FedUpUSA

Archive for June 17th, 2010

Six hundred small banks still hold $130 billion in unpaid TARP payments with taxpayers on the hook. Records show Over 90 Banks Miss their May TARP Payment.

Statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November. SNL Financial’s analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

While many of the largest U.S. banks easily repaid billions in TARP aid, more than 600 smaller banks still hold $130 billion from the program, created at the height of the financial crisis.

Most of the banks failing to make TARP payments are bankruptcy candidates.

Top 10 Sovereign Debt Default Risks

Inquiring minds might also be interested in a slideshow of Government Debt Issuers Most Likely to Default.

Minus the slide images here are the results.

1. Argentina – CPD: 50.14% – Mid Spread: 1081.14
2. Venezuela – CPD: 49.76% – Mid Spread: 1013.78
3. Ukraine – CPD: 44.12% – Mid Spread: 884.91
4. Pakistan – CPD: 42.17% – Mid Spread: 803.20
5. Dubai, UAE – CPD: 32.46% – Mid Spread: 572.92
6. Republic of Latvia – CPD: 29.13% – Mid Spread: 513.31
7. Iraq – CPD: 28.25% – Mid Spread: 475.97
8. Iceland – CPD: 27.03% – Mid Spread: 476.34
9. Greece – CPD: 24.92% – Mid Spread: 341.54
10. Dominican Republic – CPD: 23.37% – Mid Spread: 375.00

From the article: “The countries are ranked by their cumulative probability of default (CPD), which gives the market’s assessment of an issuer’s likelihood of default over the life of a CDS contract.”

Those numbers are from March as ranked by CMA. Greece is certainly higher now.

New “Merle Hazard” Song – “Legal Tender”

“Legal Tender” is an original lyric by Merle Hazard and Tom Carroll, set to a classic public domain melody. The melody is from an 1861 song, “Aura Lee,” that was popular during the American Civil War. Elvis used the same melody in “Love Me Tender,” which was a hit in 1956.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

It seems like almost everywhere you turn these days there is bad economic news.  Foreclosures are setting records, unemployment remains depressingly high, poverty is exploding, U.S. government debt is wildly out of control and Europe is on the verge of an economic collapse that could send the entire globe into a devastating financial panic.  If all that wasn’t enough, the oil spill in the Gulf of Mexico has destroyed the seafood and tourism industries along the Gulf coast and threatens to push that entire region into a depression for years to come.  The truth is that the more you look at the economic statistics coming in from around the globe the more it becomes obvious that we are headed for a complete and total economic nightmare. 

Just consider some of the most recent economic news…. 

*The number of U.S. home foreclosures set a record for the second consecutive month in May.  How can the U.S. housing industry be recovering when the number of Americans being foreclosed on continues to set all-time records?

*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, up 20 percent from a year ago.  Instead of working their way through the huge backlog of unsold homes, U.S. banks continue to pile up a massive inventory of foreclosed homes at a staggering pace.

*According to figures from the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, the biggest decline since March 2009.  The data also revealed that single-family home starts suffered the biggest drop since 1991.  There is already a massive glut of unsold homes on the market, so builders simply do not think it is profitable to build many new homes right now.

*Officials now tell us that the cost of “fixing” Fannie Mae and Freddie Mac, the government-backed mortgage companies that last year bought or guaranteed the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion.  The twin pillars of the U.S. mortgage industry have become financial black holes that the U.S. government endlessly pours massive amounts of cash into.  That is not a good sign.

*Fannie Mae and Freddie Mac are to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days.  The truth is that Fannie Mae and Freddie Mac would have completely imploded by now if the U.S. government had not decided to step in and bail them out.

*The average duration of unemployment in the United States has risen to an all-time high.  Not only are a ton of Americans out of work, they can’t find work for a very, very long time once they are unemployed.

*For Americans younger than 25 years of age, the unemployment rate is 18.8%.  But even those young Americans that can find employment often find themselves working in very low paying service jobs.

*Federal Reserve Chairman Ben Bernanke says that the U.S. unemployment rate is likely to stay “high for a while”.  Considering how badly Bernanke has been doing his job, it would be really nice if we could add just one more person to the unemployment rolls.

*According to one new study, approximately 21 percent of children in the United States are living below the poverty line in 2010 - the highest rate in 20 years.  There are hundreds of thousands of American children on the streets each night, and yet we continue to insist that we are the greatest country in the world. 

*For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.  How many tens of millions of Americans have to be on food stamps before we officially say that we are in a depression?

*According to the Wall Street Journal, the debates have begun inside the Fed about what it should do in the event of a “double dip” recession.  If they are already debating what to do during the next economic downturn that means it is probably a foregone conclusion. 

