CBO: Economic Recovery not Guaranteed

There is nothing to suggest that the economy will get better in the foreseeable future. We have a government and economy that is dysfunctional. Corporations are simply hording money and not investing in the economy. Workers are working longer hours for less pay. Assuming they have a job. This means no consumption. Which is essential to economic growth. Disaster only looms ahead:

One effect of the Great Recession was to massively widen the gap between the amount of wealth the economy could be producing and what it actually was producing. GDP production dropped almost $1 trillion from its pre-recession trend line, and between 2008 and 2011 the United States lost around $3.6 trillion.

CBO’s “current law” baseline, which assumes the nation goes over the so-called “fiscal cliff,” does not show a return to potential GDP until 2018. However, as the Economic Policy Institute noted yesterday, CBO’s predictions over the last three years have repeatedly pushed back the date of the recovery, suggesting there’s no guarantee it actually happens...

Economic Uncertainty is Near its All-Time High

The Unemployment Rates Goes Back up Again

This could be disastrous for the economy. The belief that things are getting better is being undermined. And so is the whole argument for re-electing Obama. Things have to change dramatically or the whole economy could unravel. And when is the last time anyone talked about a jobs program?:

U.S. unemployment, as measured by Gallup without seasonal adjustment, was 7.8% for the month of November, up significantly from 7.0% for October. Gallup's seasonally adjusted unemployment rate is 8.3%, nearly a one-point increase over October's rate.

Bowles: 'We Face The Most Predictable Economic Crisis In History'

The warnings keep coming but the political/media establishment ignores it. Meanwhile we're just talking about a meaningless election in where there is really no mention of what needs to be done to rescue the current economy:

 Erskine Bowles, a true Southern gentleman and co-chairman of President Barack Obama’s erstwhile budget-deficit commission, came to New York City from his home in North Carolina the other night to talk sense about the nation’s perilous fiscal condition.

“I think today we face the most predictable economic crisis in history,” he told an audience on April 24 at the Council on Foreign Relations -- an audience that might actually be able to help do something about the problem. “Fortunately, I think it’s also the most avoidable. I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable.”

Bowles, a Democrat, then laid on the crowd some pretty simple, but devastating, arithmetic. He explained that 100 percent of the tax revenue that entered the Treasury in 2011 went out the door to pay for mandatory spending -- such as Medicare, Medicaid and Social Security -- and to pay the interest on our staggering $15.6 trillion national debt.

That means that every single dollar we spent on everything else, including two wars, national defense, homeland security, education, infrastructure, high-value-added research and the like, was borrowed. “And,” he warned, “half of it was borrowed from foreign countries. And that is a formula for failure in anybody’s book.”

Full article

Economic Growth Slows in First Quarter

At this point the economy should not be so weak. This suggests serious underlying factors, such as debt, structural unemployment, and low wages. We can expect the economy to dip into a recession or worse in 2013:

The U.S. economic recovery lost a bit more steam in the first quarter than most experts expected, as business investments and inventories slowed and government cutbacks continued to be a drag on growth.

The nation’s economic output expanded at a modest 2.2% annual rate in the first three months of the year, down from a 3% increase in the nation’s gross domestic product in last year’s fourth quarter, the Commerce Department said Friday.

Most analysts were expecting a GDP growth rate of 2.6% or a little higher for the first quarter.

Inflation-adjusted consumer spending grew at a solid 2.9% pace in the first quarter, boosted again by robust car sales as well as a pick-up in consumption of services. But business spending came in much weaker; investments for equipment and software rose 1.7% from the prior quarter, compared with an increase of 7.5% in the fourth quarter.

Much of the GDP slowdown was because of a significantly smaller buildup of inventories of products in the first quarter. That was expected as manufacturers and other businesses had increased their stockpiles of goods late last year to levels higher than what demand seemed to support.

Full article

Many U.S. Immigrants’ Children Seek American Dream Abroad

A sign of a nation in decline. America no longer a nation of opportunity?

