Contrarian Stock Market Investing News - Featuring Bargain Stocks » President Bush

Spending Soars, Savings Suffer

Ian Mathias — Thu, 01 Oct 2009 20:38:03 +0000

Personal spending soared 1.3% in August, the biggest monthly leap since 2001, the Commerce Department announced today. Of course, this $129 billion jump in consumption “shows strength in August, indicating some economic improvement,” as CNN writes. A quick look at the chart reveals that the once sober American consumer is starting to fall off the wagon yet again.

As always, the drama’s in the details. “Cash for clunkers” was by far the biggest driver of new spending, almost single-handedly pumping up durable goods orders 5.8%. Interestingly, August’s rise was the biggest since October 2001 — right after Sept. 11, when retailers slashed prices and President Bush urged us to go shopping and “Get down to Disney World.” Heh… looks like only government decree can whip us into such consumption frenzies.

And for our 1.3% leap in spending, American incomes rose just 0.2%. In fact, when adjusted for inflation and taxes, what the government calls “real disposable income” actually fell 0.2%. What’s more, we as the collective “consumer” spent over $129 billion more in August, but chose to save $112 billion less. Savings as a percentage of personal income is now down to 3%, from 4% in July.

This “indicates economic improvement”? Must be reading the wrong release…

Source: Spending Soars, Savings Suffer

The G20, The New President, And Tom Friedman

Dave Gonigam — Mon, 17 Nov 2008 18:52:10 +0000

Well now, anyone who took my advice on Friday should have had a pleasant weekend, unconcerned about what the G20 leaders would do, which as I figured was just about nothing. They pledged to rig up more regulations that would preserve the place of the money-shuffling class in the world’s power structure, and made a few noises about the United States having somewhat less influence in that power structure going forward. Neither of which was much of a surprise.

The next meeting is April 30, barring some calamity between now and then. That’s when things might start to get interesting.

The big news of the weekend turned out to be the president-elect’s interview on 60 Minutes, in which either 1) he showed the back of his hand to the people who sounded alarm bells in I.O.U.S.A., or 2) the subsection of people who sounded alarm bells in I.O.U.S.A. who serve as his economic advisers have shifted sentiment on a dime. “The consensus is this,” he declared, “that we have to do whatever it takes to get this economy moving again, that we have to — we’re going to have to spend money now to stimulate the economy… And (consensus is) that we shouldn’t worry about the deficit next year or even the year after; that short term, the most important thing is that we avoid a deepening recession.”

Ah, I love the sound of printing presses in the morning!

(By the way, the “Personal Bailout Bundle” that features a free copy of the I.O.U.S.A. DVD is still available.)

The new president’s “consensus” announced last night was presaged yesterday morning by that fount of depressingly conventional wisdom, Thomas Friedman. He actually went a step further and urged the new president to take a page from the George W. Bush post-9/11 playbook and tell folks to go shopping. Of course, that’s a challenge right now for folks who have no savings, no retirement, and no home equity. (Perhaps Friedman’s judgment is clouded at the moment by the fact the family fortune he married into, once worth $3.6 trillion, is now worth under $25 million. Poor baby.)

Still, Friedman’s flaky musings make me wonder exactly what the next “stimulus” will be all about. When bankers collected their bailout money, they used a good chunk of it to shore up their balance sheets rather than loan it out. You and I might not have the same option. Imagine: When we collect our next “stimulus” check, it might come on the condition that it can’t be used to shore up our personal balance sheets and pay off debt. Maybe our checks will come in the form of vouchers that can be spent only on consumer goods.

Source: The G20, The New President, And Tom Friedman

The Consumer Economy We Know And Love Is Dead

James Howard Kunstler — Mon, 17 Nov 2008 14:59:02 +0000

President-elect Barack Obama won a historic election on a promise of “change.” James Howard Kunstler says Americans still have no idea just how big this change will be. He says we are heading into a “long emergency”, out of which a new, very different economy will emerge.

A Greater Depression?

Contrarian Profits — Mon, 17 Nov 2008 14:11:33 +0000

The record drop in consumer spending in October is clear evidence of a profound weakening of the US economy. Even President Bush think thinks the situation is bad. At the G20 summit over the weekend, he said it was conceivable that the US “could go into a depression greater than the Great Depression“.