*If you were alive when Christ was born and spent one million dollars every single day from then until now, you still would not have spent one trillion dollars by now.  But somehow the U.S. government is now over 13 trillion dollars in debt.  According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015. 

*It is being projected that the U.S. national debt will grow to surpass our gross domestic product in 2012.  Needless to say, that is a really, really bad sign.

*The total of all government, corporate and consumer debt in the United States is now equal to 360 percent of GDP.  At no point during the Great Depression did we ever even come close to such a figure.

But things may be even worse in Europe right now.  Unfortunately for the U.S., when Europe experiences an economic collapse it will devastate the American economy as well. 

The economic news coming out of Europe lately has been extremely alarming….

*George Soros says that a European recession next year is “almost inevitable”.  Considering how much access George Soros has to inside information, the fact that he is so pessimistic about Europe is a very troubling thing indeed.

*A report by the Bank for International Settlements says that the debt crisis hitting southern Europe resembles the 2007 subprime mortgage crisis.  Is history about to repeat itself?

*Moody’s has downgraded Greece government bond ratings into junk territory, citing the risks inherent in the rescue package that the rest of the eurozone has put together for them.  Soon Spain, Portugal, Italy, Ireland, Romania and a number of other European nations could have their debt downgraded as well. 

*The U.K.’s  new Office for Budget Responsibility has announced that the U.K. economy was more damaged by the recent financial crisis than previously admitted, and that it may never fully recover.  But the same could be said for many other nations across the world as well.

*21.5% of all working-age people in the U.K. do not have a job.  It seems like almost every country has a shortage of jobs these days.

*New U.K. Prime Minister David Cameron is warning that Britain’s “whole way of life” is about to be significantly disrupted for years by the most drastic public spending cuts in a generation.  In fact, severe austerity measures being implemented all across Europe could make this one of the most “interesting” European summers in ages.

*Spanish banks are borrowing record amounts of money from the European Central Bank as Spain’s financial institutions are finding it increasingly difficult to acquire funds in international capital markets.  But the truth is that it isn’t just Spanish banks that are facing a liquidity squeeze – the entire world is heading for a massive credit crunch.

But the biggest piece of bad economic news of all is the nightmare that is unfolding in the Gulf of Mexico.  There is no way that the southeast United States is going to be the same after this.  Hordes of businesses and entire industries have been literally destroyed over the past two months.  The total economic damage from this unprecedented disaster will easily run into the hundreds of billions of dollars.  This is an economic blow that the teetering U.S. economy simply could not afford right now.  Once the oil finally stops flowing the crisis will not be over.  In fact, the aftermath from this oil spill could end up echoing for decades.

So are things bad out there?  Yes, things are incredibly bad and they are about to get a whole lot worse.  In fact, there are so many cancers eating away at the U.S. economy that it would take an entire book to detail them all. 

What we are dealing with is not “just another recession” or “just another economic downturn”.  What we are witnessing is the fundamental unraveling of the monstrous debt spiral that our economy is based upon.  Any economy that is built on a foundation of debt and paper money is inevitably doomed.

So yes, the bad economic news is going to continue.  Things may get better for a while here and there, but the truth is that we are caught in a long-term spiral of economic decline from which there is no escape.

The Economic Collapse

Click Images to Enlarge

The Daily Bail

06/17/10 Laguna Beach, California – The Dow Jones Industrial Average added five points yesterday to close at 10,409 – almost exactly where it closed eleven years ago. Amidst giddy fanfare and high fives, the Dow closed above 10,000 for the very first time on March 29, 1999. One month later, amidst even giddier fanfare and high fives, the Dow closed above 11,000 for the very first time.

The economy was booming, the federal government was running a budget surplus, and Alan Greenspan was becoming an economic demigod. Whenever he wasn’t walking on water – or congratulating himself before Congress – he was pulling just the right monetary levers at just the right time to ensure the nation’s prosperity.

Over in the stock market, therefore, the sky was the limit.

Unfortunately, as the new millennium advanced, the tech stock bubble burst, the housing bubble burst, federal finances deteriorated from hundred-billion dollar surpluses to $1 trillion deficits, and Alan Greenspan’s omnipotence dissolved like the low-budget hologram it had always been.

With the benefit of hindsight, it became obvious that Greenspan’s “benevolent control” over the US economy was a myth. A lie. He was the Munchausen-by-proxy Federal Reserve Chairman – continuously poisoning the economy with recklessly low interest rates, then rushing to its aid with a cocktail of rate hikes and econo-babble, hoping to counteract the ill effects of financial bubbles that he, himself, had nurtured.

Greenspan’s legacy is not the only American myth that is suffering a harsh de-mythologization. Many long-standing perceptions of America’s legendary economic prowess are – How should we say? – “Under review for possible downgrade.”