In interviews, many of these Americans said they did not know how long they would live abroad; some said it was possible that they would remain expatriates for many years, if not for the rest of their lives.

Their decisions to leave have, in many cases, troubled their immigrant parents. Yet most said they had been pushed by the dismal hiring climate in the United States or pulled by prospects abroad.

Full article

Dylan Ratigan Show: "Real" Unemployment Rate is 20%

Very frightening news on the economy described on Dylan Ratigan program. The so-called recovery from 1997 recession is one of the weakest on record. The economy is still very weak. And not enough jobs are being created; we need to have 30 million. In addition, the European debt crisis is threatening our and the world's economy. It certainly doesn't help that major retailers, K-Mart and Sears are laying off large numbers of employees.

The analyses was given by the a fomer Presidenti advisor, Alan Blinder.

Economic Crisis not Just U.S. Problem

The pundits in the press and politicians seem not understand that the economic mess is not just an American problem. Washington seems to think that by them sending money (that we don't have) to Wall St. is the cure. The reality is that it could be beyond the control of the craven politicians in American, or in the West as a whole. The financial monster that has dominated the World for the last 2 decades is bigger than any one government and their ability to intervene. If any government has control it would be the Chinese rulers in Beijing. America, in particular, is a debtor nation that cannot pay it's bills alone. We depend on the unreliable and unpredictable Chinese. All Washington seems to be doing is pretending to act thus giving an illusion on doing something. If America really knew the truth we would march on the Capitol and string-up each member of Congress.

The auto industry's historic meltdown showed no signs of relenting in
January, with Ford Motor Co., General Motors Corp. and Chrysler on Tuesday posting U.S. sales declines of more than 40% -- below even the lowest of Wall Street targets.

Toyota Motor Corp., on the brink of posting its first-ever operating loss, fared only slightly better as the entire global auto industry continues to suffer.

Worst in 27 years:

Ford (F.N) posted a 40 percent drop in January sales in the United States, the sharpest decline for the No. 2 U.S. automaker in 10 months of double-digit sales declines in the world's largest market for new cars and trucks.

Toyota (7203.T), the world's largest automaker, was hit with a 34 percent sales decline, a drop that underscores how the U.S. recession has tripped up even the industry's strongest players.

Sales for Nissan (7201.T) were off almost 30 percent.

The results from Toyota, Ford and Nissan on Tuesday were among the first from major automakers for a month expected to show overall sales near 27-year lows, extending a stretch of 15 months of consecutive auto sales declines.

Madoff $50 billion Scandal: Why we Shouldn't Bail out Wall St.

Wall St. financier Bernard Madoff ripped-off investors possibly at cost of $50 billion. Why should we bail out an industry that the government failed to regulate for years? We are in this mess because Congress allowed the profiters to run amok. The government, including Obama, should be working to bail out the economy not the crooks that got us in trouble.

Two major European-based banks said they have exposure worth billions of dollars to a US broker accused of a $50bn (£33bn) Wall Street fraud scheme.

Spain's largest bank, Santander, said one of its funds had $3.1bn invested in the firm run by Bernard Madoff.

France's largest listed bank, BNP Paribas, estimated its exposure to be more than $460m.

Mr Madoff has been charged with fraud, in what is being described as one of the biggest-ever such cases.

Correspondents say the case is likely to fuel uncertainty about the entire hedge fund industry.

Mr Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

Investors are assessing their exposure to the alleged fraud Mr Madoff is said by prosecutors to have confessed to.

US Prosecutors say Mr Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business.

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker has been released on $10m bail.

"While BNP Paribas has no investment of its own in the hedge funds managed by Bernard Madoff Investment Services, it does have risk exposure to these funds through its trading business and collateralised lending to funds of hedge funds," BNP said in a statement.

Santander said its exposure to Madoff was through its investment fund Optimal.

UK-based asset management firm Bramdean Alternatives accused US regulators of "systemic failures".

