corporations are already sitting on mountains of cash they arent deploying because the demand isnt there, and i cant imagine a small business hiring an extra employee for a 6.2% of pay incentive; they wont let the tail wag the dog...& there's a big downside to cutting payroll taxes, too; these are the deductions that fund social security, and although the social security trust fund is still sitting on a $2.6 trillion surplus (here's the list of treasury bonds it holds) reducing its ongoing funding only hastens the day when the program will need restructuring to pay full benefits (now good till 2037 as per the CBO)...

other tax breaks in this package include an extension of 100% expensing of business investments (a sector that already been strong throughout the recession), a $4000 tax credit for businesses that hire a worker who’d been unemployed over 6 months, and a “returning heroes” tax break of $5,600 to $9,600 for hiring an unemployed veteran; while those tax breaks may help solve specific problems, they'd tend to shift the mix of those who are hired rather than create additional jobs…

the other elements of the package are more promising; there is $35 billion of direct aid to states & localities to prevent further teacher layoffs (recall my post on that problem) and another $25 billion to repair & modernize schools; there’s also $50 billion for transport infrastructure (it should be 20 times that), $15 billion “rehabilitating homes, businesses and communities”, and another $10 billion for an infrastructure bank…there’s also a $49 billion extension of unemployment benefits, including a new program modeled after one in georgia which allows the unemployed to take temporary work or on the job training & still collect unemployment comp…

since most of the payroll tax cut, the investment expensing, and the unemployment benefits are extensions of ongoing programs, we'll end up with less than the headline $447 billion of stimulus from this package, and we still have to wait for the other shoe to drop, because obama believes it must be "paid for" with cuts to other programs, which he's expected to announce next week, likely with less fanfare than the "jobs act" rollout...that he suggests this must be paid for indicates that he's bought into the republican meme that deficits are our overriding problem; but as i've noted, with interest rates this low - effectively negative when allowing for inflation - we should be borrowing whatever we need now and using our idle capacity to renovate our country's infrastructure; a couple years ago the American Society of Civil Engineers graded various categories of our infrastructure: dams, sewers, bridges, the grid, et al & rated it with an overall grade D, all in need of repair; much of it is over 100 years old and obsolete...i know you cant build a new bridge or replace infrastructure tomorrow, so that should be a long range part of a package (unemployment is still expected to be a problem till 2017)...in the meantime, i'm sure everyone knows a few streets in the neighborhood that need chuckholes repaired...look around, what needs to be done? you have 14 million people looking for work, and another 20 million idle...we dont have to pay for it now; in fact, economist karl smith shows that with interest rates as low as they are now, we could eliminate all federal taxes today & borrow 30 years out, & make a profit on that borrowing if the country grows 1.1% annually or more over that 30 year stretch...by not borrowing now, when the rest of the world is paying us to borrow, and investing in infrastructure, renewable energy, job training, and our youth, we are missing a once in a lifetime opportunity...it's not crazy or unprecedented; we had a higher debt/GDP ratio coming out of world war 2, and eisenhower ran deficits to send returning vets to college & build the interstate highway system, and the debt to GDP ratio came down during the 50s expansion anyhow (chart)...

although we did get a few decent economic reports this week, highlighted by an unexpected fall in our trade deficit, most of the other important economic news this week came out of europe; in fact, there have been rumors that greece might even default this weekend...the week started with a commitment by the swiss central bank to buy foreign currency in unlimited quantities (pdf) in order to keep the swiss franc at 1.20 per euro or less; the swiss franc had been seen as a safe haven & had appreciated so much swiss exports were being affected...(the japanese have been similarly trying to hold the yen down, so this might re-ignite the currency wars we saw last year around this time) ...as the week went on interest rates in italy continued to rise in spite of ECB bond buying, as italy faced a worker strike protesting austerity measures as the plan was being debated in their senate...a challenge to the euro bailouts in the German supreme court was rejected (ie, the bailouts are not unconstitutional), but mandated that they be approved by the German parliament, which is expected to make it difficult for Merkel to respond to the crisis in a timely manner; greece's economy continued to deteriorate, with their GDP now contracting 7.3% YoY, and with 1 year interest rates at 88.5% and 2 year rates approaching 57%, & under threats that the next tranche of bailout funds might be withheld, greece plans to cut another 20% of their public workers, or 150,000 more layoffs...but the big news that crushed the markets on friday (despite what you heard from the right wing talkers, the markets didnt crash because of obama's speech) was the resignation of german Jurgen Stark from the ECB and the news that Germany was putting a plan into place to bailout their banks when Greece defaults...

