Whoa… this is eerie! Following the great crash of ’07-’09 cometh the rebound. Hesitant, cautious at first…

Then, people begin to believe it. They begin to see the “green shoots” of a revival. Stock prices rise. The green shoots sink deeper roots and flower. Pretty soon, people think they are in knee-high clover.

Confidence is rising. Consumers, house-holders, investors – all think the worst is over. And if the worst is over, better times must be coming. If better times are coming, prices should be rising. And investors should be making money. And businesses should be expanding.

It’s all happening as forecast. Except that businesses aren’t expanding. The underlying economy is not really getting better. It’s actually getting weaker. But we’ll talk about that another day.

Today… we issue a warning: watch out, the greenback is going into the toaster oven…

Yesterday, the dollar held steady at $1.36. Meanwhile, the Dow gave up 29 points… after a strong day yesterday. Oil rose over $60. And gold gained $5 to 926.

First, here’s what Nouriel Roubini had to say in the New York Times:

“We may now be entering the Asian century, dominated by a rising China and its currency,” Roubini contends. “This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades, America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable.”

Yes, it could take more than a decade. But investors could take a big loss any day. All it would take is a sudden move by China… or a shocking inflation figure in the US… or a Treasury bond auction that didn’t go as planned.

Everyone is watching the US… carefully. And foreigners hold trillions’ worth of dollar-based assets outside the US. These are dollars that people hold, not to pay their bills or buy gasoline, but as a speculation. They’re speculating the greenback will hold its value as well or better than the other things they might do with their money.

Europeans hedge their bets against the euro – with dollars. Asians hedge their bets against falling stock prices. Russians hedge their bets against the rouble… Latin Americans hedge their bets against their own pesos, bolivars and cordobas.

Everybody likes dollars, because they are the most trusted money in the world. For the last 50 years, nothing could compete with the dollar. (Even though the dollar lost value against a number of other currencies over long periods of time).

These foreign holders are already nervous. They’ve seen the mess the US has gotten itself into. They read the headlines. They watch the news. They know that the US is running a budget deficit this year equal to 4 times the biggest budget deficit ever – a record set just last year. It is as if a runner broke the record in the 100-yard dash and then ran the course 4 times faster a year later. This is not progress. This is spooky.

The Chinese already let the US know they were worried. “We trust you to protect the value of our assets,” they said to the American Treasury secretary.

And as long as they trust the US to keep its promises and protect its money, they’ll continue to hold US dollar investments – notably, US Treasury bonds. But just wait until the US loses their trust. In a matter of minutes, they could dump enough US dollars to set off alarms all over the world. All of a sudden dollar holders would rush for the exits – each one trying to get out before the others. In minutes, the dollar market could collapse… taking down US Treasury bonds with it.

Our Pittsburgh correspondent thinks he sees this happening soon.

‘Bye-’Bye US Dollar!!!” writes Byron King. “We’ll go to bed one night and wake up the next morning and the dollar will be toast…

“Wow, have we in the US screwed ourselves or what? The rest of the world has to be watching us and laughing up its sleeve. Big, muscle-bound superpower with a declining industrial base, sitting around navel-gazing about how much more of our industry we’ll dismantle; how much of our energy production we’ll curtail. Meet the future… ”

More news:

Manraaj Singh sees the dollar as a “dead man walking”. And he has some ideas on China’s plans for the currency.

“So far though, the dollar has continued to defy gravity. So our investment has been off to a slow start though. But that may be set to change. You see, the mainstream press has suddenly caught-on to the looming end of US dollar hegemony.

“China is very clear about its plans to replace the dollar as the world’s reserve currency. China’s central bank governor, Zhou Xiaochuan, has posted an article on the banks website saying that their goal is to create a reserve currency “that is disconnected from individual nations.

“Well what is it going to be based on then? Gold.

“There are two very good reasons why I believe China will back its currency with gold. Firstly, it is an accepted store of value. So that would give the yuan a real and accepted value on international markets. China’s trading partners are going to be a lot more willing to hold the yuan as a reserve currency if they are convinced that it will hold its value over time. Secondly, China is the world’s biggest producer of gold. So it has ready access to the yellow metal.”

