News What is wrong with the US economy? Part 2

[Astronuc]

US Treasury wants to borrow record 550 bln dlrs
http://news.yahoo.com/s/afp/20081103/pl_afp/financeeconomyustreasury

WASHINGTON (AFP) – The US Treasury said Monday it would seek to borrow a record 550 billion dollars in the October-December period to help stabilize the financial sector hammered by the global credit crisis.

The fourth-quarter borrowing estimate was substantially higher than the 408 billion dollars announced in July, and is a record high for quarterly estimates, a Treasury official said.

"The increase in borrowing is primarily due to higher outlays related to economic assistance programs, lower receipts, and lower net issuances of state and local government series securities," the Treasury said in a statement.

The Treasury said the federal government had borrowed 530 billion dollars from the markets in the third quarter. Of that amount, 300 billion dollars was borrowed for the Federal Reserve's Supplementary Financing Program, launched in mid-September in a bid to support the ailing economy.

In July the Treasury had estimated third-quarter borrowing at 171 billion dollars.

The escalation of worldwide financial turmoil in September and its growing negative impact on the US economy prompted US authorities to undertake an array of measures aimed at supporting banks and getting frozen credit flowing again.

At the same time, the credit squeeze reduced tax revenue from businesses and from households, which curbed spending in the face of rising unemployment and falling house values.

. . . .

Still borrowing.

 

[turbo]

Some amount of borrowing is required to maintain short-term liquidity in the face of downturns, but it is foolish to believe that we can borrow our way out of this morass. It's time that we had some actual conservatives directing our nation's finances - someone willing to take small doses of bad medicine from time to time instead of constantly borrowing and spending to protect business from any losses. That kind of short-sightedness (and the lack of meaningful oversight over the financial sector) is what got us into this mess in the first place.

 

[Astronuc]

Well the borrowing in this case is supposed to be 'invested', which in theory means it will earn more than borrowed. If it is buying equities (stock) that return may not be sure.

I'm left wondering what kind of return are they expecting and what will they really get.


It's also interesting that the Fed/Treasury make low interest loans to the very institutions that contributed to the current crisis. So in effect, the banks get cheap loans (~2-3%) from taxpayers and turn around and loan to the same taxpayers at higher interest rates (~6% for mortgages, or ~8-12% for consumer loans, or higher for sub-prime loans). Meanwhile the bankers get a nice bonus. There's something wrong with this picture.

 

[turbo]

It's also interesting that the Fed/Treasury make low interest loans to the very institutions that contributed to the current crisis. So in effect, the banks get cheap loans (~2-3%) from taxpayers and turn around and loan to the same taxpayers at higher interest rates (~6% for mortgages, or ~8-12% for consumer loans, or higher for sub-prime loans). Meanwhile the bankers get a nice bonus. There's something wrong with this picture.

It's pretty infuriating, actually. Taxpayers are forced to subsidize the banking industry with low-interest loans, to our own detriment. People who borrow to finance everything and have personal loans, mortgages, and lots of credit card debt may think that easy credit is a wonderful thing, but low-interest loans from our treasury to the banks suppresses the interest that banks are willing to pay ME for the use of my money. As someone who has saved all his life, I'm taking a double hit as my taxes subsidize the banks AND the banks cut the interest rates on my saving to the bone. There is probably nobody here with savings accounts, money market accounts, etc, that is getting enough interest to keep up with inflation and the cost of living. The constant erosion of personal wealth for the benefit of businesses is weakening our country.

 

[CaptainQuasar]

It's pretty infuriating, actually. Taxpayers are forced to subsidize the banking industry with low-interest loans, to our own detriment. People who borrow to finance everything and have personal loans, mortgages, and lots of credit card debt may think that easy credit is a wonderful thing, but low-interest loans from our treasury to the banks suppresses the interest that banks are willing to pay ME for the use of my money. As someone who has saved all his life, I'm taking a double hit as my taxes subsidize the banks AND the banks cut the interest rates on my saving to the bone. There is probably nobody here with savings accounts, money market accounts, etc, that is getting enough interest to keep up with inflation and the cost of living. The constant erosion of personal wealth for the benefit of businesses is weakening our country.

But - and I'm really asking this question, not simply being contrarian - aren't the low-interest loans to the banking industry what allows the Fed to keep a leash on the inflation rate and keep your investments from losing value to inflation even quicker? (Like the way that, for example, any life savings of Zimbabweans are now gone because of uncontrolled inflation there in the past decade.) Are you suggesting an alternate means of controlling inflation? (If you are, cool, I want to hear about it.)