Many of the most enduring and iconic components of the “American dream” are succumbing to nightmarish realities. The “Land of Opportunity,” for example, has not produced a single net new job in more than a decade. At the end of 1999, 131,402,000 Americans were drawing paychecks. Today, 131,198,000 Americans are drawing paychecks.

Meanwhile, the pride of home ownership has become the shame of mortgage default. As home prices nationwide languish at seven-year lows, an astonishing 14% of mortgage-holders are delinquent or in foreclosure.

What about the value of a college education? Surely, a four-year degree retains the caché and power to elevate aspiring capitalists from the limitations of blue collar labor to the rarefied air of white collar opportunity! Think again.

As we noted in yesterday’s edition of The Daily Reckoning, a college education is “one small part of a vast American myth.” As the US economy continues its non-recovery from the credit debacle of 2008, the dubious utility of a four-year degree is becoming painfully obvious to the nation’s recent college graduates. Unemployment rates for all college graduates – both recent and ancient – have doubled from 2% to 4% during the last year. But this statistic greatly understates the problem because it fails to include the legions of graduates who return to their parent’s houses, apply for the Peace Corps, work at Starbucks or “take a year traveling.”

According to the National Association of Colleges and Employers, more than half of all 2007 college graduates who had applied for a job had received an offer by Graduation Day. In 2008, that percentage tumbled to 26%, and to less than 20% last year. Statistics like these do not inspire confidence in a college degree, but they may have inspired a recent posting at Nakedlaw.avvo.com entitled, “8 Reasons College Tuition is the Next Bubble to Burst.”

Reason #1 is that “tuition is, and has been, increasing at triple the rate of inflation.” Accordingly, therefore, “the number of college students graduating with over $25,000 in student loan debt has [also] tripled in the past decade alone. Today, 66% of students borrow to pay for college, taking on an average of $23,165 in debt. Twelve years ago, 58% borrowed to pay for college, taking on only $13,172 in debt.”

But this “new math” isn’t working as well as the old math. For one thing, as of 2005, a student loan is no longer dischargeable in bankruptcy. (So gone are the days of borrow, default and forget). For another thing, as of 2010, a college degree is no longer an automatic entrée into attractive employment opportunities. As a result of these challenging realities, many young Americans are disdaining the mythological virtues of a college education in favor of tangible paychecks.

“Fed Up With the Economy And White-collar Drudgery,” a recent Washington Post headline declared, “College Grads Turn to Trades.” The story that followed cited several fascinating examples of college graduates who shunned traditional post-collegiate career paths to become electricians or plumbers or whatever else puts dirt under the fingernails.

“Armed with a bachelor’s degree in theology from Notre Dame,” the Post story relates, “Adam Osielski was pondering a route well traveled: law school. He watched his friends work long hours as paralegals while studying law and weighed the all-encompassing commitment. That was five years ago. Today, Osielski, 29, is a journeyman electrician rather than a law firm associate… Osielski is among a small but apparently growing number of the college-educated who are taking up the trades… Ultimately, many earn as much or more as they would in jobs requiring a college degree. Licensed journeymen [plumbers] can expect to be paid $65,000 to $85,000 a year, depending on overtime.”

But even this blue-collar sliver of the American dream provides more nightmares than success stories. “Local apprentice programs, which typically last five years, are swamped with applicants nowadays,” the Post relates. “The electricians’ union program, for example, has 2,500 applications for 100 slots. And nearly 4,000 want to get one of the 300 slots at plumbers and pipe fitters school… Nationwide, 550,000 people are enrolled in registered apprenticeship programs, according to the Labor Department, and the number of students in unregistered programs might be almost as high.

“Brian Jones…studied physics on an academic scholarship to McDaniel College in Westminster, Md.,” the Post continues, “hoping to get a job as an engineer with NASA or an aviation company after he graduated in 2002. He watched friends with lower grades land jobs through family contacts, but he couldn’t find one. Then a friend suggested that he could make as much money as an electrician. He just finished his third year as an apprentice.

“Rateeluck Puvapiromquan, 30, the daughter of two schoolteachers who immigrated to Baltimore…become an electrician when the only jobs she found after graduating from St. Mary’s College in 2001 with a degree in the philosophy of religion were in coffee shops and hotels.”

These non-traditional success stories illustrate very poignantly that the Land of Opportunity is offering fewer opportunities these days. Maybe the legendary American economic engine can dust itself off and resume powering the kinds of entrepreneurial activities that generate significant employment growth and national wealth. But we aren’t holding our breath.

And neither are foreign nationals who obtain post-graduate degrees from American universities. In the recent past, Ninety-two percent of Chinese Ph.D.s in science and engineering would remain in the United States for at least five years after their studies…and 85 percent of Indians.