Editor’s note: Manraaj Singh is Chief Investment Strategist of Trend Investor. To read more about this service, and discover the unique opportunities he is recommending right now, click here.

And then… back to our thoughts…

*** Byron sent the following article from the Financial Times:

“Brazil and China eye plan to axe dollar,” the article begins. “Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

“The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

“Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

“An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

“Mr Zhou recently proposed replacing the US dollar as the world’s leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.

In an essay posted on the Peoples Bank of China’s website, Mr Zhou said the goal would be to create a reserve currency “that is disconnected from individual nations.”

Source: Hedging the Dollar as Stocks Rise

When Japan’s so-called “Lost Decade” began with a bang in the early 1990s, she was an “OL” – an office lady – working in one of Japan’s mightiest corporations and she kept her job, despite the downturn.

She was one of the lucky ones. Her employer was a mainstay electronics producer and a key exporter, meaning the company’s business remained reasonably healthy.

This time around, she’s a housewife and mother. And she’s worried. Her husband, Masao, works at a local manufacturer that’s cut back production to only four days a week. He’s taken a part-time job, schlepping boxes overnight at the local convenience store, to make up for the reduced pay. Their son, Daiki, is headed for college – and for an uncertain future.

“I don’t know if I have the strength to go through this again,” she said. “This time, it’s worse,” noting that Japan never really recovered from its “Lost Decade.”

Anatomy of a Lost Decade

Having spent a substantial amount of time in Japan over the past 20 years, I agree and I’m struck with a tremendously foreboding sense of déjà vu that I just can’t shake no matter how hard I try.

What happened in Japan is being replayed in the United States – in exquisite detail, and with a bit of agony, too. Since 2001, I’ve been warning anyone who would listen that the Japanese experience was only a precursor to what we could experience here.

Naturally, that’s been a controversial view, particularly since it’s virtually unthinkable for an entire generation of politicians and financiers who thought they “knew better” and that it could never happen to us.

But lately, it’s not so unthinkable. In fact, if I were to take the names out of the Japanese experience, the story could easily be the one that’s unfolding now.
In the late 1980s, Japanese companies ran the planet. A strong currency, solid work ethic and close government connections created an unstoppable growth machine – referred to by the U.S. media as the “Japanese juggernaut,” or the “Japanese Superman.”

In the interest of additional growth and financial modernization, Japan deregulated its financial markets and began lowering interest rates. Not surprisingly, the Nikkei 225 stock index more than tripled in less than five years, companies blossomed and the use of debt skyrocketed.

Sound familiar?

Then all hell broke loose.

At the same time, real estate values began to waver, the government figured out that the entire Japanese financial system was a house of cards leveraged against collateral that didn’t exist and that wasn’t properly valued in the first place. And the Nikkei has collapsed to where it stands today – at one-fifth the value it had attained in 1989.

Once-stalwart companies began defaulting on loans and many went out of business entirely. Individuals couldn’t repay their debts. Real estate values fell dramatically and today remain as much as 50% below their 1989 peak. People simply turned over the keys to their homes to the banks or, like the family immediately behind our house in Kyoto, simply disappeared in the middle of the night, never to be seen again.

Unemployment rose to an unthinkable 5.5%. Suicides soared. And homeless camps, which Japan had never seen before in the post-war era, go-go years, dotted the banks of the rivers that wind their way through major cities like Tokyo and Osaka. In our neighborhood, the Kyoto city government built a brand new bathroom building for the children’s playground only to watch as a troop of six homeless men moved in – and refused to leave for the next four years. We also watched ubiquitous, blue-tarped “houses” appear under each bridge spanning the scenic Kamo River.

They disappeared when Japan’s economy improved in the late 1990s, or early this decade. They’re back now.

Making matters far worse, at the same time all of this was happening, deflation set in with a vengeance and brought matters full circle. Lower prices meant lower margins. Lower margins meant lower production and the need for lower production, in turn, created the need for smaller work forces.

Fast forward to today.

A Painful Replay

This same downward spiral that played out in Japan in the early 1990s seems to have taken hold here in the United States. Economists called this “excess” capacity and said that a short period of readjustment would be followed by new growth. But instead, they’ve gotten just more misery punctuated by a few fits and starts of economic recovery. And the resultant record job cuts hardly point to an imminent turnaround.

