What is wrong with the US economy? Part 2

[mheslep]

Gads! I've never seen a logarithmic scale to measure a stock markets drop.

http://finance.yahoo.com/echarts?s=^N225#symbol=^N225;range=my

35,000 to 8,800. But that's old news I guess. (1990-2009)

But if the Dow had followed the Nikkei over the same period it would be at 2000 instead of 8200.

Wow. Maybe McCain was right. Maybe there is nothing wrong with our economy.

You know the Japanese have spend the last 10 years doing massive amounts of fiscal spending in attempts to stimulate their economy, similar to what the US is poised to do. Looks like, economically speaking, all they are getting from this spending is a huge pile of debt.

 

[russ_watters]

It will be interesting to see how the US stock indices respond to Obama's inauguration.

The Asian markets are down about 3% in early afternoon trading (Jan 20).

Way down today, but I wouldn't read much into it. I was listening to the news during the opening bell and the commentator said it has dropped on 70% of inauguration days. Apparently, the optimistic bulls are watching the inauguration while the pessimistic bears are trading stocks.

 

[Astronuc]

Banks sink deeper into crisis on Obama's first day
Bottom falls out of bank stocks as investors expect need for far more aggressive bailout steps
http://finance.yahoo.com/news/Banks-sink-deeper-into-crisis-apf-14110026.html

So what happened to those free-marketeers on Wall Street?

 

[mgb_phys]

Fiat have bought 35% of Chrysler, which with Mercedes still owning 20% means they are presumably no longer a US bailout candidate.
You know things are bad when Fiat are rescuing you - and Fiat shares actually went UP on this news!

 

[mheslep]

What does this bank stock news:

Banks sink deeper into crisis on Obama's first day
Bottom falls out of bank stocks as investors expect need for far more aggressive bailout steps
http://finance.yahoo.com/news/Banks-sink-deeper-into-crisis-apf-14110026.html

have to do with

those free-marketeers on Wall Street?

?

 

[Astronuc]

Reference to the people who detest government regulation, and who rave about the wonders of free-market and unfettered captialism, who then blow it big time, and run hat in hand for bailouts from Uncle Sam to cover their negligence.


Meanwhile -

Banks battered as sector matches worst day ever

For investors who might have thought the worst was over after the nation's big three banks aired some dirty laundry last week, Tuesday provided clear evidence that the horror show continues, as well over half of the financial stocks in the bellwether S&P 500 Index lost more than 10% of their value.

State Street an ETF that tracks financial stocks in the S&P 500, fell almost 17%, matching its record one day percentage drop of on December 1, 2008.

Most of nation's top banks were trading at levels last seen in the mid-1990's, including Citigroup (C: $2.82, -$0.68, -19.43%), Wells Fargo (WFC: $14.23 -$4.45 -23.82%), and J.P. Morgan Chase (JPM: $18.09, -$4.75, -20.78%).

Bank of America (BAC: $6.00, -$1.18, -16.43%) shares traded at their lowest level since 1986.
. . . .

B. of A. needs more than $80 billion: FBR
Wells Fargo also will likely cut dividend to boost capital, analyst says

And these guys get to keep their jobs?

 

[mheslep]

Reference to the people who detest government regulation, and who rave about the wonders of free-market and unfettered capitalism, who then blow it big time, and run hat in hand for bailouts from Uncle Sam to cover their negligence.

Okay, if we grant all that for a minute, how does that follow from the bank stocks decline link?
As to the details. Two points.
1) Is this free-market raving?

...Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control ...

2) Given the framework the government setup for the TARP money, everybody - banks, auto companies, universities and colleges, porn kings - is dreaming up some tortured rationale to get hold of the money whether or not they had anything at all to do with creating financial instruments.

Meanwhile -

Banks battered as sector matches worst day everB. of A. needs more than $80 billion: FBR
Wells Fargo also will likely cut dividend to boost capital, analyst says

And these guys get to keep their jobs?

Who, BoA execs? TARP Treasury officials? Congressional members that wrote and supported TARP? Merrill Lynch CEO Thain certainly has lost his job as their is (soon anyway) will be no more ML. BoA is looking for more money to cement the huge acquisition of Merrill Lynch, otherwise they're likely fine. Should BoA instead just dump ML and let it disintegrate? I'd have to say no, but I wouldn't give them (BoA) all of the $80B either.

