US Economy

[Kirkhill]

I have to admit, between much more involvement at work these days (a good thing - interesting project) and the train-wreck that is the new administration south of the border, I have given up on following the news closely. 

I missed that comment about bankers and pitchforks.

Nasty bankers.  Stealing your money.
Nasty Kulaks .  Stealing your food.
Nasty Jews.  Stealing your  ???  Oh Yeah!!!  They're the bankers.

I've read this book before.

Let me know if it turns out different this time.

 

[GAP]

Fiat to Chrysler: Cut costs or we walk
ERIC REGULY AND GREG KEENAN,  From Wednesday's Globe and Mail
Article Link

ROME and TORONTO — Fiat SpA will abandon Chrysler LLC, leaving it to fend for itself in bankruptcy court, unless Chrysler's Canadian and American unions agree to substantial labour-cost reductions by the end of the month, Fiat CEO Sergio Marchionne says.

For Chrysler, which is subsisting on cash borrowed from the U.S. and Canadian governments, the deal with Fiat is the last chance to avoid a bankruptcy filing and possible liquidation.

But Fiat is prepared to scrap the deal and look elsewhere for an international partner if the unions do not agree to match the lower labour costs of Japanese and German plants in the United States and Canada, Mr. Marchionne said in an exclusive interview with The Globe and Mail at the Italian auto maker's headquarters in Turin.

“Absolutely we are prepared to walk. There is no doubt in my mind,” he said. “We cannot commit to this organization unless we see light at the end of the tunnel.”

Mr. Marchionne, 56, said Chrysler workers on both sides of the border have to end their sense of entitlement if the wrecked auto maker is to have any chance of repairing itself.

“The minute you talk to me about historical entitlement in an organization that is technically bankrupt, it's a nonsensical discussion,” he said.

“There is no wealth to be distributed.”

The administration of U.S. President Barack Obama has given Fiat and Chrysler until the end of the month to negotiate partnership terms.

If the deal is done, the U.S. and Canadian governments would prop up Chrysler with about $7-billion(U.S.) in loans to sustain its operations while Fiat overhauls the company and fills its dealerships with Fiat-derived models.

Because of the lack of progress on labour negotiations, especially on the Canadian side, there is only a 50-50 chance the partnership will be formed, Mr. Marchionne said.

“From what I can tell from a distance, the CAW may have taken more rigid positions,” he said.

“The dialogue is out of sync. I think they need to see what state the industry is in. Canada and the U.S. are coming in as the lender of last resort.

“No one else would put a dollar in. This is the worst condemnation of the viability of this business.

“We are not anti organized labour. No one wants to remove the UAW or the CAW from the table. But it will happen if a bankruptcy process drags on. …The UAW and the CAW have a unique opportunity here to change the framework of the discussion.”

Hourly labour costs vary among the plants operated by Japanese and German auto makers in the United States – mainly in such southern states as Kentucky, Alabama, Georgia and Tennessee.

At a mature plant such as the Toyota Motor Corp. assembly operation in Georgetown, Ky., hourly labour costs are in the high $40 (U.S.) range, Toyota spokesman Mike Goss said yesterday.

Costs at Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. plants in the United States are estimated to be about $40 an hour.

Chrysler has already demanded that the CAW trim hourly labour costs by $19 (Canadian) to $55 to match what it pays UAW workers at its U.S. plants.

The CAW has refused to go that far, offering Chrysler the same $7 to $7.25 an hour it has already given General Motors of Canada Ltd. in overall cost cuts, plus agreeing to reduce break times at Chrysler plants in Brampton, Ont., and Windsor, Ont., which would reduce hourly costs by what the union says is several more dollars an hour.

Fiat, with the backing of the White House, has proposed taking a 20-per-cent stake in Chrysler, which is currently 80-per-cent owned by Cerberus Capital Management LP and 20-per-cent by Daimler AG of Germany, owner of Mercedes-Benz.

Upon reaching certain milestones, such as the rollout of Chrysler vehicles based on Fiat platforms, Fiat's ownership would rise in stages by 5-per-cent increments to 49 per cent.

Fiat could raise its stake above 49 per cent only if Chrysler repays its bailout loans to the U.S. Treasury.