Even so, many people here in the United States remain in denial. They simply cannot accept that what happened in Japan appears to be replaying itself out here. They reason that our government is taking more aggressive action than the Japanese government did, that our corporations are better managed, that somehow they’ll pull through based on demand and, my personal favorite, that our bubble simply wasn’t the same as Japan’s.

They’re right … it’s worse.

According to a report in the Global Mail, in 1989 the Japanese economy needed a mere three yen of credit to make one yen of national income. Here in the United States, we’ve needed $8 dollars of credit for every $1 dollar of national income. And we may need more. In Japan, the “bubble” grew for only a few relatively intense years from 1985-1991. Here in the United States, it’s been allowed to fester for 30 years.

When the Japan’s bubble broke, it was a creditor nation, which means, overall, there was more money flowing into Japan than out. At the time, Japan had $1 billion surplus on any given day.

When the U.S. financial crisis started, this country was running a $2 trillion deficit, meaning we’ve spent that much more than we earn as a nation. Now, factoring in the stimulus plans and all sorts of bailouts, we’re arguably approaching $14 trillion.

In 1990, the Japanese were saving 17% of their income. At the moment, Americans have practically no savings to fall back upon and our savings rate has, in fact, gone negative several times in recent years (however, some reports indicate that U.S. savings rates have risen in recent months).

But what really makes me stop and think twice is this: At the time Japan’s bubble burst, the island nation still had extensive trade with its partners, and consumers around the world were spending. So there was a cushion. This time around, spending has ground to a halt and there literally is no safety buffer.
Just last week, in fact, Money Morning reported that Japan’s exports were cut nearly in half last month as the global downturn crushed demand for the country’s electronics and automobiles, a development that increases the odds that the Japanese yen could be poised for a tumble.

That, more than any reason is why the U.S. government – right or wrong – has stepped in to become the risk taker of last resort.

While that may actually be a good thing from the standpoint of intent, it hasn’t been great from an execution standpoint.

In as much as the U.S. stimulus programs being enacted by central bankers around the world will eventually take hold, that suggests that investors should continue to invest – albeit super selectively – throughout this mess in a couple of areas:

• Bond markets are especially overbought and I can’t think of more spectacular profit potential particularly at the long end of the spectrum. The U.S. government may borrow as much as $3 trillion dollars in 2009 alone, and it’s likely rising rates are not far behind.
• The Japanese yen itself seems ripe for a fall, so shorting both the Japanese markets and the yen itself may wind up being an outstanding choice, especially once the reality of falling global demand sets in.
• And, of course, infrastructure. Despite the fact that the world is pulling in its horns, the infrastructure we use is not getting any younger particularly with regard to electricity. Even if expansion plans are put on hold, existing grids will require repair and constant upkeep. The last thing any government will let happen is a complete collapse of the power grid, because it would mean the end of civilization as we know it, thanks to the social chaos that would ensue.

Source: Although Experts Said it Could Never Happen, U.S. Crisis Looking Like a Repeat of Japan’s “Lost Decade”

It will encourage technological development in environmental and other “future” industries. It will seek sources of energy other than the oil and gas we get from Mexico, Canada and OPEC. And it will put generous sums of money behind these initiatives.

The Obama government emphatically does not want banks to sit on the money they get from the government. Nor do they want it to go to shareholders in the form of dividend payments. This is why I look for more companies to cut their dividends and this plays perfectly into my Red Flag Insider strategy.

But wanting it and getting it are two different things. The financial crisis has spread to other countries, undermining economic growth everywhere and putting a dent into foreign exchange reserves. All the while, the printing presses of the world are working overtime. The draining of money from the global economy combined with the wanton printing of money has turned into a high-stakes battle.