 

[misgfool]

You know the Japanese have spend the last 10 years doing massive amounts of fiscal spending in attempts to stimulate their economy, similar to what the US is poised to do. Looks like, economically speaking, all they are getting from this spending is a huge pile of debt.

It might be easier to let the master explain.

http://web.mit.edu/krugman/www/jpage.html

 

[mheslep]

It might be easier to let the master explain.

Who says in Japan's trap (May 1998):
http://web.mit.edu/krugman/www/japtrap.html

Fiscal policy: ...
While this policy could work, however, is it the right one for Japan? Japan has already engaged in extensive public works spending in an unsuccessful attempt to stimulate its economy. Much of this spending has been notoriously unproductive: bridges more or less to nowhere, airports few people use, etc.. True, since the economy is demand- rather than supply-constrained even wasteful spending is better than none. But there is a government fiscal constraint, even if Japan has probably been too ready to use it as an excuse. And anyway, is it really true that it is impossible to use the economy's resources to produce things people actually want?

Edit: later in 99 he said in
http://web.mit.edu/krugman/www/SCURVE.htm

Japan is currently engaged in the largest peacetime fiscal stimulus in history, with a budget deficit of around 10 percent of GDP. ...

a simple statement of fact, Japan tried fiscal stimulus. Look at results for yourself now and ask: did it work? I have to say no.

From Further Notes:
http://web.mit.edu/krugman/www/liquid.html

4. Isn't fiscal policy an alternative answer?

Fiscal expansion is certainly an alternative way of pumping demand into the economy. And given Japan's grievous plight, coupled with the real uncertainty about what will work, I would advocate fiscal expansion as well as a commitment to inflation.

But I have doubts about fiscal policy's effectiveness on its own, for three reasons.

First, if Japanese consumers really do exhibit something like ARicardian equivalence@, there will be no multiplier effects from government spending. My previous note actually misstates the implication of the model (that's one of the marks of a good model - it is sometimes smarter than you are). The true implication there is that current consumption is completely unresponsive to current government spending (it's tied down by the Euler condition, if you really want to know), so that public works projects will increase spending by exactly the amount the government spends - no more.

Which brings us to the second point: Japan's long-term financial position is a bit worrisome, so keeping the economy afloat with year after year of massive deficits is a problem. And absent powerful multiplier effects, it will take massive deficits to keep the economy from slipping ever deeper into recession, unless a one-time fiscal push has a long-term effect.

And that is the third point. Although serious discussion of the long-term implications of fiscal stimulus is rare, most people probably have in mind some idea about A pump-priming@. (Actually, very few people either in the United States or in Japan have any idea what that means. AJump-start@ is probably a more useful metaphor). The idea is that once the economy is moving again, confidence will return and spending will no longer need to be supported. Now this might be true, but there is not much evidence for it; it is at least possible that Japan has a structural negative real interest rate that will last for a number of years. That means that the economy must either receive continuing massive fiscal stimulus, or have sustained inflation.

That last line in the 2nd point, "absent powerful multiplier effects, it will take massive deficits to keep the economy from slipping ever deeper into recession, unless a one-time fiscal push has a long-term effect". One time fiscal push? What a colossal gamble. Sounds like the advice of a disparate gambler betting the mortgage.

I advise caution with the 'master' outside of the area for which his work was recognized: trade. In 2003 he prophesied deficits running at the time would surely send the US 'off the cliff'. Then in 2007 he says, never mind, forget about deficits, we should go New Deal Two full speed ahead.
http://www.charlierose.com/shows/2003/09/15/2/a-conversation-with-paul-krugman-of-the-new-york-times
http://www.charlierose.com/shows/2007/12/26/1/a-conversation-with-paul-krugman

 

[misgfool]

C'mon, I think you intentionally misunderstood him.

Japan is currently engaged in the largest peacetime fiscal stimulus in history, with a budget deficit of around 10 percent of GDP. ...

a simple statement of fact, Japan tried fiscal stimulus. Look at results for yourself now and ask: did it work? I have to say no.