The firm saw its share value drop by over 35% after it revealed that about £21m - nearly 10% of its holding - was exposed to the New York broker.

"It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith," the firm said.

"The allegations made appear to point to a systemic failure of the regulatory and securities markets regime in the US."

Where were the regulators?

Bernard Madoff’s investment advisory business, alleged to be a Ponzi scheme that cost investors $50 billion, was never inspected by U.S. regulators after he subjected it to oversight two years ago, people familiar with the case said.

The Securities and Exchange Commission hasn’t examined Madoff’s books since he registered the unit with the agency in September 2006, two people said, declining to be identified because the reviews aren’t public. The SEC tries to inspect advisers at least every five years and to scrutinize newly registered firms in their first year, former agency officials and securities lawyers said.

Madoff, 70, who had advised the SEC how to regulate markets and donated regularly to politicians, was arrested Dec. 11 and charged with operating what he told his sons was a long-running Ponzi scheme in the New York-based firm’s business advising rich people, hedge funds and institutions. His ability to avoid detection may fuel debate about the SEC’s effectiveness and the adequacy of its resources for policing money managers.

“Given what the SEC claims is the magnitude of the fraud, this is something you would hope an inspection would have uncovered,” said Mercer Bullard, a University of Mississippi law professor and former mutual-fund attorney at the SEC. “It’s hard to imagine a fraud of this alleged size not being accompanied by significant and pervasive compliance problems.”

Madoff is scheduled to appear in federal court in Manhattan on Dec. 19 at noon for a hearing in the SEC case, according to his lawyer, Ira “Ike” Sorkin, of Dickstein Shapiro LLP in New York.

“This is a tragedy,” said Sorkin, a former U.S. prosecutor and SEC enforcement lawyer. “We are going to fight through these events and try to minimize the losses as much as possible.”

[...]More than a decade earlier, in 1992, Madoff faced regulatory scrutiny as part of a lawsuit the SEC brought against two Florida accountants, whom it accused of raising $441 million while selling unregistered securities over three decades, according to SEC statements and a press report at the time.

Madoff told the Wall Street Journal at the time that he had managed the funds unaware they had been raised illegally. The SEC determined that the investors’ money was all accounted for, and didn’t accuse him of wrongdoing, according to the report.

Should the Auto Industry be Bailed Out?

Congress will once again consider whether it will bail out the auto industry. The other option being debated is bankruptcy for the big three. But even if they are "bailed out" is it any guarantee that these companies will survive. Isn't there a better solution? How about loans with strings attached? So far the bailing out of the financial markets has been a big flop.

The heads of the big three U.S. automakers are to testify before a U.S. Senate committee Thursday, to make the case for why the government should spend $34 billion to bail them out.

General Motors, Ford and Chrysler are reporting their worst sales in 26 years. GM and Chrysler say they may be out of business by February without government help.

But Senate Majority Leader Harry Reid, a Democrat, tells the Associated Press there are not enough Senate votes at this time to bail out the carmakers.

All three have submitted plans for rebuilding their businesses, severely hurt by the global recession, a lack of consumer credit, and selling large gas-guzzling cars many customers no longer want.

Along with promises to build more environmentally friendly hybrid and electric vehicles, the companies promise to cut jobs and slash executive pay and bonuses.

The United Auto Workers Union says it will renegotiate its contracts with the companies.

Ralph Nader has an opinion on all these bailouts:

In the past ten weeks, “government capitalism” has been a patsy, absorbing huge taxpayer dollars and liabilities to save an assortment of Wall Street financial corporations. Washington is guaranteeing a clutch of securitized mortgages and consumer loans and even guaranteeing, for the first time, 4 trillion dollars of money market funds.

The bailout of Citigroup illustrates the paucity of reciprocity. It is a sweetheart deal. With Citigroup’s co-executive. Robert Rubin rushing to Washington to structure the deal to save his bank and his own stock portfolio, the Bush regime took on $20 billion in preferred shares and put taxpayers at risk for over $300 billion in the big bank’s loan portfolio. Earlier in October, taxpayers were compelled to buy $25 billion in Citi preferred shares.

