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Archive for April 8th, 2010
State and Local Budget Crisis Black Swan – California paying out $100 Million per Day in Unemployment Insurance. Detroit’s Shrinking Population Crushes Revenues. The Employment Situation at a Micro Level.
April 8th, 2010 | 
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Posted by mybudget360
One stunning statistic that hit this week regards California’s unemployment insurance claims being paid out. California is paying out some $100 million per day in unemployment benefits. I’m not sure if I would call it a “benefit” but more as a buffer to get by. In reality if we really want to get a pulse on what Americans are facing in terms of the recession unemployment claims and benefits are a good place to start. The unemployment rate as we all know can be fudged in many ways. If you work 10 hours at Wal-Mart but want full-time work then you are counted as employed in terms of the headline rate. This isn’t a big deal when a small part of the country is working part-time for economic reasons but this group is enormous (9 million to be exact). The headline rate is 9.7 percent but add in this group and we are up to 16.9 percent. And people seeking unemployment rarely fudge numbers because they need the money and they have to report their status every two weeks to continue receiving claims.
If we look at California for example, the numbers show anything but a recovery:
Source: California EDD
Even with 99 weeks of unemployment insurance between federal and state, extensions, and other emergency support programs we have a sizeable number of people reaching the end of their rope. This shows how pervasive and deep this economic crisis has hit average Americans. I tend to look at unemployment insurance payouts as a good measure to see how quickly the economy actually recovers. After all, if after two weeks you find a job, you would expect that less would be coming out of the fund when it comes to renewing your benefits. So it is very sensitive to market changes in the employment market. We have so many market indicators from consumer confidence to home sales but in terms of employment, I’d be following the unemployment insurance payouts very closely to see when things actually take a turn.
And one unique aspect (there are many) about this recession is the length of time people have been out of work:
Of the 15 million officially unemployed people, nearly 7 million have been unemployed for 27 weeks or more. The problem when people remain without work this long is that they typically will be shifting into other industries. Think of a mortgage broker that now needs to retool for another industry that is hiring (i.e., health care). Congress is currently debating whether to extend unemployment benefits but the fact that we are even having this debate with 99 weeks of unemployment insurance in some states is troubling in itself.
In many places like Los Angeles and Detroit, you are seeing massive deficits in their budget but for different reasons. California relied heavily on the housing bubble. States that really built an entire tax collecting expectation around real estate are being harmed deeply:
The Real Estate Foursome
California
Nevada
Arizona
Florida
The private sector responded quicker. Massive layoffs and crashing home values. Yet state and local governments are still expecting revenues at higher levels. Even if they don’t expect it, they haven’t done anything to the level necessary of balancing their budgets. Many middle class Americans will probably be shocked to see their local tax rates blossom even as they see their wages cut.
The other side of the budget issue has ex-manufacturing states like Michigan and Ohio that are struggling from the economic downturn but for other reasons. People forget that Detroit for example has had a crashing housing market for over 15 years. This has to do with the dismantling of our manufacturing base but also people leaving the city:
Once the fifth largest city in the U.S. Detroit has lost half its population in 60 years. This has caused deep ramifications in budgets but also in how the city deals with problems. For example, there is an effort to bulldoze parts of the city to reflect the actual services available and the new population dynamics. Drastic measures indeed but this is what is happening.
So dwindling revenues are another important aspect of the budget crisis. Looking at local governments because many depend on tax collections for revenues, things are still in bad shape. So if revenues are not up to par, then it is merely a reflection of the weak economy. These are indicators that prove to be better at giving the “feel” of the recession because simply looking at Wall Street, you would think that we would all be partying with a 70+ percent stock market rally. But Wall Street does not reflect Main Street and they only care about the worker on the street when it comes to taking their money for bailouts of their horrible business decisions of the past decade.
If Employment Has Bottomed….
Posted by Karl Denninger
… why is it that unemployment claims data fails to show improvement?
In the week ending April 3, the advance figure for seasonally adjusted initial claims was 460,000, an increase of 18,000 from the previous week’s revised figure of 442,000. The 4-week moving average was 450,250, an increase of 2,250 from the previous week’s revised average of 448,000.
