From the department of, “no duh” — corporate cash hoarding

Companies are hoarding cash at insanely high levels. Bad for the overall economy and bad for the companies who retain overly large cash reserves as well.

From the link:

It isn’t for a lack of resources. Non-financial companies in the S&P 500 index reported $837 billion in cash at end of March, a hefty 26% increase over the previous year’s $665 billion, according to S&P. These are unusually high levels — companies are holding cash reflecting 10% of their value today. Since 1999, companies on average held cash equal to 6.6% of their value.

In many ways, the record levels reflect the scars of the financial crisis. Chief executives learned the hard way what happens when credit markets freeze, as they did in late 2008 and early 2009. And the country’s relatively grimmer economic forecasts aren’t helping as consumer spending continues to slump. The U.S. Commerce Department reported last week that GDP growth slowed during the second quarter, growing by 2.4% compared to 3.7% the previous quarter.

But while companies try to play it safe by upping their stashes of cash, hoarding does little good in the way of improving the broader economy. What’s more, it could hinder companies from prepping for future growth.

The recession and the unemployment benchmark

The question is did the recession push the unemployment benchmark to around seven percent, and if so will the Fed do damage to an already fragile economy by sticking with the previous benchmark of around five percent.

Certainly food for economic thought.

From the link:

Federal Reserve policy makers say full employment means a long-term jobless rate between 5 percent and 5.3 percent. Some of the most influential economists say they’re wrong.

Dean Maki at Barclays Capital, 2006 Nobel Prize-winner Edmund Phelps and Bank of America-Merrill Lynch’s Ethan Harris estimate the worst financial crisis since the Great Depression has pushed the so-called natural rate of unemployment to between 6.3 percent and 7.5 percent. Unless the Fed accepts that more Americans will be permanently out of work, the central bank may spur inflation by waiting too long to raise its benchmark rate from a record low, said Maki, Barclays’ chief U.S. economist and the most accurate forecaster in a December 2009 Bloomberg News survey.

Fallout from the financial meltdown and bailout

Lehman Brothers Holdings is suing JP Morgan Chase.

From the link:

Lehman claims JP Morgan “siphoned off” billions of dollars of assets in the days leading up to its bankruptcy.

JP Morgan was Lehman’s main short-term lender before its September 2008 collapse. It is accused of contributing to the failure by demanding $8.6bn of collateral as credit markets tightened.

JP Morgan has called the lawsuit “ill-conceived”.

The bank bailout may end up in the black

Who’d a thunk this a year ago?

From the link:

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

Still, the new estimates would lower the administration’s deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

Shortsighted CEOs

Or was it nearsighted? Or maybe just plain blind as bats. At any rate this is a humorous, and sad, collection of quotes from erstwhile kings of Wall Street.

From the link:

Richard Fuld, Lehman Brothers: “Our core franchise and our culture are strong. Our capital and liquidity positions have never been stronger.”—June 16, 2008, on a conference call with analysts

What happened next: With clients pulling their money from Lehman accounts, the firm ran short of cash. Fuld reportedly turned down a financing offer from Warren Buffett, perhaps because he thought a government bailout—like that of Bear Stearns—would come with better terms. But no bailout materialized, and Lehman filed for bankruptcy on Sept. 15, 2008.

Economic recovery alphabet soup

As in will the recovery be “v,” “u” or “w” shaped.

Or maybe the whole thing is more of a big “o” since the economy runs in cycles.

From the link:

Typically, sharp downturns like the current one yield equally rapid, or V-shaped, upswings. But the worst recession since the Great Depression has been anything but typical, with housing and credit markets devastated. In a USA TODAY survey, 63% of economists said the recovery will be slow and gradual, or U-shaped.

Yet 37% said it will be moderate or fast. And a smattering of experts say the rebound will look like a W, with a precarious economy sliding back into recession before turning around for good. USA TODAY presents the case for each scenario:

 

Foreclosures still on rise

No good news from the housing sector. This is one area where there will be dissonance between the facts on the ground affecting real people and the economic pundits who tout the ongoing (real, but very slow) recovery from the financial crisis.

From the link:

The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage.

Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee’s sale. That’s the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

Debating the stimulus

I have a feeling this is a discussion that will continue through the 2010 election cycle and maybe even into the 2012 presidential race if the economy remains soft for that long.

