Storm Clouds on the Horizon

Many attribute the current recession to the housing bubble bursting.  Home financing and equity loans were the most glaring examples of the larger credit bubble problems that had built up.  This problem is not unique to the United States and has afflicted Europe as well.  Remember Iceland failing as the first indication of impending financial disaster?

Supposedly, things have improved in Europe, but this commentary in the Telegraph makes me wonder.  The M3 money supply contracted despite the dumping of stimulus money by U.S. and European governments in an effort to free up credit liquidity.  Instead, loans to the private sector decreased for the first time since 1983.  Reading the analysis and quotes presented is not an exercise for the faint of heart, as it presents a very gloomy picture for 2010.  Any time the word “deflation” is used, be afraid.  So much for converting dollars to Euros to hedge your bets, at least in the long term.
So stocks are now looking unstable if things don’t improve in the credit picture.  Where do you invest if you are one of the fortunate who has extra money or want to get out of the stock market?  Well, the gold bugs have pushed gold to $1,000 an ounce and there have been run ups in oil, copper, and eve lead!  A lot of people have moved their money into commodities but there is peril there as well. The key quote from this:

"It seems to us that if output declines, then input of materials ought to be down by a similar order," said High Frequency Economics economist Carl Weinberg.

I’m afraid logic has nothing to do with economic behavior these days.  Where to put your money is becoming like shooting a moving target in an increasingly faster carnival game.  I’d thought maybe the Euro for very short term and silver (as a bargain compared to gold) for longer term, but nothing looks safe.

Do you trust the Federal Reserve?  I’m beginning to think we have nothing but incompetency at the top of our financial and political institutions.  Finding out the shell game involving AIG being forced to bail out big banks such as Goldman Sachs doesn’t add to confidence in the system.  The cover up following that action destroys it.

So we have major problems yet to fully come into play and an utterly incompetent response to what has already gone wrong – all on an international scale, not just domestic.  No sector is seeing concrete growth, except for bigger government of course. Now is not the time to relax thinking we are in safer waters, rather it is a time to batten down the hatches and ride the coming storms out.

Is the Economy Really Growing Again?

The Feds announced the end to the recession today,  but dig deeper into what’s being reported and it seems premature at best.  Personally, I’ve never bought into the concept of a “jobless recovery” and much prefer the drier term “recalculation” to describe the employment situation.  To be blunt, if the jobs don’t come back and new ones are not being created, it isn’t a recovery.

Ed Morrissey (formerly of Captain’s Quarters) blogs at Hot Air about some of the hidden problems of the 3.5% growth rate, pay particular attention to the commercial property market quotation.  This is the other shoe waiting to drop in real estate, as I’ve posted before that banks are failing because of loans in this sector.  Most of the growth noted is based on Cash for Clunkers and tax credit breaks for homes that will go away in the next quarter, so I suspect we’ll see worse figures next quarter.  Negative growth wouldn’t surprise me, but there will be Christmas shopping to temporarily buoy things.

Meanwhile, the jobs are still vanishing and people are running out of unemployment. The stimulus is not doing much to help and to further exacerbate the problem the Obama administration has come up with a bogus figure of 30,083 jobs saved.  Even the AP had a hard time buying that and figured out that 5,000 of those don’t exist.  With work scarce and salaries being reduced, consumer confidence index is still poor at 47.7.  That bodes poorly for consumer fueled growth.

Oh and if you thought Cash for Clunkers was a brilliant stroke of genius, please read this and you may change your mind.  With the major downturn in auto sales following the end of the program, it is obvious this was a poorly thought out stunt for PR purposes by the administration.

Right now, I don’t trust anything this government is saying or doing about the economy.  Things are looking bleaker as more instability is appearing on the horizon. I’ll cover that in my next post.

Links for the Weekend: Economic Problems

There have been some interesting things brewing in the domestic and other economies this week.  Interesting as in the ancient Chinese curse of "May you live in interesting times."  There has been a push in the media and especially in the economist circles that things have improved and we are in a recovery.  Even ignoring the 9.8% official unemployment (hey you can't count those 800,000 or so who've given up on full time employment), I'm beginning to suspect there is willful blindness going on.  Like the condo tenants in the Monty Python sketch who hold up the apartment building by faith in its existence, it looks like people are trying to will the economy into being better by words alone.