I believe that actual business cycles aren't always real business cycles, that some (most) recessions happen because of a shortfall in aggregate demand.

When there is a shortfall in aggregate demand, public construction projects are a very efficient way to pump money into the economy.

4. Isn't fiscal policy an alternative answer?

Fiscal expansion is certainly an alternative way of pumping demand into the economy. And given Japan's grievous plight, coupled with the real uncertainty about what will work, I would advocate fiscal expansion as well as a commitment to inflation.

But I have doubts about fiscal policy's effectiveness on its own, for three reasons.

I think you bolded wrong words in the above text. I emphasized my view.

From Further Notes:
http://web.mit.edu/krugman/www/liquid.html
That last line in the 2nd point, "absent powerful multiplier effects, it will take massive deficits to keep the economy from slipping ever deeper into recession, unless a one-time fiscal push has a long-term effect". One time fiscal push? What a colossal gamble. Sounds like the advice of a disparate gambler betting the mortgage.

Again most recessions are caused by a shortfall in aggregate demand. It's really simple, people and corporations have to start spending. If there was no public spending, bankruptcies would increase and unemployment would increase. These events don't increase the confidence of people and corporations. Instead they begin to fear and start saving money, which is bad.

I advise caution with the 'master' outside of the area for which his work was recognized: trade. In 2003 he prophesied deficits running at the time would surely send the US 'off the cliff'. Then in 2007 he says, never mind, forget about deficits, we should go New Deal Two full speed ahead.
http://www.charlierose.com/shows/2003/09/15/2/a-conversation-with-paul-krugman-of-the-new-york-times
http://www.charlierose.com/shows/2007/12/26/1/a-conversation-with-paul-krugman

He is a 'master' when compared to individuals like you. What he says in those documents is that deficits are bad if they don't result in a surplus in the long term. Obama's plan has that potential.

 

[mheslep]

When there is a shortfall in aggregate demand, public construction projects are a very efficient way to pump money into the economy.

That's a simplified version of the Keynesian view; a more complete view would include the stumbling points:
1) As the government attempts to pump demand into the economy it must first take capital out of the economy by taxing or borrowing, or 'crowding out' the private economy. The argument by stimulus advocates would be that in the current economy that there is ample 'idle' capital so that crowding doesn't occur, but that's not clear to me that this is the case. If it is the case, it is certainly a temporary state.
2) 'Efficient' only has meaning in relation to alternatives, i.e. there are areas with better stimulus multipliers than infrastructure (amount of additional GDP for amount of additional government spending). The common numbers in use by advocates cite extending unemployment insurance yielding 1.64, increasing food stamps at 1.73, and infrastructure at 1.59. There are other studies looking at US averages and returning averages of 1.4 [Ramey] and even 1 [Hall/Woodward]
http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html
http://www.econbrowser.com/archives/2008/10/pocketfull_of_m.html
3) Inadequate demand may not be due to a lapse of means or will to buy or invest. It may instead be because nobody wants the goods produced by the current system, the same ole same ole; in that case the economy needs to restructure and reinvent itself. I believe this is the case in Japan, where (again) there's a great deal of data on large scale fiscal stimulus:

Between 1992 and 1995, Japan tried six spending programs totaling 65.5 trillion yen and cut income tax rates during 1994. In January 1998, Japan temporarily cut taxes again by 2 trillion yen. Then, in April of that year, the government unveiled a fiscal stimulus package worth more than 16.7 trillion yen, almost half of which was for public works. Again, in November 1998, another fiscal stimulus package worth 23.9 trillion yen was announced. A year later (November 1999), yet another fiscal stimulus package of 18 trillion yen was tried. Finally, in October 2000, Japan announced yet another fiscal stimulus package of 11 trillion yen. Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession. What the spending programs have done, however, is put Japan's government in poor fiscal shape. The "on-budget" government spending has caused public debt to exceed 100 percent of GDP (highest in the G7), and even more debt is apparent when the "off-budget" sector is included.

http://mises.org/story/1099
Those yen budgets translate to a peak 10% of Japan's GDP.