Many people don’t realize presidents pretty much live and die by economic cycles, and these cycles are almost entirely outside control by the White House. Just by polling it’s clear Obama has ownership of the current horrible economy and the immediate fire-brigade his administration was forced to put into action. It’s worth noting, to keep things in perspective if nothing else, he was handed a flaming bag of dog poop from one of the worst eight years of economic oversight, spending, saving and planning all coming from a Bush administration that was supposed to be fiscally conservative.

From the link:

And so, stimulus proponents argue, the only remaining actor with the capacity to boost total spending significantly is government. If government fails to act, they warn, the economy is likely to languish for years to come.

Stimulus opponents see things differently. In a recent Forbes column, UCLA economist Lee Ohanian attributed their skepticism to their belief that “the higher taxes on incomes or expenditures that ultimately accompany higher spending depress economic activity.” According to this argument, if the government borrows money to stimulate spending now, people will realize that the resulting debt will necessitate higher taxes in the future. And that realization will cause them to curtail their own current spending further, thereby offsetting the stimulus.

Fed sees light at the end of tunnel

The latest beige book report goes for optimism. I’m guessing they’re more just satisfied things aren’t spiraling even further down as opposed to seeing anything worth getting excited about. But I’ve been pretty contrarian about this financial crisis going back to the first days of this blog.

From the first link:

The Fed’s “Beige Book,” which offers an anecdotal look at economic activity in its 12 districts, said that “overall economic activity contracted further or remained weak,” noting that areas such as manufacturing were still depressed.

But the report said that five of the districts “noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”

The positives may have been the “green shoots” that Fed Chairman Ben Bernanke referred to recently when saying he saw some signs of life in the economy.

It was “consistent with the recent data that have shown improvement in some sectors of the economy, particularly consumption and housing,” said Michelle Meyer of Barclays Capital.

“While downward pressure continues, the pace of the declines may be easing up, somewhat. Not a major surprise in light of the data we’ve seen for March, but noteworthy nonetheless,” said Ian Lyngen of RBS Securities. “That said, the overall picture remains negative for the U.S. economic outlook — home prices continuing to decline and credit remaining ‘very tight’ throughout the country.”

In finance, the Beige Book said “bankers reported tight credit conditions, rising delinquencies and some deterioration of loan quality.”

Though the report said home prices and construction were largely falling, “better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts.”

Yet another Ponzi scheme

Wow, it seems Ponzi schemes have been alive and well across our land and it took a financial crisis to expose those critters to legal trouble.

From the link:

In the latest in a string of alleged Ponzi schemes, civil fraud charges have been filed against a Colorado investment manager who operated a $20 million operation that allegedly victimized dozens of investors in at least three states.

Shawn Merriman, 46, used some of his investors’ funds for personal expenses, including purchases of Rembrandt masterpieces worth millions of dollars and other artwork, according to a lawsuit announced Wednesday by the Securities and Exchange Commission.

Operating through Market Street Advisors, an Aurora-based firm he owned, Merriman allegedly promised investors annual returns as high as 20% from stock trading. He lost about $400,000 through aggressive investments by the initial investment fund he launched in 1995, the SEC said.

Job loss at 50-year high

Ouch.

From the link:

Here’s another sign of how bad the recession is: It has eliminated more jobs as a proportion of the work force than any downturn since 1958, according to economists.

The Labor Department said Friday that employers cut 663,000 jobs last month, bringing the total net losses in the current recession to 5.1 million. The unemployment rate rose to 8.5 percent in March, the department said, the highest in more than 25 years.

Go below the fold for more stats from the link:

Obama’s approval split

Split on party lines to a historic degree. This is a direct result of the Limbaughian efforts to demonize the president, but it’s more damningly evidence the GOP is totally bereft of ideas at the moment.

From the link:

For all of his hopes about bipartisanship, Barack Obama has the most polarized early job approval ratings of any president in the past four decades. The 61-point partisan gap in opinions about Obama’s job performance is the result of a combination of high Democratic ratings for the president — 88% job approval among Democrats — and relatively low approval ratings among Republicans (27%).

This polarization is partly a function of how U.S. politics has been played for a while (and I think it’s fair to place some blame on the internet and partisan political forums fostering an us-against-them mentality), but it’s also clearly the direct result of a deliberate Republican strategy.

Very dangerous territory for the GOP. The hope is if Obama’s effort to solve the financial crisis fails, or when aspects of the meltdown don’t respond the way the general public is hoping for, Obama gets the blame and a chastened public turns to the GOP for solutions.