- Of course a depression is what they used to call a recession. Then came the Great Depression. After that, economists and politicians stopped using the word for fear of jinxing the economy. Now, a depression means a severe and protracted recession.

- Bush may be right about the chances of the US slumping into a depression. Part of the problem is that it’s not only the US that’s suffering a bout of economic woes. Japan’s economy, the world’s second largest, has just officially entered its first recession since 2001. Third-quarter growth fell 0.1% after a second-quarter drop of 0.9%. The euro area is also in recession. A 0.2% drop in growth there in the third-quarter followed a similar second-quarter fall.

- Lucky the leaders of the G20 nations are on the case. The pols from the world’s 20 largest economies have promised to work together to achieve “needed reforms” in the world’s financial systems. US stock futures reacted poorly to the G20 pledge. Economists at UBS probably summed it up best, calling the G20 statement “a bland recitation of past policy initiatives, coupled with comments that were blindingly obvious.”

- We wish the G20 good luck in their endeavors. Unfortunately, however, we don’t hold much hope that their efforts will avert further pain. The G20, just like the Bush administration, is focused on reinflation measures, without addressing the underlying cancer eating away at the global economy: 40 years of monetary policy indulgence. As Doug Noland writes at PrudentBear.com,

There is little prospect that the direction of global policymaking will engender the return of stability anytime soon. As [Judy] Shelton adeptly notes [in an op-ed piece in the WSJ], “In the absence of a rational monetary system, investment responds to the perverse incentives of paper profits.” …

The global abandonment of any semblance of monetary or fiscal discipline is a hallmark of this extraordinary period of bursting Bubbles. Stable “money” may be the key – but it’s also nowhere to be seen.

- Meanwhile, bankruptcies continue to rise back in good ol’ US of A. The NYT reports that the number of personal bankruptcy filings “jumped nearly 8% in October from September, after marching steadily upward for the last two years … Filings totaled 108,595, surpassing 100,000 for the first time since a law that made it more difficult — and often twice as expensive — to file for bankruptcy took effect in 2005.” This means an average of 4,936 Americans filed for bankruptcy each business day last month.”

- And it’s not just America’s citizens who are facing bankruptcy; whole states are facing going under. The NYT also has a report on the massive deficits eating away at some of the country’s biggest state governments.

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 …

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.

- Such problems are just the tip of the iceberg, according to perma-bear NYU economics professor NourielRoubini . There are at least 20 reasons why Bush may actually be talking sense when he says the US faces a depression greater than the Great Depression. Here’s a quick rundown, courtesy of NakedCapitalism.com:

· The US consumer is shopped-out having spent for the last few years well above its means.

· The US consumer is saving-less as the already low household savings rate at the beginning of this decade went to zero/negative by 2006 and has now to raise to more sustainable levels.

· The US consumer is debt burdened with the debt to disposable income having increased from 70% in the early 1990s to 100% in 2000 and to 140% in 2008.

· Not only debt ratios are high and rising but debt servicing ratios are also high and rising having gone from 11% in 2000 to almost 15% now as the interest rate on mortgages and consumer debt is resetting at higher levels.

· The value of housing wealth is now sharply falling by over $6 trillion as home price depreciation will soon be 30% and reach a cumulative fall of over 40% by 2010. Recent estimates of this wealth effect suggest that the effect may be closer to 12-14% rather than the historical 5-7%….

· Mortgage equity withdrawal (MEW) is collapsing from $700 billion annualized in 2005 to less than $20 billion in Q2 of this year. Thus, with falling housing wealth and collapsing MEH US households cannot use their homes anymore as ATM machines borrowing against them.

· The value of the equity wealth of US households has fallen by almost 50%, another ugly wealth effect on consumption.

· The credit crunch is becoming more severe as the recent Q2 flow of funds data and the Fed Loan Officers’ Survey suggests: it is spreading from sub-prime to near prime to prime mortgages and home equity loans; and from mortgages to credit cards, auto loans and student loans. Both the price and the quantity of credit are sharply tightening.