4. Isn't fiscal policy an alternative answer?
Fiscal expansion is certainly an alternative way of pumping demand into the economy. And given Japan's grievous plight, coupled with the real uncertainty about what will work, I would advocate fiscal expansion as well as a commitment to inflation.
But I have doubts about fiscal policy's effectiveness on its own, for three reasons.

I think you bolded wrong words in the above text. I emphasized my view.

Fine, but I have no interest in what he advocates when trying to get to the fundamentals of the topic. I'm interested in the argument and the data. As I highlighted earlier, Krugman points out several failures with fiscal stimulus in Japan, and in the end hand waves it all away in favor of a what appears to be a personal preference.

..He is a 'master' when compared to individuals like you..

Do you feel that statement bolsters your argument?
http://en.wikipedia.org/wiki/Appeal_to_authority" and
http://en.wikipedia.org/wiki/Ad_hominem"

 

[misgfool]

That's a simplified version of the Keynesian view; a more complete view would include the stumbling points:
1) As the government attempts to pump demand into the economy it must first take capital out of the economy by taxing or borrowing, or 'crowding out' the private economy.
The argument by stimulus advocates would be that in the current economy that there is ample 'idle' capital so that crowding doesn't occur, but that's not clear to me that this is the case.

You have pointed out yourself in this thread that US banks are holding massive amounts of idle capital.

If it is the case, it is certainly a temporary state.

True.

2) 'Efficient' only has meaning in relation to alternatives, i.e. there are areas with better stimulus multipliers than infrastructure (amount of additional GDP for amount of additional government spending). The common numbers in use by advocates cite extending unemployment insurance yielding 1.64, increasing food stamps at 1.73, and infrastructure at 1.59. There are other studies looking at US averages and returning averages of 1.4 [Ramey] and even 1 [Hall/Woodward]
http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html
http://www.econbrowser.com/archives/2008/10/pocketfull_of_m.html

All public spending is beneficial if the amount goes back to the economy. So your examples do bring out good points. But again if you build those 100 nuclear plants, they will provide dividends far to the future.

3) Inadequate demand may not be due to a lapse of means or will to buy or invest. It may instead be because nobody wants the goods produced by the current system, the same ole same ole; in that case the economy needs to restructure and reinvent itself. I believe this is the case in Japan, where (again) there's a great deal of data on large scale fiscal stimulus:

That might be believable if it happened gradually, but now the collapse has been almost instantaneous. Are you trying to say that everyone got bored in goods at the same time? I would see that as quite improbable.

Between 1992 and 1995, ... sector is included.

At least we know now that tax cuts are totally useless, right?

Fine, but I have no interest in what he advocates when trying to get to the fundamentals of the topic.

Then why did you point them out in the first place? Still it is good to know we have the same goal.

I'm interested in the argument and the data. As I highlighted earlier, Krugman points out several failures with fiscal stimulus in Japan, and in the end hand waves it all away in favor of a what appears to be a personal preference.

You didn't read or comprehend the content of Krugmans ideas. What he says is that Japan was in a liquidity trap. He thought that what the government did was correct but the central bank should have committed in keeping the inflation at some target level i.e. monetary policy would have been predictable. And stay committed even after prices begin to rise. When the nominal interest rates were at zero with inflation at 5% the real rate would have been -5%. That would have discouraged saving money.

The way I see it, your problem is that you try to separate monetary policy and fiscal policy like only one of the can solve the situation. In my opinion they are like a mother and a father, if either one of them doesn't play along, there will be no kids.

Do you feel that statement bolsters your argument?
http://en.wikipedia.org/wiki/Appeal_to_authority" and
http://en.wikipedia.org/wiki/Ad_hominem"

You pushed me, but I guess I deserved that. Still

http://en.wikipedia.org/wiki/Humor"

 

[mheslep]

... So your examples do bring out good points. But again if you build those 100 nuclear plants, they will provide dividends far to the future.

Agreed. That should be vetting process - traditional cost benefit analysis. Unfortunately I have doubts that Congress can keep its hand out of the pie. Rep Frank was tagged today for rerouting TARP money to his home town bank; he personally called the TARP regulator for the bank.

At least we know now that tax cuts are totally useless, right?

