FedUpUSA

Archive for December 2nd, 2009

15 states have collectively borrowed more than $15 billion and another 9 states are in the red over unemployment benefits. Please consider Jobless claims put state in debt.

North Carolina’s high unemployment rate has stuck the state with $1.4 billion in debt – money that officials don’t know how they’ll pay back.

It gets worse. The debt is still rising. The problem is that with about 500,000 people out of work, the state has more unemployment claims than it can pay. So it has been borrowing from the federal government since February, sometimes as much as $20 million a day.

The tally will rise to at least $2billion by the end of the year, said David Clegg, deputy chairman and chief operating officer of the N.C. Employment Security Commission. Next year, depending on the economy, could add another $2 billion to the tab, he said.

For purposes of comparison, the state budget for the current fiscal year is $19 billion.

Let’s do the math. The state budget is $19 billion. Potentially $4 billion will be borrowed to pay unemployment benefits. In other words the state is borrowing an amount equal to 21% of its total budget just to pay unemployment benefits. Wow.

Only five states have borrowed more than North Carolina. Altogether, seven states have borrowed more than $1 billion each – more than $15 billion collectively – to shore up their unemployment insurance systems, according to the U.S. Department of Labor. A total of 24 states plus the Virgin Islands have borrowed money from the federal government.

Many states “are in pretty dire straits right now,” said Ingrid Evans, unemployment insurance director at the National Association of State Workforce Agencies.

The best hope for North Carolina, said Clegg, is for Congress to forgive a portion of the debt, if not all of it.

Another solution would be to raise the tax on employers that funds jobless benefits. Indiana, which owes about as much as North Carolina, recently took that move, but North Carolina officials worry it would increase financial pressure on businesses when they can least afford it.

“I would love to hear some U.S. Department of Labor official explain how they expect the states to pay billions of dollars from an employee base which is, at best, 20 percent smaller than it was before the recession started,” Clegg said.

I guess Clegg did not hear Obama’s plan to create or save 3.5 million jobs. Then again, the economy has lost about 9 million jobs. Of course the economy needs 100,000 jobs per month just to keep up with demographics (birth rate and immigration).

Moreover the jobs Obama claims to create comes at a very steep price. Please see Obama creates 640,329 jobs at a cost of $323,739.83 per job for details.

Finally, it is beyond preposterous to take credit for “jobs saved” when there is no way to measure it, or to take credit for jobs created when many of them were temporary (like all the road projects everywhere).

No definite plan

The National Association of State Workforce Agencies, which represents state departments such as the ESC, has made sure that members of Congress on both sides of the aisle are aware of the states’ plight, Evans said. But with the states not due to make any debt payments for more than a year, no proposals for dealing with the issue have surfaced. Indeed, the association itself hasn’t yet formulated its position.

Right now North Carolina doesn’t have a definite plan for paying off the debt. What’s most important today, state officials say, is that the state is continuing to pay unemployment benefits.

The only source of money for the unemployment insurance fund now – other than loans from the federal government – is the unemployment insurance tax that employers pay. Companies typically pay the tax on a quarterly basis, and the rate depends on how many workers the companies have laid off and how much those workers received in unemployment benefits.

The tax is capped at 5.7 percent of taxable payroll; the average rate currently paid by companies is 1.6 percent.

Increasing the tax rate on employers would be up to the General Assembly. But it would take a sizable increase to make a difference, and any attempt to do so likely would be resisted by the business sector.

No Escape

I sense a huge tax increase coming. Add that tax increase to concerns over cap-and-trade, rising taxes on the wealthy (many are small business owners), concerns over health care costs, etc, and small businesses have lots of reasons not to hire.

Increased taxes aside, business have little reason to expand given rampant overcapacity in retail stores, restaurants, strip malls, office space, etc. Neither housing, commercial real estate, nor autos will provide the same boost as coming out of the last recession.

Couple that with over 9 million people working part-time whose hours will be lengthened before new hiring begins and you can see what a mess this is.

Table A-5 Part Time Status

click on chart for sharper image

The chart shows there are 9.28 million people are working part time but want a full time job. A year ago the number was 6.8 million.

Note the trend in part-time work. It is inching up. In a recovery it should be headed down quickly. The reason is employers increase the hours of part-time workers before they start hiring full-time workers.

Unemployment will be structurally high for a decade.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.htm l to learn more about wealth management and capital preservation strategies of Sitka Pacific.

As Zero Hedge presented previously, the sharp divergence between the Nikkei and the S&P indexed in gold continues. The two reindexed indexes, which have correlated 0.91 since March, have diverged sharply in the past three weeks, and now stand at an over 11% divergence in performance since the year lows. Whether this is due to the “shocking” recent realization that Japan is caught in an ever increasing deflationary vortex (which the US likely will not avoid, at least not in the near term), or simply due to momo quants deciding that the Nikkei is no longer fun to chase, a convergence trade on the two broad indexes (long Nikkei, short S&P) seems like a rather painless way to pick 10%. Then again, ask Boaz Weinstein about “surething” convergence trades.