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

Sunday, September 4, 2011

notes on the week ended Sept 3rd

not much good to say about most economic reports out this week; you probably all already heard the dismal headline that zero jobs were added in august (actually a net of job losses & gains from the BLS establishment survey) and that the headline percentage of unemployed remained steady at 9.1%...before i get into the reported details, i want to explain a bit about how the unemployment reports are arrived at, since someone tipped me off to the BLS technical notes last month and since no news stories or blogs that i know of cover the background as to how the monthly unemployment numbers are arrived at...as you already know, there are two surveys that are reported each month; the household survey, from which the headline percentage numbers come, and the establishment survey, from which the monthly number of jobs added is taken from...i was surprised to find that the BLS household survey is based on results from only 60,000 households, or about 1 in 2000 nationwide...the questions they ask are here...people thus surveyed are "classified as unemployed if they meet all of the following criteria: they had no employment during the reference week; they were available for work at that time; and they made specific efforts to find employment sometime during the previous 4-weeks" - you can see how some unemployed wouldnt be counted by that yardstick...the establishment survey, at least, seems to be much more thorough; each monthly sample represents employment data collected from 140,000 businesses and government agencies which represent "approximately one-third of all nonfarm payroll employees"...but even with such a large sample, they indicate in those technical notes that due to possible sampling errors "BLS analyses are generally conducted at the 90-percent level of confidence" and "the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000" ...i point this out just so you know that when i quote a specific number of "jobs added" any given month it could be inaccurate by that much, and that my giving you any number in 3 significant digits is a bit of a stretch...so with that caveat, we can look at the numbers reported by the BLS & regurgitated by MSM & the blogs:

Unemployment Duration  as i said, the reported jobs added from the establishment survey number was zero; the zero jobs added came from 17,000 private sector job gains and 17,000 government job losses; those numbers were further qualified by the ending of the minnesota state shut down which added back 22,000 government jobs, and the verizon strike which reduced reported private payrolls by 45,000...the earlier july report was revised down by 32,000 to 85,000; the june number was also revised down 26,000 to 20,000 (those revisions result from establishments reporting late); but both the labor force participation rate, at 64.0%, and the employment-population ratio, at 58.2%, which i've focused on in past months, were virtually unchanged...the small sampling used by the household survey makes it unusually volatile; this week, it reported an increase in the number employed of 331,000 & an increase in unemployed of 36,000, leaving the ratio unchanged at 9.1%; contrasted with last month, when the establishment survey reported decent job gains, the household survey reported the number of employed fell by 38,000, and the number of unemployed rose by 156,000...the broader measure of underemployment, U-6, which includes those workers who cant find a full time job or whose hours have been cut, rose to 16.2%, the high for this year; but this number has also experienced a downward reporting bias, as workers who once said they wanted a full time job have resigned themselves to working part time, & hence arent looking for full time work anymore, they're considered satisfied & no longer count in the U-6 number; those working part time who would prefer full-time work now make up only 31% of all part-time workers, according to the BLS...about the only bright spot in this report was that the number of those unemployed more than 26 weeks looking for work declined slightly, with a shift in the mix towards those who were out of work for a shorter period (click adjacent chart)  

looking forward, we're still seeing reports indicating that unemployment will continue to be a problem for some time to come...Challenger, Gray & Christmas, an national employment agency, keeps track of announced layoffs, & reported they were up 47% to 51,114, over august of last year, led by announced cutbacks in the financial sector....& even the white house budget office, which you would expect to put a cheery spin on their forecasts, now admits that unemployment will stay above 9% throughout 2012 and will not return to the 5% range until 2017, when rick perry will be presiding over a reaganesque morning in america...