No! If you mean the claim that all tax cuts at any rate pay for themselves - yes that's false (well some types appear to, depending on the tax rate, blah, blah). But there's no question that tax cuts also stimulate GDP, the question is how much? The debate that's raging at the moment between economists is how much stimulus do we get from spending and how much do we get from tax cuts. Pres. Obama's new CEA Chair Christina Romer came out with CEA numbers a couple days ago in a summary of the proposed stimulus plan.
http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf
She rates spending (multiplier ~1.5) more effective than tax cuts (~.8). On the other hand in 2007 she published a http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf" showing tax cuts had a multiplier of 3 - the difference is beyond me, I suppose the change in conditions has much to do with it.

http://en.wikipedia.org/wiki/Humor"

Always good advice

 

[misgfool]

Agreed. That should be vetting process - traditional cost benefit analysis. Unfortunately I have doubts that Congress can keep its hand out of the pie. Rep Frank was tagged today for rerouting TARP money to his home town bank; he personally called the TARP regulator for the bank.

That is a bit unfortunate, but if you give all of to the major banks, end result will be a few massive banks and no little or medium sized banks. So in effect the government is creating a monopoly situation to the financial sector. I think that when this crisis is over the government should split the biggest banks at least to five parts.

She rates spending (multiplier ~1.5) more effective than tax cuts (~.8). On the other hand in 2007 she published a http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf" showing tax cuts had a multiplier of 3 - the difference is beyond me, I suppose the change in conditions has much to do with it.

Here is what comes immediately to mind. Tax cuts have two possible ways of generating more growth:

a) people work more.
b) people have more money and they spend it

At the present there is so little work to be done that option a) won't/can't happen. Also when one thinks about a person making say $500000 a year working 60 hours a week, how much more could (s)he really work? Tax cuts might be justifiable in the mid income range, but it's hard to see a benefit from the highest earners.

Also if people get more money they are more likely to save it than spend so option b) won't happen. So in the current situation I can't see any benefit from tax cuts.

 

[mheslep]

Here is what comes immediately to mind. Tax cuts have two possible ways of generating more growth:

a) people work more.
b) people have more money and they spend it

At the present there is so little work to be done that option a) won't/can't happen. Also when one thinks about a person making say $500000 a year working 60 hours a week, how much more could (s)he really work?

Could just as easily cite the person working 40 hours a week now that might pick up to 60 w/ more take home.

Tax cuts might be justifiable in the mid income range, but it's hard to see a benefit from the highest earners.

The tax cuts on the table now are for businesses and middle income.

Also if people get more money they are more likely to save it than spend so option b) won't happen. So in the current situation I can't see any benefit from tax cuts.

There's been a lot of work done on explaining what people are likely to do with increased income. A major contribution is Friedman's http://en.wikipedia.org/wiki/Permanent_income_hypothesis" income theory. The more permanent, the more likely people are to consume or invest. So the more permanent the tax cuts, the more likely people are to spend or invest them rather than bank it. Of course that's a one time shot, and then the tax breaks contribute perhaps to the long term deficit.
Anecdotally there are many areas where tax cuts might help immediately. People are dumping their domestic help with the crunch. A tax break does two things in the first circulation round: gives the employer more income to go back and rehire day care, rehire the gardener, but it also makes the employee cheaper to hire, as their taxes also got cut. That is, tax breaks make labor less expensive. (high labor cost=takehome+taxes_high becomes lower labor cost=takehome+taxes_low). Lower labor costs => higher employment.
Now I don't say necessarily that tax cuts are the best way to go, just that they are far from useless; I favor the whatever policy is the most effective for the recovering the economy. Maybe some govt. spending is the most effective, maybe not.

 

[mgb_phys]

There's been a lot of work done on explaining what people are likely to do with increased income.

Sensible people will use it to pay off any credit card/mortgage debt and save the rest = bad.
Idiots will see this as more money in their pocket and buy imported consumer goods = bad.
Somebody will spend the money on local economic generating activates (like going to a restaurant) or invest it in wealth creating companies = good.

You are going to need a pretty accurately targeted tax cut!