The crisis continues unabated. The money drain is winning so far.  And here are four reasons why it’ll keep on winning…

1. Consumer, construction and commercial real estate loans are getting worse.
2. The U.S. economic crisis has turned into a global crisis. And now the global dimensions of the crisis is boomeranging back on the U.S. economy and aggravating our problems even further.
3. Some overseas economies have been hit hard. But many developing countries have not yet felt the full brunt of the global crisis. They will this year, making the crisis truly global.
4. The negative feedback cycle, as Warren Buffet calls it, is still playing out. Consumers have lost faith in the economy, buying less. Companies are laying off and cutting back, expecting consumers to buy less. And banks are increasingly fearful, lending less to both individuals and businesses.

This is worth watching. With so many sectors suffering, the ones that get government sustenance are operating at a competitive advantage.

Fair or not, it gives you a way to invest.

Source: Why the Bailout Won’t Work

“Right now, given the concerns that we have over the size of this package and all of the spending in this package, we don’t think it’s going to work,” Rep. Boehner said yesterday (Sunday) on NBC-TV’s “Meet the Press.” “And so if it’s the plan that I see today, put me down in the ‘No’ column.”

The plan – detailed in a Money Morning report last week – could potentially pass the Democrat-dominated House without Republican support, The New York Times reported. But the stimulus plan will face major opposition when it comes before the U.S. Senate, U.S. Sen. John McCain, R-Ariz., told “Fox News Sunday.”

If at least two Republicans don’t approve the bill, the proposal won’t be able to achieve the majority vote of 60 it needs to be filibuster-proof. McCain said he also plans to vote “No” unless the stimulus bill is changed.

“We need to make tax cuts permanent, and we need to make a commitment that there’ll be no new taxes,” McCain said. “We need to cut payroll taxes. We need to cut business taxes.”

Added McCain: “We need to have a commitment that after a couple of quarters of [gross domestic product] growth that we will embark on a path to reduce spending to get our budget in balance.”

McCain lost the November presidential election to Obama.

That’s not all that’s taking place in what figures to be a busy stretch this week.

The economic calendar will heat up this week as economists get their initial look at U.S. gross domestic product (GDP) data for the 2008 fourth quarter. Needless to say, the results are not expected to be pretty, with analysts predicting a 5% contraction during that final three months of the year.

The report is due out Friday.

The United States has already been in a recession for a year, the National Bureau of Economic Research (NBER) reported in early December. This downturn – and the bigger-than-usual job cuts that have resulted – could generate a much-bigger financial crisis “aftershock” than many experts realize. Only two of the last 10 recessions to take place since the Great Depression have lasted a full year. But this one could last well into 2010, many economists fear.

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year. GDP advanced 0.9% in the first quarter of last year and 2.8% in the second quarter, Bloomberg News reported.
Dana Saporta, an economist at Dresdner Kleinwort Ltd. in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter. Analysts expect the malaise to carry over well into this year.

The stimulus packages – money spent by the newly departed Bush administration, as well as one planned by the newly installed President Barack Obama – will have a lot to say about how long the U.S. economy stays down. As the Republican opposition comments demonstrate, with Congress (the Democratic members, at least) promising a stimulus package by President’s Day (February 16th), Obama will have his hands full initiating some “give and take” from the dissenters of the current plan.

On Wednesday, U.S. Federal Reserve Chairman Ben S. Bernanke also leads the first Fed policy meeting of the Obama administration though he and his policymaking cohorts have no more wiggle room when it comes to cuts in the benchmark Federal Fed rate.

But the Fed statement should provide insight into the additional measures the central bank has in its arsenal to help jumpstart the economy.

Earnings season also moves forward with energy companies prepared to show the ill-effects of the drop in oil prices.  Exxon-Mobil Corp. (XOM) and Chevron Corp. (CVX) announce late in the week, as does consumer products giant Procter & Gamble Co. (PG).  Amazon.com Inc. (AMZN) also reports quarterly earnings during the week and analysts are speculating whether investors will cheer its results a la Google Inc. (GOOG) or frown along the lines of eBay Inc. (EBAY).