This came via e-mail from a legitimate source:

As a former staffer for one of these Senators [on the Banking Committee], I’ll just point out the obvious: most of them have their fingers in the wind right now. they’re leaning to confirm BB, because they don’t want to be out on a limb, and there’s a lot of talk coming from Wall Street that continuity is absolutely necessary to maintain investor confidence, and that BB is critical in this regard. On the other hand, they recognize that the Fed is very unpopular.

If they see signs of strong sentiment against the Fed, they may vote against him, but this is all about politics right now.

As an aside, the Fed is kind of asking for this by pushing so hard to be the central regulator. As a rule, central banks get to be independent, opaque, and imperious towards the people; primary regulators do not.
Surprised that all the genius economists at the Fed aren’t recognizing this basic dynamic.

Notice several key messages:

1. As with the TARP, the threat is that if action is not taken, the markets will go to hell. With the TARP, the markets went to hell after its passage anyhow. If the markets are significantly misvalued as some feel (Roubini, John Hussman, to name a few), they will correct. If confirming or not confirming Bernanke is part of this dynamic, all it will affect is the timing, not the outcome.

2. This notion of Bernanke being “critical” further suggests that Wall Street believes or knows he has and will manipulate markets on their behalf. Of course, Bernanke did so in an explicit way with the $1 trillion Treasury/Agency market intervention that started in March and is tailing off now. And of course, there has been the raft of special facilities, but those are supposedly being wound down now. Has there been even more, as some have charged, than what has been made public?

3. As an aside, this also confirms that at least some of the media is being spun successfully, as our post on Bloomberg’s unduly reports on Bernanke shows. That story said the confirmation is a done deal; this and other reports say there is a real possibility he could be nixed.

4. Most important, this says your action can make a difference. The big issue here is not the financial markets but the real economy. Bernanke was unwilling to intervene in markets, namely the subprime/housing bubble when it would have hurt Wall Street and saved us this mess. He (and Paulson and Geithner) falsely sold the bailouts on the idea that they would get lending going and trickle down the little guy. But that was false, unemployment is rising, the banks are not lending. Bernanke not only has no plan B, and more important, he has NO INTEREST in a plan B, such as really cleaning up the banks, which would be painful short term but would set the foundation for a recovery. We are now on our way to Japan style malaise.

PLEASE call or e-mail your Senator if you haven not done so, particularly if he is on the Banking Committee.

See here for contact info. Thanks!

US consumers keeps on purchasing Kindles on credit cards which they apparently have no intention of every paying off.  The most recent Fitch report disclosed that October delinquencies have continued their steady climb, and together with charge-offs, are at near record highs: “Consumer credit quality remains under significant strain as a result of the  persistent weakness in the labor markets,” noted managing director Michael Dean. The Labor Department will report unemployment data Friday; the jobless rate is expected to hold steady at 10.2%, the highest level in decades, while the decline in payrolls is seen mitigating from the previous month.

Dow Jones reports:

All types of consumer lending have worsened the past several years, with borrowers falling increasingly behind and lenders writing off many billions of dollars of owed loans.

Fitch’s credit-card performance indexes show late payments rising to their highest levels in five months and indicate higher charge-offs in the months to come.

Fitch’s index on delinquencies of at least 60 days rose to 4.41% from 4.22% in September. Late-stage delinquencies are now 31% higher than year-earlier levels and just below the record high of 4.45% in June. Delinquencies of at least 30 days rose as well.

As Zero Hedge pointed out, and as Meredith Whitney has voiced her concernes about, the biggest threat to the economic going into 2010 may be that not only are banks dropping reducing overall credit availability, but that ongoing credit contraction to the tune of almost $2 trillion over the next several years will mean existing credit limits are tapped out as existing ones become increasingly maxed out.

This will likely further entrench the consumer into an accelerated deleveraging mindset, and no matter what the incremental liquidity from the Fed is, the deflationary pressures will likely continue. Which means that markets will continue in full melt-up mode to compensate for real economic losses, which benefit exlusively the top percentile of the US population as the middle and lower classes continue experiencing the brunt of the credit contraction. At some point the economic reality is sure to catch up with the market surreality. That will be the point when all the flawed market policies by the Administration and Bernanke become exposed for the clothesless emperors they are.

I don’t know how, but I missed the fact Bill put out this report the day after his movie, The Secret of Oz, was banned on Amazon – perhaps I was too busy soliciting support.

This report is important in that Bill acknowledges the good intentions of gold backed money supporters because they are attempting to control the quantity of money, a worthy cause. However, history shows that gold backed money ultimately does NOT do a good job to control the quantity as it is the bankers who generally are the ones in control and their manipulations muck it up. Also, all the politicians have to do is to change the ratio of paper to gold as they have done many times in our own history. When you change the ratio, or allow the bankers to be in control, then the quantity of money is changed and ultimately the People lose…

The Still Report – November 22nd:

Marc Faber warns that further sovereign defaults are ahead. Dubai was just a teaser.

Starting from 0:45 in the video:

Dubai was just the tip of the iceberg. The ultimate result of the financial crisis will be not just bankrupt banks, but more bankrupt governments.
Massive U.S. economic stimulus means that U.S. bonds will one day have to offer higher yield than corporate bonds due to default risk.
China has learned one thing from the U.S. — how to massage and doctor economic statistics.

New $100 Billion Safety net for Jobless in Works
LINK HERE