This cunning plan has a lot of holes. One, the public is giving Obama a lot of latitude in dealing with the economy and currently blames the previous GOP administration for the bulk of the problem. Two, the GOP is totally bereft of ideas (see this post for a great example) and even if the public turns on Obama, the Democrats have plenty of ammunition to say, “At least we’re trying. Do you really trust the Republicans, the party who opposed Obama from day one?”

I think the GOP is very likely facing a much heavier backlash than expected for immediately turning on Obama. The public rallied around Bush after 9/11, and I think the public understands this deep economic slowdown requires the same level support to ensure the nation doesn’t fail. When Limbaugh, as the de facto voice of the GOP, says he hopes Obama fails, most people hear the GOP wants America to fail. Don’t think these sounds bites are going away. They may fade from memory, but you’ll be seeing a lot of Rush in 2010 and 2012.

The Tea Party phenomenon

Here’s some talking points from the Heritage Foundation for any Tea Partiers out there.

A sample from the link:

Lower Taxes: Senator Jim DeMint’s “American Option” would have reduced business taxes from 35 percent to 25 percent to spur rapid growth in wages, jobs and business incomes. It also would have permanently repealed the Alternative Minimum Tax and reduced the individual tax rate to three levels—10, 15, and 25 percent—giving Americans more of their own money to fuel the economy and increasing disposable income for an average family of four by up to $4,500 by 2013.

On the whole, I’m just not getting the Tea Party movement. It doesn’t seem to be gaining much actual attention outside the blogosphere and the usual right wing hangouts. All in all the movement seems fairly fragmentary and largely comprised of angry cranks with a few opportunists thrown in for good measure.

The odds of the activity adding positively to the national dialog on this economic crisis is near zero. Overall the public supports Obama right now and is offering him the chance to solve these problems. The public is also pinning the crisis on the Bush 43 administration for the most part. I doubt the Tea Party movement will do anything to change public opinion.

To give examples of the fractured nature of Tea Partiers you need look no further than the comments on the linked site.

Here’s a small taste:

• “Some Tea Party organizers are making a huge mistake by making this about President Obama. This is about all our legislators who are not listening and following the constitution.”
• “‘organizers are making a huge mistake by making this about President Obama’ Wrong! It is in fact “ALL” about this Marxist ideologue.”
• “While the media will make our rallies out to be against the President, they are not and should not. We need to protest against the coup d’etat that took place on Jan. 21st. The battles began over a year before that and culminate in November.”
• “The problems we currently face are because of Government in General. Not political parties.”

This movement is all over the map — it’s not about Obama, it is about Obama, it’s about government. Sheesh. And “the coup d’etat” on January 21st? Really? What planet are these people living on and how exactly are these comments going to persuade the average American to take them seriously? Seriously.

The Fed’s printing money

This move could really hurt the dollar, and is seen by many (most?) economists as a true “nuclear option.” Make sure you’re belted in — this ride ain’t over yet.

From the link:

Expectations of Fed buying raised the prices, and consequently pushed down the interest rate yields, on mortgage-backed securities as well as Treasury bonds, which were included in the deal. Stocks rose slightly as well, while the dollar fell on inflation worries. The yield on the benchmark 10-year Treasury note plummeted one-half percentage point, to around 2.5%.

“The good news is that the Fed is clearly being a lot more aggressive,” said Desmond Lachman, a resident fellow at the American Enterprise Institute. “The bad news is that I think it reflects their assessment that the economy is a whole lot weaker than they thought it would be.”

The Fed did not cut short-term interest rates because it can’t—they’re already at virtually zero. The post-meeting statement said the rate-setting Federal Open Market Committee “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The FOMC statement was full of surprises, albeit in the Fed’s typical bland language. The Fed committed itself to buying another $750 billion this year in mortgage-backed securities issued by “agencies” like Fannie Mae and Freddie Mac, on top of the $500 billion it had already committed to buying. It doubled to $200 billion the amount of agency debt it will buy this year.

And in a surprising change of direction, the Fed said it will buy $300 billion of longer-term Treasury securities. Up until now, Federal Reserve Chairman Ben Bernanke had said there was no need for the Fed to buy Treasuries since there was a strong market for them already. The Fed’s new thinking seems to be that it can’t hurt to try a little Treasury buying in hopes that the money will trickle down to non-Treasury securities. It said the goal of the Treasury purchases is “to help improve conditions in private credit markets.”