Market Matters

Last Tuesday, Barack Obama took the oath of office (for the first time) and became the 44th president of the United States.  In his inaugural address, President Obama called for “action, bold and swift – not only to create new jobs, but to lay a new foundation for growth.” He then acted “boldly and swiftly” by freezing the pay of high-ranking members of his administration.  One of those potential members, U.S. Treasury Secretary-nominee Tim Geithner, faced the wrath of Congress for his role in the mis-handling of the banking bailout plan and for his failure to pay a mere $34,000 in taxes.  Since the treasury secretary oversees the Internal Revenue Service, certain “rule sticklers” in Congress frowned upon his “careless mistakes.”  Still, he was approved by the Senate Finance Committee and is expected to be confirmed – just in time to oversee the distribution of that next round of Troubled Assets Relief Program (TARP) money.

While Obama begins a new job and tries to “faithfully execute the office” (rather “execute the office faithfully”), a few financial execs are headed for the unemployment line.  John Thain, formerly of Merrill Lynch & Co. Inc. fame/infamy, stepped down or was forced out from his role at Bank of America Corp. (BAC) after failing to disclose dramatic losses prior to the shareholder approved acquisition.

In an effort to stop the negativity – and no doubt to try and protect his own job – BofA Chief Executive Officer Kenneth D. Lewis and several cronies bought more than 500,000 company shares, a move that earned a collective yawn from investors.

Citigroup Inc. (C) will be replacing Chairman Win Bischoff with ex-Time Warner Inc. (TWX) CEO Richard Parsons, and also announced its intent to sell Japan’s Nikko Cordial Securities, a move that confirms that brokerage will no longer be considered a core business.  In other financial news, State Street Corp. (STT) reported a far-worse-than-expected quarter from its asset management business; U.S. Bancorp (USB) announced that profits fell to the lowest level since 2001; Capital One Financial Corp. (COF) posted a huge loss in the quarter and predicted that credit card defaults will only grow in 2009.

Across the pond, Royal Bank of Scotland Group PLC (ADR: RBS) forecast an annual loss above $40 billion which would be the largest ever reported in the United Kingdom.  On the heels of that news, the British government introduced new measures to its bailout plan, including a form of insurance to limit future loan losses.  Investors were hoping that earnings from non-financials would fare better, but Microsoft Corp. (MSFT), eBay, General Electric Co. (GE), Advanced Micro Devices Inc. (AMD) and Xerox Corp. (XRX), among others, disappointed with weak results as well (though Google and Apple offered some bright spots).  Time Warner, Intel Corp. (INTC), and Clear Channel (among others) announced layoffs, proving that most sectors of the economy are hurting.  Non-government arranged deals still exist as Pfizer Inc. (PFE) attempts to acquire pharmaceutical rival Wyeth (WYE) and Mexican billionaire Carlos Slim. Carlos Slim plans to invest $250 million into The New York Times Co. (NYT), The New York Times reported.

Economically Speaking

A rather slow week on the economic calendar last week allowed investors time to focus on the earnings data.  Housing starts fell for the sixth straight month and building permits, a predictor of future activity, dropped to the lowest level ever reported.

The never-ending layoff announcements continued to hinder the labor picture as jobless claims surged far more than expected.  In China, GDP rose by 6.8% in the fourth quarter, a number that would have prompted parades in this country. In China, however, those numbers confirm dramatic slowdowns in the world’s third-largest economy.

The “weak” report means that growth for all of 2008 came in as 9%, the first year since 2002 that China’s growth rate fell below double-digits.

Weekly Economic Calendar

Source: Financial Crisis Challenges Escalate as Republicans Announce Plans to Oppose $825 Billion Obama Stimulus

• A total of 2.6 million jobs lost in 2008 – the most since World War II.
• A jobless rate that’s at 7.2% – and climbing.
• About 11 million people out of work.

As usual, however, the “official” numbers don’t tell the entire story.

“People say that they know how bad the economy is. But they don’t know how it feels to have the reality hit home,” said Stu Schweitzer, global markets strategist at J.P. Morgan Chase & Co.’s Private Bank (JPM). “It’s not the facts — it’s how the facts feel. And it feels terrible to have so many Americans losing jobs, and so many more likely to follow in the coming months.”

As it did last week with the government’s inflation statistics, Money Morning will now take an in-depth look at how the U.S. jobless situation may be a lot worse than the U.S. government statistics appear to show.

And “how it feels” comes home to roost with a behind-the-scenes look at the dramatic impact those horrific numbers have on the lives of just a few people caught in the crossfire.