⚛​

 

[turbo]

But - and I'm really asking this question, not simply being contrarian - aren't the low-interest loans to the banking industry what allows the Fed to keep a leash on the inflation rate and keep your investments from losing value to inflation even quicker? (Like the way that, for example, any life savings of Zimbabweans are now gone because of uncontrolled inflation there in the past decade.) Are you suggesting an alternate means of controlling inflation? (If you are, cool, I want to hear about it.)

⚛​

Low-interest loans to the banking industry make it possible for the banks to lend out my money and make lots of interest, while paying me little or nothing. The inflation bogeyman is way over-used. Where are the inflationary pressures? Are wages soaring, and increasing the costs of production? No.

If you want to control inflation, fight for universal health-care and a single-payer system. Health costs are rising faster than any other segment of the economy due to the insurance companies. Once you take the onus off employers to provide health insurance, a great deal of their overhead will be removed, and they can concentrate on their businesses. In addition, allowing formerly uninsured people access to preventive health care, will reduce the severity and treatment costs of preventable diseases.

 

[mgb_phys]

If you want to control inflation, fight for universal health-care

But then you could leave you low paying job with the risk of your children dying.
So it would lead to employers competing for workers in an open market and lead to wage rises. By keeping healthcare as a job benefit you keep the workers in the same position as medieval serfs.

 

[edward]

The good old boy system is alive and well on wall street. It is time to clean house at the FED.

WASHINGTON — The former chief risk officer at investment bank Bear Stearns Cos., which nearly collapsed in March, is now a senior official of the Federal Reserve division that supervises U.S. banks.
Michael Alix, who worked at Bear Stearns for 12 years and was its senior risk manager since 2006, was named a senior vice president in the bank-supervision group of the Federal Reserve Bank of New York, according to an announcement by the Fed.
The appointment is apt to raise questions because of the key role Alix played at Bear Stearns and given the Federal Reserve's role in Bear Stearns' sale to JPMorgan Chase & Co. after its breathtaking slide. In his new job at the central bank, Alix will help oversee the financial safety and soundness of banks, which are inspected by Federal Reserve examiners.

http://www.azstarnet.com/allheadlines/265669

 

[Jimmy Snyder]

The S&P 500 index hit a local bottom at 849 on October 27, just coinciding with news that even though he was behind in all polls, John McCain was closing the gap in some battleground states. They showed that he had less chance than a physicist at a homecoming social. This was a slight improvement over previous polls showing that he didn't have a snowball's chance in h[/color]ell on a cold day in July where the sun don't shine on a rat's a[/color]ss. While not much to work with, Wall street took this glimmer of hope and ran the S&P up to 1006 yesterday. A respectable 18% rise, just shy of a bull market in 6 trading days. Unfortunately, these hopes were shattered last night and the market went into a tailspin. This in spite of Obama's plan to end the war. I expect a boost to the economy as our soldiers stop bombing bridges in Iraq, and we bring these jobs back to America. Obama says this may not occur in the next year or two, but surely he will bring it about perhaps sometime during the Palin administration.

 

[lisab]

The S&P 500 index hit a local bottom at 849 on October 27, just coinciding with news that even though he was behind in all polls, John McCain was closing the gap in some battleground states. They showed that he had less chance than a physicist at a homecoming social. This was a slight improvement over previous polls showing that he didn't have a snowball's chance in h[/color]ell on a cold day in July where the sun don't shine on a rat's a[/color]ss. While not much to work with, Wall street took this glimmer of hope and ran the S&P up to 1006 yesterday. A respectable 18% rise, just shy of a bull market in 6 trading days. Unfortunately, these hopes were shattered last night and the market went into a tailspin. This in spite of Obama's plan to end the war. I expect a boost to the economy as our soldiers stop bombing bridges in Iraq, and we bring these jobs back to America. Obama says this may not occur in the next year or two, but surely he will bring it about perhaps sometime during the Palin administration.

Your protests fall on deaf ears, my dear mr snyder, because there is a volcano with your name all, all, all over it.

 

[LowlyPion]

I expect a boost to the economy as our soldiers stop bombing bridges in Iraq, and we bring these jobs back to America.

There are job openings here for bridge bombing?

 

[Jimmy Snyder]

There are job openings here for bridge bombing?