Whereas the Feds earlier took a potential 79% ownership of Freddie Mac and Fannie Mae to save those companies, for Citi the government only took 7.8% stake and left the management and board of directors intact.

Since these enormous bailouts and revisions of bailouts largely occur over weekends in frantic secret huddles between government officials formerly from Wall Street and their former colleagues from Wall Street, the actual agreements are not disclosed. They are considered official secrets, assuming they even have been finalized beyond mere memoranda of understanding.

Since all these deals, and more seem to be coming from other commercial and industrial pleaders, are general and appear to be open-ended, resourceful government capitalism can advance shareholder rights across the board and compel a variety of corporate reforms and accountabilities long-desired by progressives and conservatives alike.

[...]Let’s have a level playing field here and treat all corporate welfare demanders under equal procedural rules shaped on Capitol Hill. Remember the Constitution. It says all spending bills start with the House of Representatives and then go to the Senate and then to the President. Secret taxpayer bailouts by Executive Branch press releases are not what the framers had in mind when they wrote the Constitution.

With the installation of a new president and a new Congress next month, the process must be reversed and these White House-corporate “understandings” have to be reconsidered and, if maintained, revised.

This is a rare moment in American economic history. Just as the multinational corporations were about to complete the entrenchment of the corporate state in Washington, D.C., — what President Franklin Delano Roosevelt described in 1939 as a condition of fascism—their speculative greed, recklessness, mismanagement and de-regulatory license turned them into massive supplicants at the taxpayers’ trough.

The public does not think the bailing out of the auto industry is a good idea. They are right:

A national poll suggests that six in 10 Americans oppose using taxpayer money to help the ailing major U.S. auto companies.

Sixty-one percent of those questioned in a CNN/Opinion Research Corp. survey out Wednesday are dead set against the federal government providing billions of dollars in assistance for the automakers, with 36 percent favoring such a bailout.

The poll, conducted Monday and Tuesday, also indicates that a majority of Americans, 53 percent, don't think government assistance for the automakers will help the U.S. economy.

"Only 15 percent say that they would be immediately affected if the auto companies went bankrupt," CNN Polling Director Keating Holland said. "Seven in 10 say that a bailout would be unfair to American taxpayers."

In early November, polls indicated that nearly half the public supported federal assistance to the big automakers when this issue first came before Congress.

Food Prices on The Rise

Why are food/grocery prices on the rise when the price for everything else are going down?

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Federal Budget Deficit Could hit $1 Trillion this Year

The federal budget deficit could hit $1 trillion this year with more tax dollars going to bail out failed financial institutions. Very little of that money is going to help the average American. Those tax dollars should be reinvested into the economy to stimulate growth. In particular, the government (including local and state) should spend on rebuilding our dilapidated infrastructure which would increase employment thus stimulating the economy. Also more of those funds should go to help homeowners late paying their mortgages due to no fault of their own. As for Wall St. and the banks, they should get loans with strings attached. No bailouts. The goal must be economic growth. You can't get the economy going by creating more unemployment. Any government program/bailout should be for the purpose of stimulating economic growth not saving individual corporations or financial institutions.

The federal government's ledger has gone from a surplus just seven years ago to facing a prospect of a $1 trillion deficit next year.

Given those dire financial straits, President-elect Barack Obama said at a news conference Tuesday, "Budget reform is not an option. It's a necessity."

But unlike his predecessor President George W. Bush, who in better economic times talked about returning to surpluses by 2012, "balanced budgets" were not in Obama's vocabulary.

The government's first obligation, he said, was to spark an economic recovery and put people back to work. To do that, the Democratic-led Congress is expected to have a new stimulus package, costing in the $500 billion range, ready to go when Obama takes office in January.

That's on top of the hundreds of billions already spent or committed by Treasury and the Federal Reserve to revive the moribund financial markets. On Tuesday the government announced two new programs providing $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available.