Government Unemployment Numbers — Not What They Seem

The official government estimates of the current unemployment problem are staggering in their own right.

• 791,000 manufacturing jobs were lost in 2008, hitting the auto sector hardest.
• 260,110 people lost jobs in the financial sector, part of the overall service sector that accounts for some 80% of all employment.
• The construction sector shed 899,000 since peaking in September 2006.
• The retail sector shed 522,000 jobs for all of 2008.

All told, 2.6 million people lost their jobs in 2008. And, to underscore the accelerating nature of the problem, more than half of those job losses occurred in the final four months of the year. In December, a total of 11.1 million were unemployed. An additional 8 million people were working part time – up sharply from 7.3 million in November.

The average workweek in December fell to 33.3 hours. That’s the lowest average on record, dating back to 1964, and a sign of more job reductions to come since businesses often cut hours before eliminating positions entirely.

Those are the “official” government numbers. But, as a closer look demonstrates, the unemployment figures can be understated – and misleading.
The government actually compiles unemployment figures in six different categories; as you might expect, the numbers tend to minimize the bad news.
The most commonly number quoted in the media is the “official” unemployment rate – known as U3 (the bottom line of the three in the chart below) – which now stands at 7.2%.

But to get the real picture, you have to add both in what the government refers to as “discouraged” workers (U4) and “marginally attached” workers (U5) – those who have stopped looking for work, or who haven’t looked for work recently (represented by the middle line of the three in the chart).  That number (U6) depicts an unemployment rate t that’s approaching an eye-popping 14%.

And it gets worse.

If you include the people that the government doesn’t even count – such as unemployed farm workers, the idle self-employed, and workers in private homes – the unemployment rate approaches an astonishing 18% (top line).

In other words, unemployment has insidiously spread to almost one-fifth of the U.S. work force, a number much larger than the single-digit figure commonly bandied about in the press.

If you regard unemployment statistics as an important means of gauging the overall health of a given economy, these “enhanced” statistics paint an ugly picture of just how painful this financial slump has become for the U.S. economy.

Layoffs of this magnitude are more than a mere shot across the bow of the economy; they’re actually a direct hit amid ship – below the water line, meaning that sinking is inevitable.

Fully 70% of all domestic economic activity is powered by consumer spending. People who are unemployed cannot buy homes, don’t shop heavily in retail stores, cut back on groceries, and are loath to take on added risk.

The numbers alone are bad enough.  But in America’s heartland, many of the approximately 80% of workers thatarestill working are caught in the grip of unemployment vise as well.

No Runs, No Hits, Many Errors

Not only are record numbers of Americans suffering without jobs – they can’t even tell their troubles to a human being anymore. Most now have to navigate hard-to-use electronic systems, faceless entities that are ill-prepared to help so many people file for much-needed unemployment benefits.

With about 4.5 million Americans collecting jobless benefits, state government web sites and phone systems used to file for benefits are being overwhelmed by sheer numbers.

Electronic unemployment filing systems have crashed in at least three states amid an unprecedented crush of thousands of newly jobless Americans seeking benefits. Other states are adjusting their systems to avoid being next, The Associated Press reported.

Systems in New York, North Carolina and Ohio were shut down completely in early January by heavy volume and technical glitches. Labor officials in several other states are reporting higher-than-normal use.

And even some of the systems that are holding up under the strain are leaving filers on the line for hours before asking them to leave a message.
Still others are giving them the ultimate slap in the face: “We’re sorry, all circuits are busy.”

“Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated,” Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, told The AP.

To stabilize a phone system that has been overloaded for weeks, his agency boosted its staffing of telephone operators by 25% last month.
“We sympathize, we’re on their side, we’re doing our best to help them out,” he said.

Job Losses Gets Personal for Truckers

Depending on your geographic location, you might not notice when an automobile plant closes – but truckers do.

Any business closing – and the resulting layoffs – represents another loss of steady work for truckers, who are responsible for the movement of about 0% of the nation’s freight, including food and hard goods.