At the end of March, the U.S. auto task force gave Chrysler 30 days to complete an alliance with Fiat or face a cut-off of its government funding that could force its liquidation.

Yesterday, Mr. Obama said it is his “fervent hope that in the coming weeks, Chrysler will find a viable business partner.”

Mr. Marchionne, who was educated in Canada, started his career here and holds dual Italian-Canadian citizenship, has vowed to put no Fiat money into Chrysler and plans to save the company through technology transfers and a corporate overhaul modelled on the one that rescued Fiat from oblivion in the middle part of this decade.

Short of injecting funds into Chrysler, Mr. Marchionne said Fiat will do whatever it takes to revive Chrysler, including offering himself up as CEO. “Fundamentally, that's possible, but the title isn't important,” he said. “What's important is that they hear me. It's possible that I will have to divide my time between running Fiat and running Chrysler.”
More on link

 

[a_majoor]

The administration's opponents are coming at them from every angle: the open "T.E.A. party protesters" are the visible face (and despite every effort of the MSM to pretent they did not happen, millions of Americans rallied in large and small cities on April 15) but the "John Galt" strike is becoming much more effective:

http://pajamasmedia.com/blog/tax-receipts-plummet-as-americans-go-galt/

Tax Receipts Plummet as Americans ‘Go Galt’

Posted By Tom Blumer On April 15, 2009 @ 12:00 am In Money, Politics, US News | 91 Comments

On Good Friday, just ahead of Tea Party Wednesday, the Treasury Department delivered the latest news concerning Washington’s ongoing crucifixion of future generations’ financial well-being.

Straight from Uncle Sam’s [1] March Monthly Treasury Statement, here is how the first six months of the federal government’s current fiscal year compare to last year: (see attached graphic)

If spending continues at the rate seen during this year’s first six months, the government will exceed last year’s outlays on July 6.

There’s little reason to believe the spending spree will slow down.

Even in supposedly routine areas, outlays have ballooned. Here is a short list of how some departments have been hemorrhaging dollars in comparison to last year:

The Department of Agriculture is up $9.9 billion, or 18%.
Defense (which, despite its importance, is in need of serious cost control) is up $23.5 billion, or 8%.
Health and Human Services is up $40.6 billion, or 12%.
Labor Department spending has more than doubled to $52.7 billion from $25.1 billion, largely reflecting its open-wallet approach towards bailing out state unemployment insurance funds.
The Social Security Administration is up $24.4 billion, or close to 8%.

Then there are the new spending monsters on the block. The Troubled Asset Relief Program (TARP) has disbursed $293.5 billion out of the $700 billion Congress authorized in early October. Much of it was “given” to banks [2] with a (figurative) gun pointed to CEOs’ heads. There is strong evidence that Treasury Secretary Tim Geithner and President Barack Obama [3] are refusing TARP repayments from larger banks that want to get out from under the government’s current and imminent onerous terms. Does anyone want to bet against the remaining $400 billion-plus being forced out to either the willing or unwilling?

Remember [4] Fannie Mae and Freddie Mac? Those were the government-sponsored enterprises Barney Frank, Maxine Waters, and other Democrats said were in ship shape not too long ago. Through March, Frank, Waters, et al. have “only” been wrong [5] to the tune of almost $60 billion the Treasury has spent to shore up whatever remains of those two entities. This amount, by the way, roughly matches the worst estimates [6] of the total losses from Enron, with one important difference: Investors and employees primarily ate Enron’s losses. Taxpayers are on the hook for Fan and Fred. Does anyone seriously think those two entities are done draining the Treasury?

Oh, and it’s going to get worse before it gets better (if it ever does). Not only has spending rocketed, but as you can see above, receipts have also fallen precipitously.

Just think: It was a bit less than a year ago at this time that we were celebrating the “[7] supply-side stunner,” the fact that Uncle Sam’s April 2008 tax collections came in at an all-time one-month record of over $400 billion. Those collections not only included final payments of 2007 taxes due, but also first-quarter estimated tax payments for individuals, many of whom are small- and medium-sized business owners. As I wrote at the time, “The increase may not only reflect that entrepreneurs and the self-employed had pretty decent years in 2007, but that many of them are thinking, in the face of relentless media harping to the contrary, that 2008 will be at least as profitable.”