· Consumer confidence is down to levels not seen since the 1973-75 and 1980-82 recessions.

· Real wage growth and real income growth has been stagnant in the last few years as income and wealth inequality has been rising. And now with GDP and real incomes falling real consumption will fall sharply.

· The Fed is reaching the zero-bound on interest rates as the economy gets close to deflation given the slack in goods, labor and commodity markets. Deflation means that consumers will postpone consumption as future prices are lower than current prices, as real rates are positive and rising and as debt deflation increases the real value of the households nominal debts

· Employment has been falling for 10 months in a row and the rate of job losses is now accelerating… In this cycle job losses have been so far “only” slightly over 1 million while labor market conditions are severely worsening based on all forward looking indicators…Massive job losses and concerns about job losses will further dampen current and expected income and further contract consumption.

· Tax rebates of over $100 billion failed to stimulate real consumption earlier in 2008. Only 25% of the tax rebate was spent as US consumers are worried about jobs and need to use funds to pay their credit card and mortgage….another general tax rebate would be as ineffective as the first one in boosting consumption.

· The 1990-91 and 2001 recessions were not global; this time around the IMF is forecasting a global recession for 2009.

· The recent rise in inflation – that is only now slowing down – reduced real incomes even further for lower income households who spend more than the average households on gas, transportation, energy and food. The recent sharp fall in gasoline and energy prices will increase real incomes by a modest amount (about $150 billion) but the losses of real disposable income and thus falling consumption from other sources (wealth, income, debt servicing ratios) are much larger and more significant.

· The trade weighted fall in the value of the U.S. dollar since 2002 has worsened the terms of trade of the US and reduced further real disposable income and the purchasing power of US consumers over foreign goods.

· With consumption being over 71% of GDP a sharp and persistent contraction of consumption all the way through at least Q4 of 2009 implies a more severe recession than otherwise. Consumption did not fall even a single quarter in the 2001 recession and one has to go back to 1990-91 to see a single quarter of negative consumption growth…

· Monetary easing will not stimulate durable consumption and demand for residential housing as demand for such capital goods becomes interest rate insensitive when there is a glut of capital goods; monetary policy becomes like pushing on a string. In the previous recession the Fed cut the Fed Funds rate from 6.5% to 1% and long rates fell by 200bps. In spite of that capex spending of the corporate sector fell by 4% of GDP between 2000 and 2004 as there was a glut of tech capital goods and it took years to work out such a glut. Today there is a glut of housing, consumer durables and autos/motor vehicles; so it will take years to work out this glut…

· While policy rates are sharply falling the nominal and real rates faced by households are rising rather than falling…. together with less availability of credit are severely dampening the ability of households to borrow and spend.

· To bring back the household savings rate to the level of a decade ago (about 6% of GDP) consumption will have to fall – relative to current GDP levels – by almost a trillion dollar. If all of this adjustment were to occur in 12 months GDP would contract directly by 7% and indirectly (including the further collapse of residential and corporate capex spending in a severe recession) by 10%, an exemplification of the Keynesian “paradox of thrift”. If such an adjustment were to occur over 24 months rather than 12 months you would still have negative GDP growth of 5% for two years in a row with a cumulative fall in GDP from its peak of 10% (note that in the worst US recession since WWII such cumulative fall in GDP was only 3.7% in 1957-58). One can thus only hope that this adjustment of consumption and savings rates occurs only slowly over time – four years rather than two. Even in that scenario the cumulative fall of GDP could be of the order of 4-5%, i.e. the worst US recession since WWII. Note that the cumulative fall in GDP in the 2001 recession was only 0.4% and in the 1990-9 recession was only 1.3%. So, the current recession may end up being three times as long and at least three times as deep (in terms of output contraction) than the last two and worse than any other post WWII recession.

Bush Calls for ‘Smarter Government’

Contrarian Profits — Fri, 14 Nov 2008 14:54:19 +0000

Really. It’s too much. Yesterday, George W. Bush told foreign leaders “Our aim should not be more government, It should be smarter government.” Didn’t Bush just spend the past eight years embodying the exact opposite? Where was the smart part creating an “ownership society” with phony money? Where was the smart part of running up record deficits? Or the war in Iraq?