That said, here's what I've run into around the Web the last few days:

Over in the U.K. things have been predicted as getting rosier, but indications are they've been wearing red tinted sunglasses in the gloom. A report that was supposed to show an anemic growth of 0.2% growth showed a contraction of 0.4% instead.  Most interesting quote from the Telegraph article for me was this:

The Office for National Statistics figures showed that every sector contracted except the public sector, which was flat.

Yep, everything but government shrinking sounds familiar.

The Times reported on this differently, with economists reacting with disbelief and doubt over the accuracy of the government report.  Now I distrust governments as much as most people do, but they tend to fudge numbers to the positive as much as they can get away with.  It is always "the economy, stupid" with the voters whoand I'd be surprised if the numbers do improve.  Quote of the article:

Ben Broadbent, an economist at Goldman Sachs, said: "At a time when all other indicators are consistent with much stronger growth, we expect today's data to be revised significantly higher in time."

Oh, yeah -- I really trust something coming out of Goldman Sachs these days.

On to the U.S. economy, where a word has come to my attention.  That word is "Recalculation." A Recalculation is where jobs are lost permanently as opposed to temporarily in a Recession. More here, with the thought that this is what we are seeing now.  Not reassuring, that's for sure.

Megan McArdle has an interesting post about declining tax revenues in The Atlantic.  Check out the CBO produced graph. Looking at that, I don't understand how anyone thinks more spending is the solution.

I've been following bank failures as a barometer of economic health, with a particular eye toward local banks.  Don't have any new ones locally to report, thankfully, but we just passed 100 failures nationally. The latest ones Friday take us to 106 for 2009 with worries many more are coming.  I'm still waiting for the retail property loans to blow up for the bigger banks, once that happens things will get ugly in a hurry. This quote should worry people:

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively -- partly to avoid inciting panic and partly because buyers for bad banks are hard to find.

With the FDIC underfunded, they have to stall for time or a lot of money will simply evaporate.

So what are we to do?  Well, our legislators at all levels need to get their acts together to control government spending.  We can't keep spending money that doesn't exist.  This video of the State Treasurer of California lays out the brutal realities that must be faced.  Of course, California has never been very good at dealing with reality in the past, but they are up against the wall now.  It is said where California goes, the nation follows.  I hope that is wrong.

Bank Failures Coming Closer to Home

Houston County, we have a problem.

Yesterday, this article jumped out of the headlines, as Spring Grove is a town I spent a good chunk of my school years in or around.  Jennings State Bank was the 95th bank to fail in the United States in 2009 and the first local one. It may not be the last.  The FDIC has warned Security State Bank of Lewiston to correct their lending practices and their Hokah branch is in Houston County.  Until recently, Houston County had been unaffected, not a surprise for a small county.  It is a temptation to say we are too small to fail, but realistically that is not the case.

It is clear we are not done with bank failures, whether they be local or national. Today brought another round of gloomy news, with a report from the special inspector general appointed to look into the banking stress tests conducted a year ago.  The biggest banks were said to be financially sound when Treasury Secretary Paulson knew otherwise.  To wit, he lied about it. Citigroup and Bank of America are singled out in the article, but there have been rumblings that Wells Fargo is not in good shape as well. Apparently, the "too big to fail" argument won out over honesty with Bernanke and Paulson.

None of this inspires confidence at any level.  When cover ups begin, they are usually due to one of two things: the desire to protect oneself from trouble or blame and the other being paralyzed fear of large consequences too horrific to contemplate.  My suspicion is that the latter is the case. In the end, no amount of running from reality will make bad things go away.

Time to prepare for reality on an individual basis, as the current crop of politicians and bureaucrats have no desire to face it.

UPDATED:

Looks like the national level isn't as big as it gets, the question now being posed is whether the World Bank is going to fail.

Around the Web in 180 Minutes

Okay, it depends on how fast a reader you are, but the following links should keep a person busy for awhile.  My room finally has a ceiling again which needs "mudding" and a few gaps filled yet.  One day I'll get to sleep in my bed again...