 

[jal]

Tax breaks/cut are the most beneficial to the rich/wealthy/ in two ways.
1. They get to keep more of their profits.
2. They realize that an infrastructure spending plan may not benefit them and that it will eventually mean that they will get to pay a higher tax to pay back the gov. deficit spending.
jal

 

[Astronuc]

Tax breaks/cut are the most beneficial to the rich/wealthy/ in two ways.
1. They get to keep more of their profits.
2. They realize that an infrastructure spending plan may not benefit them and that it will eventually mean that they will get to pay a higher tax to pay back the gov. deficit spending.
jal

Warren Buffett made the point that he is undertaxed. His primary source of income is capital gains which are taxed at a much lower rate than income tax.

What some have done is move their cash/capital off-shore and then that is lent back to the US government, and so the gains are not taxed at all.

Here's an interesting commentary by Stiglitz:
http://www.cnn.com/2009/POLITICS/01/26/stiglitz.finance.crisis/index.html

Summary:
The bank bailout has failed to restart prudent lending by banks
Stiglitz says banks made reckless loans and were burned as a result
They borrowed so much money that they couldn't handle a downturn
Economist says it's time to consider government takeovers of weaker banks

. . .
Every day brings further evidence that the losses are greater than had been expected and more and more money will be required.

The question is at last being raised: Perhaps the entire strategy is flawed? Perhaps what is needed is a fundamental rethinking. The Paulson-Bernanke-Geithner strategy was based on the realization that maintaining the flow of credit was essential for the economy. But it was also based on a failure to grasp some of the fundamental changes in our financial sector since the Great Depression, and even in the last two decades.

For a while, there was hope that simply lowering interest rates enough, flooding the economy with money, would suffice; but three quarters of a century ago, Keynes explained why, in a downturn such as this, monetary policy is likely to be ineffective. It is like pushing on a string.
. . . .
Remarkably, Bush administration Treasury Secretary Henry Paulson and company simply didn't understand that the banks had made bad loans and engaged in reckless gambling. There had been a bubble, and the bubble had broken. No amount of talking would change these realities.
. . . .
Then came the idea of equity injection, without strings, so that as we poured money into the banks, they poured out money, to their executives in the form of bonuses, to their shareholders in the form of dividends.

Some of what they had left over they used to buy other banks -- to pursue strategic goals for which they could not have found private finance. The last thing in their mind was to restart lending.

The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative.

And the social returns have even been less -- the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures -- to the tune of hundreds of billions of dollars.
. . . .
Leverage, or borrowing, gives big returns when things are going well, but when things turn sour, it is a recipe for disaster. It was not unusual for investment banks to "leverage" themselves by borrowing amounts equal to 25 or 30 times their equity.

At "just" 25 to 1 leverage, a 4 percent fall in the price of assets wipes out a bank's net worth -- and we have seen far more precipitous falls in asset prices. Putting another $20 billion in a bank with $2 trillion of assets will be wiped out with just a 1 percent fall in asset prices. What's the point?
. . . .

Meanwhile - Tens of thousands more layoffs are announced
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/business_outlook

A new survey by the National Association for Business Economics depicts the worst business conditions in the U.S. since the report's inception in 1982.

Thirty-nine percent of NABE's forecasters predicted job reductions through attrition or "significant" layoffs over the next six months, up from 32 percent in the previous survey in October. Around 45 percent in the current survey anticipated no change in hiring plans, while roughly 17 percent thought hiring would increase.

The recession, which started in December 2007, and is expected to stretch into this year, has been a job killer. The economy lost 2.6 million jobs last year, the most since 1945. The unemployment rate jumped to 7.2 percent in December, the highest in 16 years, and is expected to keep climbing.
. . . .
Thousands more jobs cuts were announced Monday. Pharmaceutical giant Pfizer Inc., which is buying rival drugmaker Wyeth in a $68 billion deal, and Sprint Nextel Corp., the country's third-largest wireless provider, said they each will slash 8,000 jobs. Home Depot Inc., the biggest home improvement retailer in the U.S., will get rid of 7,000 jobs, and General Motors Corp. said it will cut 2,000 jobs at plants in Michigan and Ohio due to slow sales.