Staying upbeat during the downturn

Something everyone should aspire to. No need to be a pollyanna, but also no need for dark rooms, cold wet towels and hair shirts.

From the link:

It doesn’t take a US$250 visit to a psychotherapist to confirm what you feel in your gut each morning when you wake up — it’s depressing out there. Market volatility, economic instability, pink slips and the ongoing threat of yet another round of IT layoffs — no wonder you feel like diving back under the covers.

If you’ve been let go, you might worry that you’ll never work again. If you’ve escaped a layoff, “it’s very discouraging when you see colleagues leave because these people were your friends,” says Beverly Lieberman, an IT recruiter and career coach and president of Halbrecht Lieberman Associates Inc.

Employees may feel trapped in a company where “they’re sort of grateful to be still working, but they’re insecure” because virtually no employer is making any guarantees about IT or any other kind of job.

“Everybody is saying you can write off 2009 because there are no indicators it will get any better,” Lieberman sums up. “We’re praying for 2010.”

But that doesn’t mean you have to spend the rest of the year as an emotional cellar dweller. It’s not easy, but it is possible for tech pros to nurture themselves and even bolster their professional credentials during these tough times, whether you’re laid off and looking, or left behind and overworked.

Is this a depression or recession?

Probably a little of both, and could turn into a full-blown depression. Fun topic, huh?

From the link:

way to search for turnaround signals is to watch contingency, contract and temporary hiring. That’s a harbinger of payroll action because employers hire temps when business begins to increase instead of immediately adding employees.

Unfortunately, the American Staffing Association charted a sharp decline in temporary-help hiring. Fourth-quarter staffing company employment was down 19.5 percent from the same quarter a year earlier.

When “the bottom fell out of the economy,” said the staffing association’s president, Richard Wahlquist, “demand for temporary and contract employees shrank at an unprecedented rated.”

Dave McDowell, president of Mid-America Personnel and Staffing Services, noted that regional demand for hourly industrial placements is off as much as 40 percent from this time last year.

Another job market indicator, the Society for Human Resource Management’s Leading Indicators of National Employment report, also issued Friday, was “bleak” for March.

More than twice as many human resource managers told the survey that they will cut payrolls in March (34.9 percent) than hire (15.3 percent).

So, how certain are we that the economy will get worse before it gets better?

Robert Barro, a fellow at Stanford University’s Hoover Institution and an economics professor at Harvard University, researched 209 worldwide stock market crashes and 59 depressions and concluded that the United States has a 20 percent chance of depression.

How to keep the recession from being a depression is one point of the Obama administration’s recovery package.

“So far, monetary policy has been stimulative. Now we hope, by midyear, that fiscal policy will make a difference,” said Charles Krider, a business professor at the University of Kansas. “The real key is making a difference in consumer confidence. We need confidence along with correct policies.”

But few expect any sign of a turnaround before the end of this year.

And Anirvan Banerji, with the Economic Cycle Research Institute, said there’s always a possibility that cures from the past won’t work in today’s “fast-moving, highly leveraged, highly networked economy.”

Like Morici, Banerji said we’ll need to wait and see what to ultimately call this economic cycle.

“The Great Depression didn’t start out as a depression,” Banerji said. “It started out as a recession.”

Mortgage default rates stunning

This figure is not so stunning — almost 50 percent of sub-prime adjustable rate mortgages (ARMs) are in arrears or foreclosure. Everyone knows these are the most toxic of the toxic assets being bandied about by economic “pundits.” Well, technically these mortgages make up the components of the toxic assets.

The stunning figure is 12 percent of all mortgages are either behind in payment or in foreclosure. That is not good news for any hope of an economic recovery from this financial crisis. The floor hasn’t been found, and probably is really too far below us to even be fathomed right now.

On that cheery note, hope everyone has a great weekend!

From the link:

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis are no longer driving up the nation’s delinquency rate. Instead, the foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs.

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy.

“We’re seeing increases in fixed-rate categories and that’s where the problems are coming from,” said Jay Brinkmann, the group’s chief economist. “The foreclosure picture is more clearly driven by the jobs market.”

That trend highlights one of the biggest challenges confronting the Obama administration’s mortgage relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying.