- But W. didn’t stop there. Apart from wanting governments to be “smarter” (who doesn’t?), he called for called for leaders to recognize that “government intervention is not a cure-all” for economic problems. So what was Fannie and Freddie all about? Or Hank Paulson’s Troubled Assets Relief Program. Or the bailout of AIG? If government is not a cure-all, then why has Bush orchestrated the biggest government intervention in the free markets in history? Is he really that unaware of what he’s saying? Isn’t he the one who thinks the problem started because Wall Street “got drunk.” Surely, he meant this was a bad thing that needed to be prevented in the future. Should the practice of issuing “liar loans” and “ninja loans” have been allowed to thrive unregulated? Should this be allowed to continue in the future?

- The irony of Bush’s stance didn’t escape his audience. Grant Aldonas, a former senior trade official in the Bush administration now with the Center for Strategic and International Studies, said, “The disabling of capitalism has already begun and he’s the one who started it,” Aldonas said. “It rings hollow for an awful lot of people, not only in the marketplace but for world leaders abroad. . . . They are the ones who are going to have the leverage at the table.”

- As Bush shares his economic wisdom with the world, the economy he presided over for the last eight years is in the midst of the deepest and most dangerous funk since the Great Depression. “The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself,” former Goldman Sachs chairman John Whitehead, told Reuters Global Finance Summit this week. Whitehead is no perma-bull. He’s a former Wall Street player and Reagan administration insider. But he is deeply pessimistic about the future of the US economy. This from Reuters:

Whitehead warned the country’s financial strength is at risk due to the sweeping demand for tax relief and a long list of major government spending plans.

“I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America,” said Whitehead, who served as chairman of the Lower Manhattan Development Corp after the World Trade Center was destroyed during the September 11, 2001 attacks.

Whitehead, who helped make Goldman a top-tier Wall Street firm and led its international expansion, left in 1984 to become a deputy secretary of state under Ronald Reagan.

He warned that the country’s record deficit is poised to balloon as the public calls on government for more support.

“Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds,” he said. “Eventually U.S. government bonds would no longer be the triple-A credit that they’ve always been.”

There are at least ten “trillion dollar problems,” facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

“The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs — all very costly and all done by the government,” he said.

Large deficits can weaken the country’s credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take “several years” for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

“I just want to get people thinking about this, and to realize this is a road to disaster,” said Whitehead. “I’ve always been a positive person and optimistic, but I don’t see a solution here.”

- This is perhaps a worst-case scenario. But it is on well worth considering. The problem right now is that even the best-case scenario is dire. The Paris-based Organization for Economic Cooperation and Development (OECD) says global economic output will shrink 1.4% this quarter for the 30 nations that make up its membership – and keep contracting until the middle of next year. According to the Los Angeles Times:

That would mean the developed world has entered a slump expected to last at least three quarters; two consecutive quarters is a common definition of recession. For all of 2009, these economies are expected to contract 0.3%.

Additionally, the U.S. economy is forecast to fall 2.8% in the fourth quarter, after a 0.3% drop in the third quarter, and then shrink 0.9% in 2009. Japan’s economy is expected to shrink by 0.1% next year and the Euro area by 0.5%.

That would be the first time since 1974-75, when they were suffering from the Arab oil embargo and a severe bear market for stocks, that the U.S., Europe and Japan had fallen into recession around the same time.

- According to NYU economics professor an economist du jour Nouriel Roubini, the US economic slump will be more severe:

The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.

Roubini also contends that the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is rising. He also warns that “even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.”

- The rate of job losses in America is certainly playing ball with the deep recession theories. Today’s job loss shocker: Sun Microsystems announcement that it will slash 5,000 to 6,000 jobs, some 15% to 18% of its workforce

- It’s also the kind of recession where big companies take big hits to their balance sheets. Bloomberg reports that Freddie Mac’s [NYSE:FRE] third-quarter net loss “widened to $25.3 billion, or $19.44 a share, after writing down tax assets and providing for bad mortgages and securities.”