That “4″ handle doesn’t seem to be able to be hammered downward. But more importantly is the data in the unadjusted numbers – we are seeing two very disturbing trends here.
First is that “extended benefits” spiked higher by 77,403 in the last survey week available in that series (March 20th) but also the EUC series is showing what appears to be a lot of people rolling off extended benefits.
The household data in the employment report (for March) did not disclose anything that would account for this EUC number that one could call “positive” – that is, it’s pretty clear that 300,000 people didn’t come off EUC programs into work in that week.
The obvious cacaphony to further extend unemployment (from the 99 weeks now possible in some states) will rise in volume with this report I’m sure, but unfortunately that sort of support is exactly backward. At some point people have to have an incentive to move to where the jobs are or start business interests of some point on their own, and continually extending unemployment benefits doesn’t accomplish either.
This is one of the giant “unintended consequences” of support for housing prices and “extend and pretend” policies. We should have forced the foreclosures through the system immediately and we still should do it now. A homeowner who is deeply underwater cannot move to where the jobs are, as they can’t sell their house for what they have out in mortgage(s). A renter can scoot much more easily. We live in a nation where even in the depths of this economic mess (and all messes past, present and future) there are jobs – they just might not be where you currently live. In addition forcing the foreclosures through the system will force prices lower, which means that the newly-mobile worker will find it easier to rent or buy a new house – where they relocate to.
While it sounds rude, after nearly two full years of unemployment payments you’re well beyond the “we’re helping you” point and into the “we’re paying you not to work” realm. A dynamic economy requires people who will become motivated to do whatever is necessary to find employment and sustain themselves. That “whatever is necessary” may involve pulling up the roots, and if it does, that’s what people should be have incentives to do.
The fact is that even in The Depression 75% of the people had jobs, and there were jobs to be had – in some parts of the country. There might not be where you live now, but there are jobs – somewhere in this country, even if you don’t like the hours, job description or pay.
I know nobody wants to hear things like this, and I’m sure I will be called names for suggesting “no more extensions”, but the Federal Teat cannot be the support system for people over periods of two years or more – irrespective of how bad the economy is, in the form of cash handouts. We can only increase GDP by actually increasing output, and that means people have to have an incentive to do whatever is necessary to accomplish that – even if it brings howls of protest, and it will.
Is A Big US Bank Betting On A Greek Default In 11 Days?
Is A Big US Bank Betting On A Greek Default In 11 Days?
Submitted by Tyler Durden
Bankingnews.gr has disclosed something interesting. According to the Greek website, an account, allegedly a large US bank, has been dumping, in what it classified as “panic selling”, its holdings of a 10 Year GGB maturing on April 20, 2010, or in 11 days. What is unclear is whether the bank has been trading for its own account or for a client. What is clear, is that the seller is certainly not too convinced that the bond will see a repayment of principalwhen it matures, in other words believes that Greece will go bankrupt before April 20th.
It is clear that this move is panic.
The seller believes that in the next 11 days Greece will go bankrupt, there will be default or anything else to sell a bond expires in 11 days.
Who sold under a sign is a large U.S. bank.
The only thing that has not been established is sold on behalf of a client or on their own behalf?
Both are negative developments …
We did some snooping of our own and uncovered one bond issue that is due on April 20, however it is a 5 Year, not a 10 Year as bankingnews.gr claims. The 5 Year bond in question is a €8.22 billion in size, issued at 100.037, and was trading at 99.9008×99.9058.
Yet even if the Greek site simply mistook the tenor of the bond, a TRACE of recent activity indicates a rather substantial spike in trading (and thus both buying and selling).
To be sure, someone is unwilling to take the risk of picking 20 bps through maturity for holding this bond another 11 days. Alternatively, anyone convinced that Greece is going under in two weeks time, and that this bond will trade flat, can arb the accrued interest by selling today with the expectation that the bond will not only plunge but the 3.1% of accrued interest payment will certainly not be owed. One thing that is certain: this is an outflow of €8.2 billion that Greece would certainly much rather not have to stomach. This bond will take out all the incremental cash generated from the most recent “successful” bond auction and then some.
Posted in Economic Crisis, Financial System, Greece, Sovereign CDS, Sovereign Debt, Sovereign Risk | 
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