On Thursday, the Labor Department said new unemployment claims last week totaled 639,000, lower than expected, but still at elevated levels. Factory orders also slipped for the sixth month in a row in January, the Commerce Department reported.

“There can be no doubt that employers continue to shed labor at a frightening pace, with no end in sight,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note Wednesday.

The key is what kind of workers are losing their jobs, Brinkmann said. Unemployment for people with college degrees, some college education or technical training _ those most likely to own homes and have prime fixed-rate loans _ has nearly doubled over the past six months.

Because this worked so well in the 90s …

… the GOP is blocking a spending bill forcing stopgap budgetary measures. Good way to stop looking obstructionist during a financial crisis that currently surpasses 1929 there.

From the first link:

Senate Republicans blocked a $410 billion omnibus spending measure on Thursday night, forcing Congressional Democrats to prepare a stopgap budget resolution to keep the federal government from shutting down.

Worse than the Crash of 1929

Sobering numbers indeed.

From the link:

Floyd Norris, NYT:

It has been 513 calendar days since the stock market peaked on Oct. 9, 2007. Since then, the S.&P. 500 is down 56 percent and the Dow is off 53 percent.

On Jan. 29, 1931 — the identical number of days after the 1929 market peak — the S.&P. 500 was down 49 percent and the Dow was down 56 percent. The 1929 crash got off to a much faster start, but we have now more or less caught up.

And here’s a chart by Doug Short at dshort.com that illustrates the point.  In case you’re obsessed, Doug updates the chart every day:

(Hat tip: lfschwartz)

Auto sales way down

The Ru, st Belt just keeps taking body blows and crushing shots to the jaw. It’s hard to see how these companies can remain afloat without the government simply stepping in and taking over for the time being. Is GM too big to fail? Ford? Is the auto part supply chain so weak that if any of the onetime “big three” collapse, the whole system breaks down?

We may find out before long. Talking to a group of businessmen last night, the general consensus on the unemployment aspect of this financial crisis is the rate will slow, but rising unemployment will likely continue unabated through the end of 2010 if not longer.

From the link:

The three largest automakers, including Toyota, each said their sales declined at least 40 percent from February 2008.

Sales were down 53 percent at General Motors, 48 percent at the Ford Motor Company and 40 percent at Toyota. Chrysler sales fell 44 percent.

Honda reported a 38 percent drop, while Nissan said its sales fell 37 percent.

“The February numbers are clearly a step down from where we’d been running the last four months,” said Michael C. DiGiovanni, G.M.’s chief sales analyst. “It’s unsettling to our business. These are obviously unsustainable levels which are causing almost every auto manufacturer across the world to look for government aid.”

G.M., of course, has gotten $13.4 billion from the federal government to help it avoid seeking bankruptcy protection, while Chrysler, which will report its sales later Tuesday, has received $4 billion.

Obama’s massive deficit

Obama is about to forecast a deficit of $1.75 trillion in the 2009 budget proposal. This number is 12.3% of GDP and represents the largest percentage since World War II. He’s also pledged to halve the over $1 trillion deficit he inherited from the Bush administration in four years.

I’m guessing these developments have most of namby-pamby Washington in utter confusion. The budget doesn’t hide the outrageous cost of real-world activities — can anyone say keeping the Iraq war costs out of the budget? — and actually looks toward future financial prudence instead of cheap political points for today.

Who would’ve guessed it would take a Democrat widely reviled in GOP circles as the “most liberal Senator” and a Manchurian candidate ready to turn the US into Western Europe-lite to actually take fiscal charge of the nation and fix the big government shambles created by, gasp, eight years of GOP rule in the White House — six of those with GOP control over the entire governing apparatus.

And now the Republicans get their fiscal conservatism backs up? Too little, too late for this round, and very possibly too little, too late to save the party. GOP behavior since Obama has taken office has turned me even farther away from the party. Not necessarily into the arms of the Democrats, but the GOP is an electoral joke and not worth saving any longer. The party of Rush and Joe the Plumber deserves the long slide into ignominy that is now well underway.

From the link way up there:

But spending would increase to meet key objectives. The budget sets aside $250 billion as a “placeholder” if Obama decides to ask Congress for more money to help the troubled U.S. financial system. No such decision has been made yet, officials said.

It also includes a 10-year, $634-billion reserve fund to help pay for the president’s proposed healthcare reforms.

Another official said the budget included hundreds of billions of dollars in revenues, starting in 2012 and going over many years, from a greenhouse gas emissions trading system, one of Obama’s key proposals to fight global warming.