At that point, there was every reason to believe that the economy, which had gone through a tough fourth quarter of 2007, was back on track towards resuming decent growth. Indeed, the first two quarters of 2008 [8] had positive GDP growth and the second quarter’s annualized 2.8% was far from tepid.

But then in mid to late June, along came [9] the POR (Pelosi-Obama-Reid) economy. The Democratic triumvirate’s intent to starve the nation of energy, regardless of the consequences, and newly minted presidential nominee Barack Obama’s designs on punitively taxing 5% of the nation’s most productive in the name of redistributing money to everyone else, both became crystal clear. As a result, paraphrasing [10] what I wrote at the time, businesses, investors, and entrepreneurs responded to the trio’s total lack of seriousness by battening down the hatches and preparing for the worst.

They haven’t stopped, which is why the POR economy is now the POR recession [10] as normal people define it. It is also why tax collections have taken a dive.

March is supposed to be a big month for tax receipts from regular corporations whose years end in December. [11] In March 2008 (go to Table 3 on page 2 at the link), $32.6 billion poured in. [1] This year? I’m not kidding: $3.4 billion. For the fiscal year thus far, corporate income tax collections are down almost 57%.

Through March 31 of last year, according to the [12] Daily Treasury Statement, “individual income and employment taxes not withheld,” which are largely payments made by the self-employed, partners, and those in S corporations whose income flows through to individual tax returns, are down about 13%, or almost $15 billion, [13] from a year ago. These not-withheld taxes are what drove last April’s all-time collections record, which is definitely not going to repeat itself.

It’s clear that quite a few ordinarily industrious people “[14] went Galt” months before the tea party movement even came into existence. As a result, fiscal 2009’s deficit could come in closer to $2 trillion than to the Obama administration’s estimate of [15] $1.75 trillion, or even the Congressional Budget Office’s [16] $1.85 trillion.

Pelosi, Obama, Reid, and their party created the conditions that led to this and are primarily responsible for how bad things are. After months of doing everything [17] to tear down everyone’s confidence, they are the ones who are going to have to figure out how to restore it. If they can’t, it would seem that the tea partiers, a.k.a. the voters, will find others who can, as soon as they can.

-------------------------------------------------------------------------------
Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/tax-receipts-plummet-as-americans-go-galt/

URLs in this post:
[1] March Monthly Treasury Statement: http://www.fms.treas.gov/mts/mts0309.txt
[2] with a (figurative) gun pointed to CEOs’ heads: http://www.bizzyblog.com/2008/10/15/cnbc-paulson-put-a-gun-to-all-their-heads/
[3] are refusing TARP repayments: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=473308
[4] Fannie Mae and Freddie Mac: http://pajamasmedia.com../../../../../blog/think-enron-was-bad-fredron-and-fanron-may-be-worse/
[5] to the tune of almost $60 billion: http://hosted.ap.org/dynamic/stories/F/FEDERAL_BUDGET?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&
amp;CTIME=2009-04-10-15-25-04

[6] of the total losses from Enron: http://answers.google.com/answers/threadview?id=60460
[7] supply-side stunner: http://www.bizzyblog.com/2008/04/29/supply-side-stunner-april-us-receipts-on-track-for-record/
[8] had positive GDP growth: http://bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&FirstYear=2007&LastYear=2008&a
mp;Freq=Qtr

[9] the POR (Pelosi-Obama-Reid) economy: http://www.bizzyblog.com/2008/07/03/the-pelosi-obama-reid-recession-porr-may-have-begun/
[10] what I wrote at the time: http://pajamasmedia.com../../../../../blog/are-democrats-driving-an-economic-downturn/
[11] In March 2008: http://www.fms.treas.gov/mts/mts0308.txt
[12] Daily Treasury Statement: http://fms.treas.gov/webservices/show/?ciURL=/dts/09033100.txt
[13] from a year ago: http://fms.treas.gov/dtsarchive/fy%202008/08033100.txt
[14] went Galt: http://www.realclearpolitics.com/articles/2009/03/going_galt_americas_wealth_pro.html
[15] $1.75 trillion: http://www.nytimes.com/2009/02/27/us/politics/27web-budget.html
[16] $1.85 trillion: http://www.bloomberg.com/apps/news?pid=20601087&sid=a3FY84ILxIUc&refer=home
[17] to tear down everyone’s confidence: http://pajamasmedia.com../../../../../blog/the-president9s-no-confidence-game/

 

[mediocre1]

TimBit,

What makes you think that Denmark is "mixed socialist"?  It has never been more than "right wing" socialist and under Rasmussen has moved farther right - to the relief of my Danish buddies.  Likewise for Sweden and Holland.