  this week also marked the release of the popular case-shiller home price index for june, which averages home prices for the april to june period, and reported that they rose 1.1% over the march to may period...as this index is not seasonally adjusted, such a price rise is normal, and bill mcbride @ calculated risk, who converts the index to a seasonably adjusted version, reports the 10 city version of the index up slightly & 20 city version down slightly; the corelogic price index for july was also released this week, which is a 3 month weighted index (july counts most) which the Fed uses, and it showed a similar unadjusted 0.8% gain over the previous month's release...

    much more stunning was the LPS mortgage monitor report for july that was released this week; it’s showing a continuing complete breakdown in the process of foreclosing on delinquent homes, with the average loan in the foreclosure process now being there for a record 599 days; this means that the 2.16 million homeowners who are being foreclosed on manage to live in their house rent free for an average of nearly 20 months; this suggests to me that either the banks dont want to own anymore homes, or, in the case of judicial foreclosure states, the banks are unable to show they have the right to foreclose, which would be mostly due to loss of clear chain of title during the frantic housing boom years when the MERS electronic tracking broke down, giving rise to the robosigning of fraudulently created documents...in some states, it's broken down completely, Mish ran the story with the headline "Foreclosure Pipeline in NY is 693 months and 621 Months in NJ", meaning that at the rate foreclosures are moving through the courts in those states, it would take 57 and 51 years respectively for each to clear the backlog...the LPS report also showed significant delays in moving delinquent homeowners into foreclosure; of the 1.9 million loans that were reported 90 or more days delinquent but not yet in foreclosure, 42% have not made a payment in more than a year, with an average delinquency of 397 days, which was also a new record…LPS also reported 2.48 million loans that were less than 90 days delinquent; those are the ones most like to “cure”, ie, the missed payments may be made up before foreclosure can be initiated…the total of 6.54 million loans in trouble gives us a total of 12.45% of mortgages delinquent or in foreclosure; in other words, more than one in 8 homeowners with mortgages arent making payments on them…tells you a lot about how consumer spending could rise another .8% in july in the face of stagnant income growth...

  of course, this mess is the reason the banks are in trouble as well; this week we’ve had several lawsuits filed against them for their shoddy bundled securities, the big one was initiated by the FHFA (Federal Housing Finance Agency), acting on behalf of Fannie & Freddie…they have sued 17 major banks, including BofA & JPMorgan, in an attempt to recoup losses on $196 billion the GSEs spent on mortgage-backed securities bought from the banks, alleging that the mortgages included in the securities were misrepresented as being more creditable than the banks knew them to be, and accusing them of “violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities”; in addition to that federal suit, Bank of America was hit with a lawsuit by the Nevada attorney general, alleging that BofA “misrepresented, both in communications…and in documents they recorded and filed, that they had authority to foreclose (and) knew that they had never properly transferred…these mortgages to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law.(they) never became holders of these mortgages, (and) lacked authority to collect or foreclose on their behalf and never should have represented they could”…moreover, evidence is starting to turn up that fraudulent robosigning was going on as early as 1998, tainting title to tens of thousands of homes, and document fabrication by BofA & other servicers is still going on now after the banks swore off the practice in a settlement earlier this year…as if those two mentioned suits alone werent enough to put an end to “50 state” attorney generals settlement, the FDIC has weighed in on the side of the objecting AGs, Schneiderman of NY and Biden of delaware, as owners of some of the covered securities by virtue of their being receiver for failed banks, saying they lack sufficient information to tell if the settlement is appropriate; also, the National Consumer Law Center, representing homeowners, is also objecting to provisions in that settlement that would put foreclosures on a fast tack…needless to say, Bank of America is reeling despite warren buffett’s cash infusion; this week they’ve sold their share of the China Construction Bank and have put their Countrywide lending unit up for sale; moreover, the Federal Reserve has asked them to provide contingency plans for a breakup or spinoff of their merrill lynch unit...and in the "you cant make this stuff up" department, S&P has rated the first tranche of 48.85% from a bundle of 5,629 performing subprime loans as AAA, a better rating than they give the US, the country the houses borrowed on are sitting in….

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