Caterpillar Inc., the world's largest maker of mining and construction equipment, announced 5,000 new layoffs on top of several earlier actions. The latest cuts of support and management employees will be made globally by the end of March. An additional 2,500 workers already have accepted buyout offers, and ties have been severed with about 8,000 contract workers worldwide. In addition, about 4,000 full-time factory workers already have been let go.
. . . .

Caterpillar says to cut 20,000 jobs
http://news.yahoo.com/s/nm/20090126/bs_nm/us_caterpillar

Home Depot to cut 7,000 jobs, close Expo chain
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/home_depot_job_cuts

Pfizer to buy Wyeth for $68B; cut 8,000 jobs
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/pfizer_wyeth_acquisition

 

[turbo]

Fallen Lehman Brothers Chief Executive Richard Fuld sold his $13.3 million mansion to his wife for just $100 last November, according to Florida real estate records.

Par for the course...

http://www.reuters.com/article/newsOne/idUSTRE50P04A20090126

 

[mheslep]

...l]

Summary:
...
Economist says it's time to consider government takeovers of weaker banks

Stiglitz cites the Swedish example? Sweden did indeed nationalize many banks. Why does Stiglitz not mention that Sweden later re-privatized those banks? Why, when proposing such a solution, does he not feel obligated to address the elephant in the room problem with nationalizing banks: politicians will want to personally direct who and who does not get loans. They already http://www.boston.com/news/nation/washington/articles/2009/01/23/frank_tried_to_get_hub_bank_a_bailout/" when given the opportunity.

 

[jal]

Economist says it's time to consider government takeovers of weaker banks

The US gov./tax payers does not have enough money. The system is bankrupt!
jal

 

[mgb_phys]

Meanwhile - Tens of thousands more layoffs are announced
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/business_outlook


Caterpillar says to cut 20,000 jobs
http://news.yahoo.com/s/nm/20090126/bs_nm/us_caterpillar

Home Depot to cut 7,000 jobs, close Expo chain
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/home_depot_job_cuts

Pfizer to buy Wyeth for $68B; cut 8,000 jobs
http://news.yahoo.com/s/ap/20090126/ap_on_bi_ge/pfizer_wyeth_acquisition

But it's not all bad news, citigroup bank just bought a new $50M jet
http://www.nypost.com/seven/01262009/news/nationalnews/just_plane_despicable_152033.htm

 

[Potential]

I think C is trying to back the $50M jet deal out after a senator began to take action.

 

[mgb_phys]

I think C is trying to back the $50M jet deal out after a senator began to take action.

Idiots, you don't buy a Jet in a recession, you lease it through a dozen intermediate subsidiaries registered in different Caribbean tax havens while claiming tax relief on all the money transfers.
These crooks (sorry banks) have just got lazy - what happened to proper organised crime ?

 

[Potential]

LOL. I wouldn't worry too much about the layoffs. Once the $1B M3 issued via private corporation Federal Reserve hits our pockets, start looking for the next bubble. A hyper-bubble, like no bubble we have seen before. Bubble went from Japan, to US, to China, in almost successive decades. The next bubble may be India. Or it could be precious metals. Price peak around 2014. All the cash has to go somewhere, right? Once the momentum starts in an investment vehicle, all the cash seems to be sucked by that vehicle. Could be like a hyper-Hoover vacuuum cleaner on steroids.

 

[Astronuc]

Stiglitz cites the Swedish example? Sweden did indeed nationalize many banks. Why does Stiglitz not mention that Sweden later re-privatized those banks? Why, when proposing such a solution, does he not feel obligated to address the elephant in the room problem with nationalizing banks: politicians will want to personally direct who and who does not get loans. They already http://www.boston.com/news/nation/washington/articles/2009/01/23/frank_tried_to_get_hub_bank_a_bailout/" when given the opportunity.

I don't necessarily agree with any solution that Stiglitz mentions. I'm not thrilled with the bailout, the way it was handled, or the results, or the next stimulus package. The people involved in this seem to be the same people who didn't see this coming, so why should they be trusted to develop an effective solution.