Stock Market Set For Worst Year Since 1937

Bill Bonner — Tue, 11 Nov 2008 18:37:37 +0000

Barring a massive bounce in the coming weeks, this will be the worst year for stocks since 1937, says Bill Bonner. The greed driving the market has turned to fear. And not the kind of fear that President Bush created about terrorists to push through his agenda. This time we need to be afraid…

Will Anything Stimulate Auto Sales?

Andrew Gordon — Tue, 11 Nov 2008 18:27:18 +0000

Another stimulus check should be coming our way as the market keeps falling.

If it doesn’t happen as one of the final acts of the Bush administration, it will happen as one of the first acts of the Obama one.

The question is, will it help the fast-falling auto industry?

It’ll help retailers. The overwhelming evidence is that the last round of stimulus checks helped pick up consumer spending in the second and third quarters.

But big-ticket retailers like auto dealers play in another sandbox entirely. Unless these checks have a couple of more zero’s than the previous ones, the auto industry’s fate is tied to getting another $25-billion loan package from the government.

The auto industry needs it. And from Obama’s latest statements, it looks like it will get it. And just in time.

The auto industry is getting battered from three trends…

1. A worsening global economic slowdown

2. A global credit crisis which has dried up lending (including for autos)

3. A strengthening dollar, which makes American cars more expensive in overseas markets

The numbers published last week on October sales were abysmal. Toyota (NYSE:TM) reported a 23 percent drop, Ford (NYSE:F) a 30 percent drop, GM (NYSE:GM) 45 percent and Chrysler 35 percent.

GM is burning cash so quickly it warned this past Friday it’ll run out of money during the first half of next year. It sounds like GM is in shock: “In my 27 years, I have never seen a month like this. It was like somebody turned off the lights in the month of October,” a GM official said.

The auto industry is in a free fall. September’s auto sales numbers were terrible. It showed a loss of 30 percent. October’s was worse. It showed a loss of 33 percent.

It’s bad and getting worse. By all means don’t go bottom-fishing in this sector now. If anything, shorting the sector makes much more sense.

Source: What’s Going to Stimulate Auto Sales?

No Quick Fix For This ‘Balance Sheet Recession’

Bill Bonner — Mon, 10 Nov 2008 16:52:14 +0000

This is no ordinary slump, says Bill Bonner. We face a “balance sheet recession”, where banks, businesses and investors are forced to cut back after suffering huge losses. Bill says this will take years to sort out. And government efforts to delay the inevitable will just draw out the ordeal.

This from The Daily Reckoning:

Obama is lucky he wasn’t elected a year ago. At least now it is clear that he’s innocent. He comes to the office facing problems not of his own making. Instead, they were made by his predecessors – notably, Alan Greenspan and George W. Bush. Working together, the two bumblers squandered America’s fortune, drove off her industry, and put just about everyone deeper in debt than ever in history. Did two more hapless, more incompetent, more conniving half-wits ever before conspire to create such a mess?

Alan Greenspan courted power and fame. He got both. But you can’t get power and fame without being a jackass. At least, that’s our conclusion after reviewing the history of the United States of America. Just look at the presidents who got power and fame: Abraham Lincoln… Woodrow Wilson… Franklin Delano Roosevelt. The first two got the US into unnecessary and disastrous wars… the last one got the US into an unnecessary and disastrous depression.

Okay… okay… it wasn’t entirely their fault… but it’s our Daily Reckoning, we can exaggerate if we want to…

Alan Greenspan would have been much less popular had he put the brakes on the dot.com bubble in ’97… and the brakes on the housing bubble in 2005. Of course, he probably would have lost his job sooner. But the US would have a much healthier economy as a result.

And talk about unnecessary wars! And unnecessary depressions! George W. Bush has brought us both! No president ever presided over such a spectacular turnaround in America’s fortunes:

…from a fake budget surplus of nearly $300 billion under the Clinton administration, Bush will leave office with a real deficit approaching $1 trillion…

…coming into Washington at the peak of the bubble of 2000… he’ll blow out of town leaving behind an economy in its worst slump since the ‘30s…

…after taking control of the spiffiest, most widely respected country in human history, in 2000, he leaves a country that is widely regarded as broken down… (Russian president Medvedev recently charged the US with causing the world’s financial meltdown… the French believe US-style capitalism is collapsing, like the Soviet Union in ’89… the Latinos now mock the idea of taking financial advice from the US)

…after coming into office lauding the virtues of humble foreign policy and proud capitalism, the US has taken up a breathtaking combination of bombastic military intervention abroad and abject, swinish collectivism at home.