Financial institutions have been hoarding their cash, afraid to lend it to companies that may not be profitable enough to pay back the loan. Makes sense to me. Paulson is giving hundreds of billions to these institutions. They are skimming some 5 to 10 percent of that and funneling it directly into their own bonuses. The remainder goes right into the hoard along with the rest of it because none of this gets at the problem, fear of lending. You can make them richer, but you can't make them lend. Here is my proposal. Don't give any money to the financial institutions. Instead, fix the bridges. This kills three birds with one stone. It addresses unemployment since these are jobs that would not exist if we don't fix. It addresses the infrastructure problem, a real tough nut. It makes the bridge fixing companies profitable and so provides financial institutions with companies they can lend to. Some bridges may have to be dynamited in order to replace them. Bring the troops home.

 

[edward]

There are job openings here for bridge bombing?

Of course

 

[OmCheeto]

After hearing how honest this guy is, I'm a bit disappointed that he turned down the Chief Of Staff job:

http://www.c-span.org/video_rss.aspx?MediaID=38408
Sunday, September 28, 2008

Speaking to reporters following Sunday evenings House Democratic Caucus meeting, Rep. Rahm Emanuel said the caucus expected financial services legislation to stablize the financial markets and protect American taxpayers.

Mr President We Will FOREVER Be In Your Debt!

 

[Astronuc]

Vanishing jobs, stressed consumers feed downturn
http://news.yahoo.com/s/ap/20081107/ap_on_bi_ge/financial_meltdown

WASHINGTON – Ford Motor announced plans Friday for more layoffs, the latest in a vicious cycle of vanishing jobs and stresses on American consumers that is spelling deeper trouble for the already sinking U.S. economy.

In reporting that it lost $129 million in the third quarter and went through $7.7 billion in cash, the automaker also said it will cut another 10 percent of its North American salaried work force costs as it tries to weather the worst economic downturn in decades.

And more bad news was looming Friday.

• The Labor Department's unemployment report was expected to show net job losses for October to total about 200,000. The unemployment rate, now 6.1 percent, is expected to rise to 6.3 percent. If it does, it would match the highest unemployment rate that was logged after the last recession, in 2001. The jobless rate hit 6.3 percent in June 2003 and then started to drift downward.

• And General Motors was expected to release a gloomy earnings report for the third quarter.

All the economy's woes — a housing collapse, mounting foreclosures, hard-to-get credit and financial market upheaval — will confront President-elect Obama when he assumes office early next year. Obama has shifted from campaign mode to the task of building a new Democratic administration. A top priority will be quickly assembling his economics team, including the secretaries of Treasury, Commerce and Labor.

On the crucial jobs front, the situation is likely to move from bad to worse next year.

Employers have slashed jobs in the first nine months of this year. A staggering 760,000 losses have been racked up so far.

Many expect the jobless rate to climb to 8 percent, possibly higher, next year. In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent before inching down.

. . . .

Certainly this will be one of the most analyzed periods of American history, including what worked and what didn't.

Obama will do his part, but the American people must do theirs. The government can solve all the problems, many of which must be addressed by the people themselves.

 

[Astronuc]

• Circuit City seeks bankruptcy protection amid pressure from vendors ahead of the holidays

Days after announcing layoffs and store closures, the retail giant files for Chapter 11 protection.

• Oil prices near $63 per barrel on higher stock markets

• Deutsche Post to cut 9,500 jobs from DHL unit in US, end U.S.-only express shipping

And it's getting more surreal -

• Lawmakers, Detroit calling for Treasury aid for auto makers

• In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership

 

[edward]

AIG needs a new category to describe most of their assets. A writer at the Wall street Journal has suggest the term: Anybodies Guess.

 

[Ben Niehoff]

Circuit City was always an inferior store. I'm not too surprised about that. I could never find what I wanted there.

 

[Proton Soup]

Circuit City deserves to go under. it should have happened a long time ago.

 

[mheslep]

Circuit City deserves to go under. it should have happened a long time ago.

There are America jobs at stake! The press releases are already done, just find/replace 'auto industry' with 'consumer electronics retail, but don't actually make anything themselves, industry':

House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, in a letter Saturday, formally requested that Treasury Secretary Henry Paulson consider giving "temporary assistance to the industry" using money originally appropriated to shore up the banking system.

Don't forget a me to photo op for the CC guys.
http://s.wsj.net/public/resources/images/NA-AT870_BAILOU_D_20081109181048.jpg

 

[Jimmy Snyder]

There are America jobs at stake!