Unbalanced Balance

Lately I've been seeing PC's infected by trojans posing as anti-virus software that traces back to the Russian mob.  That caused my antennae to go up and so I found the latest trojan very interesting as it does more than stealing passwords or extorting money to regain control of the computer.  They've finally made one that can intercept and steal money from online banking sessions.  At this rate nothing will be secure on the Net.

Ruining the Hacker's Picnic

Then again, maybe ants are the solution. At least for corporate networks there is a new technology being explored that may counter trojans and other malware faster. Unless this is used by ISP's I don't think it will be of much benefit for home users.  Still it is a fascinating idea and I look forward to hearing more about it.

Need More Sun Cosmic Rayscreen

With the sun being shy of late, refusing to warm the Earth as much and generally not putting out solar flares, another problem has arisen.  Now we are being exposed to increased amounts of cosmic rays.  I wonder which of the Fantastic Four's powers I'll get.  If it is a new ice age coming, I'll hope for the Human Torch's abilities.

So How's That AK-47 vs. M-16 Rivalry going?

Political interference kill business success from what I've seen and no nation is more politically corrupt than Russia.  The AK-47 is one of the most popular weapons of the modern age due to its simplistic ruggedness and reliability.  However, not even that toughness can withstand the corrosive politics in Russia. I'd still prefer to have an AR-15 variant than the Kalashnikov, but it is amazing how far things have fallen over there.  At least the knockoffs of the M-16/AR-15 are superior to the original and it is still being made.

We Aren't Out of the Recession

It is getting to be a weary task to type about all the things going wrong with the economy and Obama's Administration.  There is simply too much material and it is too easy to do, which makes for a depressing exercise. As a result, I'll be posting more about other things.  But one point has to be made and that is the dishonesty about there being an economic recovery right now.  It simply is not happening and there are no concrete signs of it happening soon. Unemployment is still rising, now at 9.8% but closer to double that if you count those who've given up on finding work or taking part time jobs.  Manufacturing is down, durable goods orders are down, credit card and loan defaults are up, and the 95th bank failed for the year.

But the biggest indicator to me that things are going to get worse is the problems charities are facing.  When they are having to assist their own workers, things are dire.  We'll be seeing soup kitchens and tent cities in the future.  I pity the young, for they most likely will never know the standard of living we've had since the 1950's.

The AP Reports on Consumer Prices

Boring sounding, right?

Well, if you are concerned with the economy, it stops being boring once you hit a specific line in the article.

Selected quotes from the article:

Prices fell 2.1 percent over the past 12 months, the biggest annual decline since a similar drop in the period ending in January 1950. Most of the past year's decline reflects energy prices falling 28.1 percent since peaking in July
2008.

Well that doesn't sound so bad, the high energy prices inhibited any chance of a recovery.

Some economists have expressed concerns that the economy could be headed toward a dangerous period of falling prices, something the U.S. has not experienced since the Great Depression of the 1930s.

Okay, that isn't positive sounding. Deflation has been a worry of mine for some time now.

Wal-Mart Stores Inc. on Thursday reported its first-ever drop in same-store sales for its overall U.S. business for the quarter. The world's largest retailer said a big factor was price deflation, primarily in grocery products like dairy.

If Wal-Mart is taking a hit, things are bad. They are the last redoubt of the consumer being squeezed for cash. Meanwhile, desperate efforts to prop up dairy prices are occurring in Wisconsin, as input costs are far outstripping returns. Are our dairy producers the canary in the coal mine?

The longest recession since World War II has kept prices in check as wage pressures disappeared because of heavy job layoffs. Companies have been unable to boost prices because of weak demand.

Now this is really not good, as we are a service driven economy with 80% of it being the service industry. With a good chunk of the spending vanishing due to debt, unemployment, and depressed wages, the main fuel for the engine of the economy is in short supply. We don't have manufacturing to pull us out of this one, or an influx of new workers like women after WWII.

The gist of the article is that falling prices have reigned in inflation and how great a job the Fed has done. Me, I'm concerned, as I've been watching for deflation as a sign of another Great Depression. Time will tell if these are warning signs or just bumps in the road. Better buckle your seat belts!

A Must See Video on the Banking Crisis

Watch this video all the way through to understand what has just hit us and the real culprits that caused it:



Then pass the video on to everyone you can.