But let’s get back to Obama. Seems like a decent fellow, as near as we can tell. But he has a great temptation to become a jackass.

Obama is beginning to realize what he’s up against. This is no ordinary cyclical downturn. Typically, a slump brings interest rates down. (Usually accompanied by central bank rate cuts.) Cheaper borrowing arouses business and speculative activity… which, in turn, tends to get the economy moving again.

This time, that’s not happening. The authorities are handing out money below the inflation rate and practically begging banks to lend…

But who wants to lend when there’s a danger you might not get your money back? And who wants to borrow when everyone is desperate to get out of debt?

Today’s Financial Times announces that another 70,000 jobs could be lost on Wall Street. Who needs so many employees when no one’s doing any deals? No one’s borrowing… no one’s lending… investors are running scared… and private equity is curled up in a cave somewhere…

Why? Because it’s a ‘balance sheet recession,’ not a regular, cyclical downturn. People have lost a lot of money… and they’re afraid of losing more. So businesses are cutting back as fast as they can. The job losses aren’t limited to Wall Street. Today’s news from Associated Press tells us that there are 10 million people out of work – the most in 25 years. The New York Times says unemployment is at a 14-year high. (We didn’t study the figures to see how they differ; but we predict that the figures in the last quarter of this year will be even more alarming…)

Everywhere, investment portfolios are being trimmed… cash is more than king; it has become a demi-god. This despite the fact that there are some great investment bargains around.

After “Black October,” says the FT, it’s the “buying opportunity of a lifetime.”

Stocks were overpriced for the last 20 years. Now, they’re not so overpriced. In fact, by almost any measure you use, they’re fairly reasonable. Compared to the yield you get from Treasury bonds, for example – a popular method of gauging the stock market – stocks look like a good deal. P/E ratios, too, are in the ‘normal’ range. Or, you can look at James Tobin’s “q ratio” – comparing stock prices to business net worth. Here again, stock prices don’t look out-of-the-ordinary.

But a ‘balance sheet recession’ is an unforgiving, mean, and tenacious rascal. After such big losses, businesses, consumers, investors, and banks need to rebuild their balance sheets – by paying off, defaulting on, or working out their debt. And then they need to rebuild their confidence… with rising asset prices and a growing economy. All that takes years… many years.

Worse, a balance sheet recession is like a straightjacket; the harder you fight against it, the tighter it gets. When government tries to prevent assets from being marked to market, for example, it delays and obstructs the process of adjustment. Rather than let the debts and mistakes be flushed out, they remain on balance sheets… blocking progress, frustrating change.

“Change is Nature’s delight,” said Marcus Aurelius. Trying to stop change – at least in a balance sheet recession – is Nature’s horror. Balance sheets need to be corrected. Until they are corrected future growth can’t happen. So, the whole system is stymied, clogged, stopped up, constipated…. like the US economy in the ‘30s… or like Japan’s economy in the ’90s…

Source: No ordinary slump

Beggars Can Be Losers

Joel Bowman — Mon, 03 Nov 2008 15:38:07 +0000

When the president of the United States visited this region almost a year ago, the city of Dubai closed down for the entire day. Locals and expats alike jokingly refer to this event of yore as “Bush Day,” a day when they stayed home from work and watched movies as the leader of the “free world” took a Big Bus tour of the city.

Now, twelve months later, as W’s presidential twilight years draw to a close, another of the West’s leaders journeys to the Gulf region. Like Bush, England’s Gordon Brown is not particularly popular in the polls. But this captain from the west has more pressing issues to deal with than the restoration of his public image; he needs cash to rescue the world’s “emerged” nations from the brink of financial collapse. And so, hot on the trail of the dollars and pounds that have poured from the west into the Gulf ever since oil was first discovered here, Gordon Brown shot his cuffs, donned his best smile for the cameras…and went panhandling.