But according to a recent survey of more than 1,200 foreign-born Ph.D. students, the percentage of Chinese who plan to stay in the US after graduation has tumbled to just 54%, while the number of Indians who expect to remain is only 58%. What’s more, only 7% of Chinese students surveyed and 25% of Indian students believe that the American economy’s best days still lay ahead. But overwhelming majorities of both Indian and Chinese students believe their home countries’ best days still lay ahead.

These survey results do not guarantee that America’s best days are behind her, but neither do these statistics inspire much confidence that America’s best days lie ahead.

Eric Fry
for The Daily Reckoning

06/17/10 Baltimore, Maryland – Stocks were flat yesterday. Gold fell $3.

The news was mixed.

The big debate is between those who think the authorities are being too tight and those who think they are being too loose. Broadly, Europeans are on one side. Americans are on the other. The Europeans are tightening up. The Americans are letting rip. They’re both wrong, as far as we’re concerned.

It’s all nonsense. Just goes to prove our dictum that people come to think what they must think when they must think it. The Euro-feds can’t afford to think they can loosen up. Their lenders have already laid down the law: ‘Keep spending like the Greeks and we’ll hit you with Greek-style interest rates.’

Just a few weeks ago the Greeks were forced to pay 16% interest. At that rate, borrowing is out of the question. You’re effectively cut off. Because the more you borrow, the higher your interest rate. Soon, you run out of money.

As Nouriel Roubini put it, ‘austerity is not optional.’ Since it’s not an option, but a necessity, there’s no point in thinking anything else. You might like to spend more money, but you know you can’t get away with it.

The US doesn’t have to think about austerity. Not yet, at any rate. They’ve got the whole world ready to lend them money. ‘Here, take a drink of rice wine,’ say the Chinese. ‘Here is some champagne,’ say the Europeans. ‘And here’s a bottle of whiskey,’ say the jokers in the back of the room.

It is only a matter of time before Americans fall down.

Not so, say the Keynesians – led by Paul Krugman and Martin Wolf. They say it’s just a matter of managing the situation. Enjoy the party. You can pull yourself together later.

“The best policy is to put together measures that sustain strong growth in demand in the short run,” writes Wolf in yesterday’s Financial Times, “while constraining the huge deficits in the long run. It’s like walking and chewing gum at the same time. Why should that be so hard?”

Meanwhile, Richard Koo probably knows more about this sort of economy than anyone. He’s lived with it in Japan for the last 20 years. So, what does Koo think?

He says you can forget about a quick recovery. Japan has been hoping for a quick recovery for the last 20 years. It’s been following the Krugman-Wolf approach – stimulating demand with fiscal policy. That is, it spends more than it collects in taxes, counting on the extra government spending to light a fire under the private sector.

But that won’t happen, says Koo. The private sector won’t start spending again until it has finished de-leveraging. Paying off debts takes a long time – especially when the government keeps bailing you out. So prepare for a long slump in the private sector economy.

So far, so good. But then Koo takes the classic Keynesian line. Like Krugman and Wolf, he believes the government should replace private spending with spending of its own.

It sounds logical enough. At least if you don’t think about it too much. An economy is the sum of spending and investing. If the private sector goes into a funk and stops spending and investing, the economy shrinks. So why shouldn’t the government step in and help out a bit?

Koo thinks so. Krugman, who won a Nobel Prize in economics, thinks so. Wolf, who heads up the worlds’ most influential financial journal, thinks so.

Well, count on us, dear reader. We don’t think so.

A real economy is much too complex for such simpleminded management. It is an organic system that delivers to people what they want (markets give them what they deserve). An economy doesn’t necessarily correspond to what academic economists think it should be…or necessarily do what they think it ought to do…or sit still long enough so they can tell what the hell it is doing.

A real economy has a mind of its own. It doesn’t care about their GDP growth rates. Whether people lose their jobs or not is not its problem. And it certainly doesn’t intend to help politicians get re-elected.

Sometimes people want to spend. Sometimes they want to save. Keynes identified this “propensity to save,” as though it were an unpardonable sin. If the people won’t spend, we’ll spend for them, he said…or words to that effect. But why shouldn’t people be allowed to save money rather than spend it?

‘Because the economy might collapse,’ says the Krugman-Wolf-Koo crowd.

‘So what?’ answers The Daily Reckoning.

Bill Bonner
for The Daily Reckoning

By Alan Aronoff

as has existed over the average of the last ten years, with the exception of the period beginning at the latest recession in December 2007. Figure 2 shows that the stimulus bill has a positive effect on the jobs at the government level; it also shows the level of government job creation and destruction for all levels of

• $1.4B in deficits
• Passage of ObamaCare
• Takeover of GM and Chrysler
• Bailout of financial institutions that are too big to fail
• And now, a moratorium on off-shore oil drilling off the Gulf coast.
• And lets not forget that an energy tax is still possible, which could enable a further reduction in the manufacturing base in the U.S.