Officials planned a high profile roll-out of the 134-page budget outline on Thursday. A more detailed version will come out in mid or late April.

The budget, for the fiscal year that begins on Oct. 1, 2009, requires passage by Congress to take effect.

Obama’s $1.75 trillion budget deficit forecast for this year reflects shortfalls accumulated under Bush as well as new spending proposals under the $787 economic stimulus package that the Democratic president recently signed.

Update — I left this out of the original post and it’s been written a lot lately — I’m no innocent, there — but, man isn’t it great to have adults in charge of the nation again? No political shenanigans, no Monty Python sketch- level operations. Just intelligent people who want to solve the very difficult problems of today in the best possible way.

Update pt. 2 — Here’s more on the budgetary items hidden during the Bush 43 years:

President Barack Obama‘s budget director said on Thursday that without a shift in policies the U.S. deficit would reach $9 trillion over the next decade.

White House budget chief Peter Orszag said the Obama administration’s budget outline reflects costs for the war in Iraq and other items that were previously not included in the budget.

“All told we are showing $2.7 trillion in costs in this budget that were excluded from previous budgets and I think that is a mark of the honesty and responsibility contained in this document,” he said.

Text of Obama’s address to joint session of Congress

The text as prepared for delivery:

Madame Speaker, Mr. Vice President, Members of Congress, and the First Lady of the United States:

I’ve come here tonight not only to address the distinguished men and women in this great chamber, but to speak frankly and directly to the men and women who sent us here.

I know that for many Americans watching right now, the state of our economy is a concern that rises above all others. And rightly so. If you haven’t been personally affected by this recession, you probably know someone who has—a friend; a neighbor; a member of your family. You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost; the business you built your dreams upon that’s now hanging by a thread; the college acceptance letter your child had to put back in the envelope. The impact of this recession is real, and it is everywhere.

But while our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this:

We will rebuild, we will recover, and the United States of America will emerge stronger than before.

Economic predictions for 2009 and 2010

I’ve heard all manner of speculation since the financial crisis came to full boil last fall. First was we’ll know nothing good or bad until May or June of this year. Right on the heels of that analysis was to completely write-off 2009, ride it out and look for more clarity in 2010. The most recent buzz has been even gloomier, predicting a bad 2009 and an even worse 2010.

If that’s where you stand right now, this survey by the National Association for Business Economics is downright rosy.

(Note: the above link seems to be a little dodgy. If it gives you problems try this instead.)

From the link, first the expected bad news:

The recession is projected to worsen this year. The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles. And the U.S. unemployment rate _ now at 7.6 percent, the highest in more than 16 years _ is expected hit a peak of 9 percent this year.

That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics to be released Monday. The new estimates are roughly in line with other recent projections, including those released last week by the Federal Reserve.

“The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters,” said NABE president Chris Varvares, head of Macroeconomic Advisers.

All told, Varvares and his fellow forecasters now expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.

If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country had suffered through a severe recession.

And then some unexpected — well not good, but certainly better — news:

“A meaningful recovery is not expected to take hold until next year,” said Varvares.

NABE predicts GDP will rebound in 2010, averaging 2.4 percent over the course of the year. The Fed, too, is forecasting that the economy will grow again in 2010_ and will pick up momentum in 2011.

Even so, the Fed is still guarded about any turnaround.

 Update: Maybe not so fast there according to Ben Bernanke:

Mr. Bernanke told the Senate Banking Committee that the Federal Reserve was doing everything it could to unlock credit markets and ease the financial crisis. But a full recovery, he said, is months, if not years away.

“If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability — and only if that is the case, in my view — there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Mr. Bernanke said.

Major what-ifs included the ramifications of an increasingly global financial crisis, as well as a negative feedback loop as lower confidence translates to worsening market conditions, and vice versa.

FOMC outlook bleak

It’s been bleak and now it’s worsening.

From the link:

The U.S. economy was weakening further in January and a gradual recovery wasn’t likely until the second half of the year, members of the Federal Open Market Committee agreed, according to minutes of the Jan. 27 and 28 meeting released on Wednesday.

At the meeting, the committee held its interest-rate target near zero, and promised that it would “employ all available tools” to restore the economy to growth.

Many policymakers saw some risk of excessively low inflation for a protracted period, the minutes said, and a few even warned of deflation – a general decline of prices and wages.