As many as 785 trucking companies with a combined fleet of 39,000 trucks went out of business in the third quarter of last year.  Overall, more than 127,000 trucks, or 6.5% of the industry were idled in 2008, Donald Broughton, trucking analyst and managing director of Avondale Partners, told The Los Angeles Times.

That means tens of thousands of drivers previously on company payrolls are now competing with the nation’s independent owner-operators for a piece of a fast-shrinking cargo pie.

Joe Rini, from Grand River, Ohio, recently bid $3,400 to haul a load of building materials to the Pacific Northwest for one of his best customers.  Usually, the load would pay $4,400, but with possible competitors in mind, Rini lowered his bid and got the contract.

Still, before he could pick it up, another trucker low-balled him with a bid of $3,000.  Rini declined to match.

“I didn’t want to bid that low in the first place,” he told The Times. “I start down that road and I’m out of business.”

Elsewhere, fleet operators who so far have managed to survive are putting increasing pressure on their sales force to maintain revenues.

Despite being in the hauling business since the 1860s, Ventura Transfer Co. of Long Beach, Calif. is feeling the squeeze.

“Gone are the days where you can own a trucking fleet and just rely on the demand of the marketplace,” said Brian Olsen, Ventura Transfer’s chief executive officer.

California Dreamin’ No More

Even though he’s had no trouble so far staying gainfully employed in California, Mike Reilly, a 38-year-old engineering contractor, is leaving his home state’s lemon groves and beaches for the foothills of Denver.

California has often been called the “promised land” since the days of the Gold Rush.  But in 2008, many families gave up their California dream and headed elsewhere.

With an unemployment rate of 8.4% in November, and a record 236,000 foreclosures on the books in 2008, the Golden State has lost some of its allure.

Barry Hartz lived in California for 60 years before moving close to his son’s family in Colorado Springs.  Despite recent price declines from a glut of foreclosures hitting the market, he laments the escalation of home prices in the early 2000’s, “to the point our kids…could not live in the community where they grew up.”

The number of people leaving California outnumbered those moving in by a net total of 144,000 in the first six months of 2008 – more than any other state, the Associated Press reported.  For the first time ever the state could lose a congressional seat.

With the state facing a $42 billion budget deficit, further tax increases and education cuts were the last straw for Reilly, the engineer.

“You see wages go down and the cost of living go up,” he said.  Years of rising taxes, unchecked illegal immigration and bumper-to-bumper traffic have convinced him to move on.

What’s Next …

Overall, 48% of all companies downsized in 2008, and a staggering 60% are planning reductions in 2009, according to a Society of Human Resource Management survey.
Economists predict a net total of 1.5 million to 2 million or more jobs will vanish in 2009, and the “official” unemployment rate could hit 9% or 10%, underscoring the challenges that new U.S. President Barack Obama will face and the tough road ahead for job seekers.

Obama has called the jobs losses “a stark reminder of how urgently action is needed” to revive the nation’s staggering economy. His administration is planning a stimulus package costing upwards of $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.

But unemployment is feeding into a vicious cycle that Washington policymakers are finding difficult to break.  The jobless are now forcing almost all U.S. consumers – employed or not – to retrench for an uncertain future.

Source: U.S. Unemployment May be a Bigger Problem Than Government Statistics Say

Testifying after former Fed Chairman Paul Volcker, Geithner told the committee the United States is facing “the mother of all financial crises.” Geithner also urged Congress to quickly pass a robust stimulus plan, Bloomberg News reported.

“If our policy response is tentative and incrementalist, if we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem, then we risk greater damage to living standards, to the economy’s productive potential, and to the fabric of our financial system,” he told the committee at a hearing on his nomination.

The credit crunch and housing market collapse require a “comprehensive plan” that must be coordinated with international partners to effectively relieve global economic conditions, Geithner said.

Promising to reform the TARP program, Geithner said the Obama administration will require banks receiving government money to provide proof of increased lending. Some Senators sitting on the panel are upset at how the Treasury-administered financial rescue program has been run.

“We have to fundamentally reform this program to ensure that there is enough credit available to support recovery,” Geithner said.

He said the administration is considering expanding the system to help small businesses and families that are losing their homes and jobs. Former Treasury Secretary Henry Paulson, so far, has limited the program to injecting capital into banks.