Making no bones about the goal of his mission, Brown has said that he wants “hundreds of billions” of extra dollars from the oil-rich Gulf States, to be pledged to the International Monetary Fund.

The IMF is already burning through its $250 billion reserves, providing around $30 billion in emergency loans to Iceland, Hungary and Ukraine in the past few weeks alone. Pakistan has also said it may call on the international body for a quick cash advance. Somewhere in the vicinity of $5 billion should do the job, they reckon.

“The Saudis will, I think, contribute like other countries so we can have a bigger fund worldwide,” said Brown after a three-hour meeting with Saudi Arabia’s King Abdullah late Saturday in Riyadh.

“The oil producing countries, who have generated over $1 trillion from higher oil prices in recent years, are in a position to contribute,” he continued, employing the kind of misguided logic that Karl Marx would be proud of. He might as well have gone the whole hog and recited the creed straight from the Critique of the Gotha Program: “From each according to his ability, to each according to his need.”

Usually, when a man finds himself in the unfortunate position of having to beg for alms, he does so with a sense of humility. He may even come to the realization that, but for the kindness of strangers, he might be infinitely worse off. The dire situation Mr. Brown finds himself in, and the crisis in the west that led to his fundraising mission, seems not to have dampened his sense of moral superiority.

Just two weeks ago Mr. Brown severely reprimanded OPEC for its decision to cut oil production in the face of falling prices. The OPEC nations say they needs to defend a floor for prices in order to fund and develop future energy projects; projects that may or may not end up fuelling engines in the countries Mr. Brown is here to represent. Whether or not OPEC is telling the truth, we must admit that we find Mr. Brown’s diplomatic stratagem a tad puzzling.

Brown described OPEC’s production cut as “wrong for the world economy,” arguing that such a measure was “absolutely scandalous” at a time when the world is suffering through an economic crisis.

Translation: “It is wrong that OUR economy must suffer through high oil prices…but we would still like you to use the money YOU made from high prices to solve our problems.”

Pleading for help from one side of the mouth while sharply criticized from the other is seldom an effective tactic. It must be said, of course, that your editor is not here to defend a monopolistic cartel. We’re simply suggesting that if Mr. Brown chooses to go brown-nosing for money, he might think about refining his tactics a little. Either that, or learn to speak Chinese or Japanese…they made (and saved) lots of money from the west too.

Beggars can’t always be choosers but, if they play their cards wrong, they can end up losers.

Source: Beggars Can Be Losers

Changing The Rules On The Bank Bailout

Andy Carpenter — Mon, 03 Nov 2008 15:26:44 +0000

For a guy with a Harvard MBA, President Bush simply doesn’t get how real banks work… but anyone who has waited three to five days for an out of state check to clear gets how the “float” works.

Government regulations allow the bank to use that money for a few days before you get your shot at it. Hope the President opts for direct deposit on his pension check, book royalties and the millions he’ll get paid to speak in public.

Anyway, the Associated Press reports that, earlier this week, it was an impatient White House that prodded banks and other financial companies to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans.

Hoping to thaw the economy-chilling credit freeze, the Bush administration told banks to stop being sissies and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.

“What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

While there are limits to Washington’s power to affect banks’ behavior, the White House decided it was time to use its bully pulpit.

Meanwhile, you have just a few days remaining to charter a bank and get yourself in on some of the gravy train.

Because, it will be a week or so before the Treasury Department can fix a glitch in the bank rescue program that currently prevents some 6,000 of the nation’s 8,500 banks from applying for government support.

Treasury is buying preferred shares in banks as a way of injecting cash into the institutions.

But about 6,000 of the nation’s banks don’t have publicly traded stock shares, so they don’t have a way to qualify for the handout.

Treasury officials assured banking industry representatives that they’d fix the application forms so that both publicly traded and privately held institutions can qualify for the program.

If the fix takes too long, the Treasury will extend the Nov. 14 deadline for applying for government support.

If it can do that for banks, don’t you think the government could deal with your Medicare disputes a little faster?

Source: Changing The Rules On The Bank Bailout