According to the minutes, the FOMC’s updated forecasts predict that the economy would likely shrink between 1.3% and 0.5% this year, and grow about 2.5% to 3.3% in 2010. The unemployment rate would likely rise to 8.5% to 8.8% this year before gradually declining over the next two years. The group said consumer prices would likely rise 0.3% to 1% this year.

The outlook is considerably worse than in October, when they thought the economy might grow as much as 1.1%.

The minutes also contain the FOMC’s first public long-term economic projections, a step closer to adopting a formal inflation target. Among the 16 governors and bank presidents, the central tendency for long-term inflation was 1.7% to 2%, with a majority clustering at 1.9% or 2%.

Twelve job searching tips …

… from CIO.com.

The job market is tough right now. There’s a financial crisis and unemployment is high and rising. This means going beyond the usual steps when looking for work.

Here’s an infomative article from Mark Cummuta at CIO.com with twelve secrets for job hunting in a recession.

From the link:

I’ve previously summarized the key secrets I use in my own job search in an article I wrote last year, 10 Secrets for Searching for a Job During A Recession. This article has been seeing a significant increase in traffic lately, and I would imagine that is because more and more people are being impacted by the continued downward spiral of our global economy.

Since writing that article, I have made two more observations about the job market – making that “12 Secrets” now – and have adjusted my own job search strategies to improve my odds.  Specifically, I have increased my “time-to-delivery requirements” (how fast I respond to an opportunity), and I have expanded my marketing efforts.

 

11. Improve your time-to-delivery.

Job opportunities have been pulled off the market for many reasons over the past year. My personal experience shows that when faced with making the final decision on even their ideal candidate, most employers have not been willing to pull the hiring trigger.

But the market has shifted in 2009. Now, I am amazed not by how many jobs are being pulled off the market, but rather how quickly they are disappearing once posted. For the past several weeks hiring firms are posting positions again and are willing to make a hiring decision again. However, they have so many candidates available, and so many applicants applying, that opportunities disappear before I even get a chance to apply. I’ve spoken with recruiters who have apologized that a position was still online, even a mere 48 hours after posting, and that they were not taking any more resumes.

Text of Geithner’s remarks

If you’re interested in the text of Tim Geithner’s remarks on stimulus part two yesterday, here you go:

Treasury Secretary Tim Geithner announced the government’s plan to revitalize the financial sector. Here are his prepared remarks, as released by the Treasury.

As President Obama said in his inaugural address, our economic strength is derived from “the doers, the makers of things.”

The innovators who create and expand enterprises; the workers who provide life to companies; this is what drives economic growth.

The financial system is central to this process. Banks and the credit markets transform the earnings and savings of American workers into the loans that finance a first home, a new car or a college education. And this system provides the capital and credit necessary to build a company around a new idea.

Without credit, economies cannot grow at their potential, and right now, critical parts of our financial system are damaged. The credit markets that are essential for small businesses and consumers are not working. Borrowing costs have risen sharply for state and local governments, for students trying to pay for college, and for businesses large and small. Many banks are reducing lending, and across the country they are tightening the terms of loans.

Banks want backsies

Oh, now they see the light since Bush’s blindly giving team is gone and Obama’s group demanding oversight with teeth is in place.

I hope these banks are able to repay the taxpayer’s money very quickly. I predicted some of the oversight rules put into place by the new economic team might cause some executives to see the capitalist light and decide the public dole of corporate socialism wasn’t so great after all.

Heh.

From the link:

Even before the government announced its latest efforts to fix the troubled banking industry on Tuesday, executives at Goldman Sachs and Morgan Stanley said they wanted to repay the money quickly. Both banks received $10 billion under the first rescue plan last fall.

Paying back all those funds would be difficult in this tough economic environment. But banking executives worry that the government may intrude further into their businesses as long as they are beholden to Washington.