All that, in the short term, will send the deficit into the stratosphere.

Budget hawks were stunned when the federal deficit hit a record $455 billion in fiscal 2008, which ended Sept. 30, more than double the previous year's deficit. But now, even the fiscally conservative say another doubling, to $1 trillion or more, may be inevitable if the economy is to be rescued.

James Horney, director for federal fiscal policy at the Center on Budget and Policy Priorities, said it was "pretty likely" that this year's deficit will approach $1 trillion. Big deficits can't be helped in bad times, he said, as the government is required to spend more to help the needy and stimulate the economy even as tax revenues decline.

"The question, of course, is what's the alternative?" Horney said. If the government doesn't move to stimulate the economy, "the outcome could be much worse."

Obama made clear Tuesday that he will take a hard look at the budget once the economic ship is righted.

"We can't sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness or exist solely because of the power of politicians, lobbyists or interest groups. We simply can't afford it.

"This isn't about big government or small government. It's about building a smarter government that focuses on what works," he said.

Jobless Claims Jump Unexpectedly to 16-year High

This is more catastrophic news. Claims for unemployment benefits is a leading a indicator for the economy. With it falling to the highest levels in 16 years (1992), we are seeing a crisis getting even worse. The greatest indication of a collapsing economy is a climbing unemployment rate. The government must do everything possible to stop the bleeding in employment. People must keep their jobs or descend deeper. Where is Obama in all this? This nonsense about there being only "one president at a time" must thrown out the window. Get out there and start leading. If you wait until January it could be too late.

New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.

The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.

That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.

The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.

In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.

U.S. Recession will Last 14 Months: Fed Survey

Reuters:

Private-sector economists believe the U.S. economy fell into recession last spring and now expect a sharp contraction in the fourth quarter of this year after slashing their forecasts for gross domestic product, a Federal Reserve Bank of Philadelphia survey said on Monday.

More very bad news:

Citigroup Inc. is cutting approximately 53,000 more jobs in the coming quarters as the banking giant struggles to steady itself after suffering massive losses from deteriorating debt.

The plans, posted on the company's Web site, are being discussed by CEO Vikram Pandit at the company's town hall meeting in New York Monday with employees.

The company said total headcount is being reduced by 20 percent from its peak of 375,000 at the end of 2007; the company had already announced in October that it was eliminating about 22,000 jobs from those levels. The total workforce reductions include thousands of jobs that will be lost when Citigroup completes the sale of Citi Global Services and its German retail banking business.

The New York-based bank has posted four straight quarterly losses, including a loss of $2.8 billion during the third quarter. The company said that in addition to job cuts, it plans to lower expenses by about 20 percent, and that is has reduced its assets by more than 20 percent since the first quarter of the year.

Citi shares fell 42 cents, or 4.4 percent, to $9.10 in morning trading. The company's shares have been trading at 13-year lows.

And now it is impacting State governments. Which means the cutting essential services like police, education, roads, bridges, transportation, etc., etc.

Two short months ago lawmakers in California struggled to close a $15 billion hole in the state budget. It was among the biggest deficits in state history. Now the state faces an additional $11 billion shortfall and may be unable to pay its bills this spring.

The astonishing decline in revenues is without modern precedent here, but California is hardly alone. A majority of states — many with budgets already full of deep cuts and dependent on raiding rainy-day funds or tax increases — are scrambling to find ways to get through the rest of the year without hacking apart vital services or raising taxes.

Some governors, including Arnold Schwarzenegger in California and David A. Paterson in New York, have called special legislative sessions to deal with the crisis.

Others are demanding hiring freezes and across-the-board cuts. A few states are finding their unemployment insurance funds running dry, just as the ranks of out-of-work residents spike.

The plunging revenues — the result of an unusual assemblage of personal, sales, capital gains and corporate taxes falling significantly — have poked holes in budgets that are just weeks and months old and that came about only after difficult legislative sessions.