I don't know whether CC is a good company or a bad one, but this argument is only reasonable for good companies. Keeping bad companies afloat is no way to improve the economy.

 

[mgb_phys]

There are America jobs at stake!

I thought these were the kind of low skilled low paid jobs that all went to illegal immigrants?

I don't know whether CC is a good company or a bad one

It charges more than Best Buy while making up for it with less knowledgeable staff (which must have been a challenge)
It's one of those big box electronic stores that make money from selling people that don't know any better $100 HDMI leads and $100 extended warranties on $50 DVD players.

 

[mheslep]

I don't know whether CC is a good company or a bad one, but this argument is only reasonable for good companies. Keeping bad companies afloat is no way to improve the economy.

Hopefully it came through that I was tongue in cheek there. I don't think 'jobs are at stake' is ever a sufficient argument for having politicians picking and choosing which companies get to stay and which should go.

 

[Jimmy Snyder]

Hopefully it came through that I was tongue in cheek there. I don't think 'jobs are at stake' is ever a sufficient argument for having politicians picking and choosing which companies get to stay and which should go.

My bad. I should read more carefully.

 

[Astronuc]

GM shares plunge after analyst sees them hitting zero
http://news.yahoo.com/s/afp/20081110/bs_afp/stocksusautocompanygm

NEW YORK (AFP) – General Motors shares plunged more than 30 percent Monday after an analyst forecast their price would fall to zero, saying that even if there is a government bailout of the auto giant, shareholders would not benefit.

"We are lowering our target on GM equity to zero dollars," the Deutsche Bank report said.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like," it said.

"While we believe that GM's secured creditors may get a par recovery, unsecured creditors may get very low recovery. Equity shareholders are unlikely to get anything."

Ouch!

There are America jobs at stake! The press releases are already done, just find/replace 'auto industry' with 'consumer electronics retail, but don't actually make anything themselves, industry':

Who needs an auto-industry, software industry, retail industry, construction industry, aircraft industry, airline industry . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

We could save a lot by shutting down the entire economy. Just think of the savings.

People could grow their own food, or hunt the abundant herds of deer and other large herbivores - just like in the good ol' days.

 

[Proton Soup]

I thought these were the kind of low skilled low paid jobs that all went to illegal immigrants?


It charges more than Best Buy while making up for it with less knowledgeable staff (which must have been a challenge)
It's one of those big box electronic stores that make money from selling people that don't know any better $100 HDMI leads and $100 extended warranties on $50 DVD players.

eh, best buy does the same deal with over-priced cables. they kind of have to when they mark down regular electronic items to the bare margin.

they don't need saving, though. plenty of other retailers out there will pick up the slack. they will not be missed.

 

[mheslep]

...Who needs an auto-industry, software industry, retail industry, construction industry, aircraft industry, airline industry . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

Meaning you support direct government injections of the kind being asked for now in the automotive industry for all of these industries, or not? What about the horse and carriage, gas lamps, and ice block refrigeration industries?

 

[mgb_phys]

Who needs an auto-industry, . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

Posrche manages to make money - because of the slave labour wages and conditions of German car workers.
Toyota even makes money building cars in the US - it must pay it's executives bigger bonuses.

GM and Ford have been making tons of money over the last few years selling SUVs - presumably they have been investing this profit into research on new models and more efficent plants.

 

[Astronuc]

Meaning you support direct government injections of the kind being asked for now in the automotive industry for all of these industries, or not? What about the horse and carriage, gas lamps, and ice block refrigeration industries?

Well - people could make their own cars, muskets/rifles, cooking ware, lamps, etc. I mean isn't it about time people became fully self-sufficient?

No. Actually I was being facetious - toungue-in-cheek.

Off-course, they way they did locally 100+ years ago, was wait until the river froze in winter and chopped the ice into blocks. The problem is now we have global warming and the river doesn't freeze as it did in distant past. And the water is polluted with PCB's, agricultural run-off, and a variety of bacteria, e.g. coliform, which cause a variety of intestinal illnesses if ingested.

 

[Astronuc]

I do wonder why the government (really the taxpayers) are loaning the banks so much money at so little interest rate, only to be refused a loan, or if one gets a loan, the interest rate is much higher.

Perhaps the federal government doesn't want to compete with the banks - that wouldn't be fair.

But then if the banks are doing such a bad job that they need all this help - why are the managers still making multi-million dollar salaries + bonuses?


The seems to be a surplus of bad managers - surely that should put downward pressure on salaries. Or does the law of supply and demand not apply to management and their salaries?