Stimulus shuts out small business

A release from yesterday:

Stimulus Bill Ignores Firms That Create Ninety-Seven Percent of New Jobs

PR Newswire via NewsEdge :  PETALUMA, Calif., Feb. 9 /PRNewswire-USNewswire/ —According to the latest United States Census Bureau statistics, businesses with fewer than 20 employees account for 90 percent of all U.S. firms and are responsible for more than 97 percent of all new jobs. The Small Business Administration (SBA) Office of Advocacy released a report on the Census Bureau findings. (http://www.inc.com/news/articles/200708/data.html)CNNMoney.com and Inc.com released stories on the SBA report. (http://money.cnn.com/2008/07/30/smallbusiness/job_creation.fsb/index.htm) Since 2003, a series of more than 15 federal investigations have uncovered that the Bush Administration allowed billions of dollars in federal contracts earmarked for small businesses to be diverted to Fortune 500 firms and thousands of clearly large businesses around the world. (http://www.asbl.com/documentlibrary.html) Neither the House, nor Senate versions of the economic stimulus package contain any provisions to address the diversion of federal small business contracts to Fortune 500 firms. Additionally, the bills fall short of addressing the needs of America’s top job creators. Hundreds of stories chronicling the diversion of federal small business contracts to corporate giants have been released by virtually every major newspaper in the country. (http://www.asbl.com/news.php) Major television networks like CBS, ABC, FOX and CNN have covered the story. (ABC, http://www.asbl.com/abc_evening_news.wmv; CBS, http://www.asbl.com/cbs.wmv; FOX, http://www.youtube.com/watch?v=8y2F8zl2ebs; CNN, http://www.asbl.com/showmedia.php?id=1170) In 2005, the SBA Office of Inspector General released Report 5-15, which described the diversion of federal small business contracts to Fortune 500 firms as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” (http://www.sba.gov/IG/05-15.pdf) In February 2008, President Obama released the following statement, “Small businesses are the backbone of our nation’s economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants.” (http://www.barackobama.com/2008/02/26/the_american_small_business_le.php) To date, he has not proposed even a single policy to make good on his campaign promise. Based on information obtained through a series of successful Freedom of Information Act (FOIA) lawsuits against the Bush Administration, the American Small Business League (ASBL) estimates that every year up to $100 billion in federal contracts earmarked for America’s top job creators are diverted to corporate giants in the defense industry. On December 6, President Obama’s transition team estimated that every billion dollars spent on federal infrastructure projects would create 40,000 jobs. (http://www.nytimes.com/2008/12/07/us/politics/07radio.html) The ASBL estimates that a provision in the stimulus bill that would end the diversion of federal small business contracts to corporate giants could create up to 4 million new jobs. The powerful lobby for the defense industry has successfully blocked any attempts at legislation to stop the flow of billions of dollars in government small business contracts to many of the largest defense contractors in the country. SOURCE American Small Business League <<PR Newswire — 02/10/09>>

Electronic run on banks almost bankrupted the US

This is one frightening story. Since it didn’t come to pass there’s no way of knowing exactly how bad it would have been, but I think it’s safe to say even the rosiest scenario would have been bad, bad news for the U.S.

The quote below is from Capital Markets Subcommittee Chair, Rep. Paul Kanjorski of Pennsylvania.

From the link:

Kanjorski: “The Treasury opened its window to help. They pumped a hundred and five billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.”

“It would have been the end of our political system and our economic systems as we know it.”

Cato Institute on the stimulus plan

A bunch of Cato-related links from the inbox today:

Stimulus Debate Heats up in Senate

President Obama’s stimulus bill moved to the Senate this week where it is facing stiff opposition from Republicans. In its current form, the bill still lacks enough votes to make it to the president’s desk. The Cato Institute placed a full page ad in newspapers nationwide showing that there is no consensus among economists about the stimulus plan. The ad features a statement signed by more than 200 economists, including Nobel laureates and other leading scholars who agree that the best way to boost economic growth is to lessen the burden of government. Each day, more economists continue to add their names to the online version of the ad. On Monday, a new version of the ad with more names will run in The Wall Street Journal. Read Chris Edwards and Ike Brannon’s recent article in the National Post, “Barack Obama’s Keynesian Mistake,” to learn more about the economic principles underlying the stimulus plan. You can also watch senior fellow Alan Reynolds discuss the stimulus plan on CNN, Fox News and listen to his latest interview on the false consensus for stimulus. If you think the word “stimulus” is a misnomer given the actual contents of the bill, then you’re not alone. Cato executive vice president David Boaz and senior fellow Daniel J. Mitchell discuss why the plan should not be termed a “stimulus.” If you run a blog or Web site and want to take a stand against this massive government intervention plan, go to cato.org/fiscalreality and click “Spread the word.” We have created an online widget that you can post on your Web site that will show your readers that you do not agree with the stimulus plan.