“The fiscal landscape,” said H. D. Palmer, a spokesman for the California Department of Finance, “is fundamentally altered from where it was six weeks ago.”

In Michigan, to reduce overtime costs, fewer streets will be salted this winter. In Ohio, where the unemployment rate is above 7 percent, the state may need a federal loan for the first time in 26 years to cover unemployment costs. In Nevada, which is almost totally dependent on sales taxes and gambling revenues, a health administrator said the state may be unable to pay claims in a few months.

The Economic Collapse: I Hate to Say I Told you So

I have argued for many years that stock market crashes are part of the nature of the beast. Speculative bubbles will always end the same way, unless we change the system by eliminating speculation. The stock market should be for the purpose of investment. I have already offered my solution. But it could be late to prevent what seems an inevitable economic collapse as happened in 1929. The politicians (including Obama and McCain) have failed us, again. It is time for the people to take over. The alternative is economic abyss.

Here are my previous posts predicting economic collapse:
March 17, 2006:

The Congress and Bush have given us the biggest prize of all: historic debt and deficits. The problem with all this debt is that eventually someone will come around demanding payment. Since we have no savings the money has to be borrowed. This raises interest rates which makes of our currency more vulnerable. Take your choice hyper-inflation or recession (depression). Then what?

You can't have a disastrous war while running historic deficits. It didn't work during the Vietnam War. It won't work now. The only difference back then is that we didn't have a destroyed manufacturing base. Its all being shipped abroad; everything is being imported. We are broke as a nation. We are also broke morally as well since we have allowed criminal politicians to put us in this position.

July 4th 2006:

We could be on the verge of a financial collapse in the United States. As interest on the national debt continues to rise this could mean a collapse of the dollar causing a defaulting on our massive debt problem. This was the conclusion of Robert Scott, an economist at the Economic Policy Institute think tank, who appeared on C-Span this morning.

[...]It is a terrible and disgraceful mess that we've gotten ourselves in. And where is the outrage. Where are the politicians and the media (apart from C-Span) in sounding the alarm. Already we've seen our national savings rates at the lowest levels since the Great Depression. There is that word -- depression. We are already seeing repercussions in the case of the government shutdown in New Jersey. Expect to see more of that. We have a President and Congress running up obscene deficits to pay for the quagmire in Iraq. There is nothing left over to pay for essential services. We are already seeing a rise in the crime rate because there are less police and prisons to go around. Our roads and bridges are going un-repaired. And if we have another Katrina disaster (not to mention terrorist attack), which is likely, we won't be able to help the victims. This is the awful reality on this July 4th. I fear for my country.

February 1st, 2007:

The reality is that we are going broke as a nation. And its only a matter of time before the whole thing comes crashing down as it did in the 1930s.

February 28th 2007:

Is This 1929 all Over Again?

[...]We did not learn from Vietnam War and so we are repeating the same mistake. In July of 2001 this blogger (I was not a blogger then, but I did have a message board) warned about a "disaster" without realizing what exactly would happen. I have argued since 9-11 that we have not learned from that terrible day. We are still a decadent society, a nation of spectators. We sit around and watch a disastrous war on TV started by a President who has stepped on constitutional freedoms. It is happening with little protest or outrage. Now we could be facing a crisis that was inevitable: a stock market crash. And its happening because we didn't think about it (just as with 9-11). But history tells us stock markets crash. And since we learned nothing from 1929 we are doomed to repeat the same mistake.

December 16, 2007:

Greenspan: U.S. Moving Closer to Recession[...]I'm more worried about a depression.

January 16, 2008:

It is getting very dangerous. This could easily snowball into a panic (I won't use the d-word). We need to wake up. There are very serious problems with the U.S. economy, and that impacts the rest of the world markets.

- There is only one solution. Only 'We The People' can solve the problem. We have a political system that works on behalf of small economic/political elite. It is up to you to take back what belongs to you. The alternative is to perish. Begin today to fight back.