But 9 out of 10 bank CEOs are still employed despite the loses and the need for government bailout.
AP IMPACT: Bank layoffs mount as execs get bailout
http://news.yahoo.com/s/ap/20090127/ap_on_go_ca_st_pe/meltdown_executives


Meanwhile - Corning cuts 3,500 jobs as 4Q profit slumps
http://news.yahoo.com/s/ap/20090127/ap_on_bi_ge/earns_corning

or - Corning slashes up to 4,900 jobs to cut costs
http://news.yahoo.com/s/nm/20090127/bs_nm/us_corning

DuPont posts fourth-quarter loss, trims 2009 outlook
http://news.yahoo.com/s/nm/20090127/bs_nm/us_dupont

NEW YORK (Reuters) - DuPont Co posted a bigger-than-expected fourth-quarter loss on Tuesday, hurt by restructuring-related charges, a widening global recession and a slump in consumer spending, and the chemical maker lowered its 2009 earnings outlook.

 

[Astronuc]

The Commerce Department is set to release a report Friday expected to show the economy shrank at a pace of 5.4 percent in the October-December period, a much faster descent than the 0.5 percent decline logged in the prior quarter. If economists' forecasts are correct, it would mark the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through a severe recession.

. . . .

http://biz.yahoo.com/ap/090130/economy.html

The report be out in the next couple of hours.


Update: Economy shrinks at 3.8 percent pace in fourth quarter, worst showing in quarter-century

WASHINGTON (AP) -- The economy shrank at a 3.8 percent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending.
. . . .
For all of 2008, the economy grew by just 1.3 percent. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001.
. . . .

 

[Gokul43201]

I finally heard something on NPR a couple days ago about setting up a "bad bank". I never actually got to hear that news story (I was driving), but I guess this is something like the RTC of the post S&L era. If this is true, why has it taken so long to propose an RTC-like plan? I remember mheslep suggesting it here several months ago (Oct 08?), and I thought it was a (relatively) good idea back then. But I'm a layman when it comes to economics.

So what are the disadvantages of setting up such a "bad bank" to absorb toxic assets? Is it just the slippery slope argument or is there a bigger criticism (I think we've embarked on a slippery slope of a different kind with bailouts anyway)?

 

[Astronuc]

I finally heard something on NPR a couple days ago about setting up a "bad bank". I never actually got to hear that news story (I was driving), but I guess this is something like the RTC of the post S&L era. If this is true, why has it taken so long to propose an RTC-like plan? I remember mheslep suggesting it here several months ago (Oct 08?), and I thought it was a (relatively) good idea back then. But I'm a layman when it comes to economics.

I think the delay was due to the national election - new administration, and new congress - and perhaps some belief that the $700 billion + $300-400 billion spent on Fannie Mae, Freddie Mac, AIG, . . . would do the trick.

So what are the disadvantages of setting up such a "bad bank" to absorb toxic assets? Is it just the slippery slope argument or is there a bigger criticism (I think we've embarked on a slippery slope of a different kind with bailouts anyway)?

I guess it comes down to who pays what, and how does one recover the investment. There is also the matter of conflicting philosophy about how much the government gets involved in micromanaging the economy.

What is the magic formula?


I would have thought that if people can't pay on a 30-yr mortgage, then set it to 40 year or whatever they can pay. I think the problem is that too many people got hit with high interest rates on their mortgages (from adjustable rate mortgages), a problem compounded by higher prices for basics, like fuel, food, medicine, . . . .

I'm not sure the magnitude of the problem, but I think a lot of the overleveraging is related to financing lifestyles on high interest credit cards, i.e. > 10% APR, and more like 18 - 30%, i.e. the 'subprime' credit card. The bust came when too many people could not pay (service) the cumulative debt. Many were forced to stop spending, which had an adverse impact on an economy that is about 2/3's consumer spending.

 

[mgb_phys]

I'm not sure the magnitude of the problem, but I think a lot of the overleveraging is related to financing lifestyles on high interest credit cards, i.e. > 10% APR, and more like 18 - 30%, i.e. the 'subprime' credit card. The bust came when too many people could not pay (service) the cumulative debt. Many were forced to stop spending, which had an adverse impact on an economy that is about 2/3's consumer spending.

And ironically now if everyone starts behaving responsibly - saving and not buying junk, the economy goes into a depression!