The Obama team is also considering further steps to shore up the banking system, including the possibility of having the government take bad assets off banks’ books, according to people familiar with the thinking of the Obama team, Reuters reported.

Geithner, currently president of the New York Federal Reserve Bank, said it was possible the administration could establish a “bad bank” to soak up toxic assets held by banks that are discouraging them from lending.

Banking Regulations Should Change

Geithner also called for “comprehensive” regulatory changes to prevent a future economic crisis of this magnitude – the worst since the Great Depression – from happening again.

“We need to move quickly to build a stronger, more resilient system now, with much greater protections for consumers and investors, with much stronger tools to prevent and respond to future crises,” he said. “Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy.”

His statements echoed the sentiments of our own Shah Gilani, who provided guidelines on how to implement effective regulatory reform in Monday’s edition of Money Morning.

“The inability of the present system of regulation to deal with the complexities of expanding capitalism and protect us from inordinate concentrations of systemic risk has been tragically demonstrated. It is time that the crumbling walls of regulation are replaced with a new singular, transparent, effective and dynamic regulatory apparatus,”Gilani wrote.

Geithner, president of the Federal Reserve Bank of New York, was also grilled by lawmakers about his failure to pay $34,000 in taxes over several years in the first half of the decade. That issue – as well as a second, regarding the employment of a housekeeper without a work permit – fueled the doubts of some Republicans, who were blocking efforts to fast track Geithner’s nomination.

Geithner said his tax errors were “careless” and unintentional, and he apologized to the committee for the toll they have taken on his confirmation process. As reported by Money Morning on Jan. 19, Geithner actually placed phone calls to individual senators, hoping to persuade them his tax problems were the result of innocent errors.

Apparently it worked. Confirmation appears to be a fait accompli as several Democrat and Republican senators on the Finance Committee voiced strong support for Geithner.

Senate Finance Committee Chairman Max Baucus, D-Mont., said Geithner made “disappointing mistakes” that shouldn’t derail the nomination.
“After discussing them with Mr. Geithner, I believe them to be innocent mistakes,” Baucus said.

Source: Geithner Promises TARP Overhaul, Regulatory Changes to Solve “Mother of All Financial Crises”

Unfortunately, the data does not support this conclusion. The bloated service sector added 178,000 jobs, while manufacturing shed another 12,000 jobs. What this means is that 178,000 more workers will be consuming goods while 12,000 fewer will be making them. The result will be larger trade deficits that merely compound already stretched global imbalances and exacerbate America’s inevitable day of reckoning.

A service sector can only exist so long as it is supported by a vibrant manufacturing sector. The reason is simple. People employed in the service sector consume goods but do not actually produce any of them. Therefore they must rely on others, who presumably benefit from their services, to produce goods in their stead.

As an example, suppose that ten castaways were marooned on an island. What if on the day they washed up on shore they all decided to assume the following jobs; lawyer, accountant, banker, economist, actor, philosopher, astrologer, beautician, teacher, and nurse. How long do you suppose they would all remain alive without food, water, or shelter? Someone has to provide those things or everyone will perish.

In modern America, the goods shortfall is being made up by foreigner producers, who only derive a marginal benefit from the American service sector. In December, 43,000 new jobs were added in the education and health care sectors and 50,000 were added in business and professional services. What are all of these people going to export in order to pay for all the imported goods their paychecks will permit them to consume? Is there really that big a demand for American legal services in China? Do the Japanese really need our accounting advice? Do Saudi Arabian children benefit from pre-schools in America? How many sick Germans will seek treatment in American hospitals?

The fact that the U.S dollar rose in response to today’s jobs data is further evidence of how widespread this misunderstanding has become. Currency traders bid up the dollar because they assume a stronger jobs market will engender higher interest rates, which is perceived as dollar bullish. However, they ignore the longer term implications of the larger trade deficits that those service jobs will ultimately produce, which is decisively dollar bearish.

For now, all these excess dollars are being absorbed by foreign central banks precisely because foreign private consumers have little use for them. Today’s jobs data means that the resolve of foreign governments to continue accumulating additional dollar reserves will be that much harder to maintain.

Source: More Consumption Less Production