As for Adam Smith on monopolies:

If there is a market (a demand) then there is profit then there is an interest in making that profit.  Hence the rise of couriers to compete with the government mail monopoly.

Likewise with railways.  If there is money to be made someone will make it.  Someone else will compete for it.

If there is an ESSENTIAL service that cannot support competition then yes, the government may need to REGULATE that single supplier.  The government does not need to BECOME the single supplier.  It is probably better if it doesn't as it ends up regulating itself - and self-discipline is not a strong suit of government.

As well, by keeping the service in the private sector it allows for other private individuals to continue looking for alternative methods of supplying the service in a manner that a) separates existing customers from the existing supplier (better, cheaper) while  b) making the supplier a useful profit.

Adam Smith was not averse to regulation.  He just thought it was best to minimize it.

Obama - a community organizer with a sense of style and desire for bling - has got no clue when it comes to life, the universe or anything.  He has never run anything and has always danced to the tune of whoever is paying him.  In a word, he is feckless.

That is good opinion, kirkhill. Moreover, Canada is the only welfare state among European welfare state countries that is riddled with debt. The NDPs and the Liberals willl never learn. The reason why Sweden, Norway, Finland, Denmark got rid of their debts is because they steered their economies to the Right but still maintained the social safety net. I hate to say this but McGuinty is so stubborn....

 

[KingKikapu]

Moreover, Canada is the only welfare state among European welfare state countries that is riddled with debt.

Logic fail.

 

[mediocre1]

Logic fail.

800 billion dollars. But a Conservative government under Harper was able to reach a 12 billion dollar surplus excluding the payment of the principal and the interest for the years

 

[KingKikapu]

    Moreover, Canada is the only welfare state among European welfare state countries that is riddled with debt.

Logic fail.

800 billion dollars. But a Conservative government under Harper was able to reach a 12 billion dollar surplus excluding the payment of the principal and the interest for the years

I think you missed what I was getting at.  Canada is not among any European state, regardless of any qualifiers you add to flush out your point.  The emphasis can't be placed instead on "welfare state" either because your qualifier of European nations within welfare states again precludes Canada.  It is logically unsound.

You may be right about the money though.  The European welfare states are mostly the Scandinavian countries right?  If that's true, I have a feeling that comparing them to Canada won't be as straightforward as you might imagine.

 

[Kirkhill]

Occasionally I find myself on line with KingKikapu....

This is one such time.  It is hard to compare the Scandinavian countries - Sweden in particular.  I can't speak to the details just now but in its "Socialist" hey-day back in the '70s one of its defining characteristics was a rotating board of directors.  Essentially all of the "name-brand" Swedish companies (Bofors, Saab, Electrolux, Alfa-Laval, ABB.....) had a common pool of directors, one of which was always a member of the Royal Family, if not the King himself.  The net effect was that means of production were held not by the many but by the few, an oligarchy of sorts, with more than a hint of Corporatism rather than Socialism.

The good news was it resulted in a well-ordered society that met the needs of its people.  A modern example of a benevolent government....but as to whether it was Democratic...

 

[a_majoor]

Kirkhill is right about the corporatist nature of Sweden and the other Scandinavian "welfare states". Jerry Pournelle has noted that one possible reason for the sustained success of that model since the 1940's was the relatively uniform nature of the society and the underlying Protestant work ethic underpinning the culture. With the large scale immigration starting in the 1980's and the maturation of new generations of Scandanavians no longer steeped in that particular cultural matrix, the welfare state model is rapidly unraveling (Denmark, after all, was the place where the "Mohammed" cartoon protests started).

The "rotating board of directors" with a member of the royal family aboard is fairly similar in conception (although different in practice) with Fascist Italy, the American "New Deal", Japanese kigyō shūdan or Chinese "State Enterprise", not to mention the plans of the Obama administration for the American economy.

One only has to substitute people with different motives to see different outcomes; greedy, power hungry or malevolent characters would most certainly warp the outcomes of these sorts of corporatist boards (what if Kim Jong-il was the King of Sweden, for example?).

Market capitalism reduces the concentration of power and spreads it broadly and deeply across the economy. A dysfunctional corporate board of directors can only crash the company and affect their local customers and suppliers. A dysfunctional government agency can crash an entire industry; and the forced disbursement of TARP funds to banks that do not want or need the funds seems to be the first step to nationalizing the banks and thus the US financial industry, with results that will make Fannie Mae and Freddie Mac seem to be small potatoes.

 

[a_majoor]

Alternative means to ride out the ongoing meltdown (if joining T.E.A. parties or the John Galt strike isn't enough):

http://www.usatoday.com/news/offbeat/2009-04-14-survivalistsinside14_N.htm

Economic survivalists take root 
Updated 1d 22h ago | Comment  | Recommend  E-mail | Save | Print | Reprints & Permissions | 

By Judy Keen, USA TODAY

When the economy started to squeeze the Wojtowicz family, they gave up vacation cruises, restaurant meals, new clothes and high-tech toys to become 21st-century homesteaders.
Now Patrick Wojtowicz, 36, his wife Melissa, 37, and daughter Gabrielle, 15, raise pigs and chickens for food on 40 acres near Alma, Mich. They're planning a garden and installing a wood furnace. They disconnected the satellite TV and radio, ditched their dishwasher and a big truck and started buying clothes at resale shops.

"As long as we can keep decreasing our bills, we can keep making less money," Patrick says. "We're not saying this is right for everybody, but it's right for us."

Hard times are creating economic survivalists such as the Wojtowicz family who are paring expenses by becoming more self-sufficient.

Reviving "almost lost" skills and preparing for tough days make people feel more in control, says Charlotte Richert, consumer sciences educator for Oklahoma State University's Extension Service in Tulsa County.

Karen Gulliver, MBA program chair at Argosy University in Eagan, Minn., expects the movement to grow as the sour economy forces people to reassess priorities. People are asking, "Do I really want to be 100% vulnerable with no self-sufficiency skills if something happens?" she says.

Some signs of the trend:

•Stockpiling. When the stock market drops, orders surge for freeze-dried food, survival kits and emergency supplies, says Nitro-Pak president Harry Weyandt. One best seller: a $3,375 food reserve that feeds four people for three months.

•Gardening. Sales of vegetable seeds and transplants are up 30% from 2008 at W. Atlee Burpee, the USA's largest seed company. The National Gardening Association says 7 million more households will grow food this year than in 2008 — a 19% rise. A book on building root cellars is the top seller at Johnny's Selected Seeds in Winslow, Maine, supervisor Joann Matuzas says.

•Canning. Jarden Corp. says sales of its Ball and Kerr canning and preserving products are up more than 30% from 2008. Sonya Staffan, owner of The Jam and Jelly Lady commercial cannery in Lebanon, Ohio, is offering twice as many classes this year.

•Sewing. More people are learning to sew so they can mend clothes and make home décor, says Rachel Cohen, spokeswoman for SVP Worldwide, owner of sewing-products makers Singer and Husqvarna Viking.

•Relocating. Steve Saltman, general manager of LandAndFarm.com, a national real estate company, says more customers want to "live simply in a less-expensive place." Jonathan Rawles of SurvivalRealty.com says more people moving to rural areas "are specifically worried about economic and social instability."

Patrick Wojtowicz's family decided to transform their lives when his paycheck began to shrink last year. A truck driver, he was spending more time on the road, paying his own expenses while waiting for loads. He disliked being away from home for weeks at a time and worried about losing his job. Melissa Wojtowicz is self-employed and works from home.

Their dual paychecks allowed them to live comfortably, but they weren't satisfied, Patrick says. "We would basically buy stuff to feel good," he says. "When that stuff stopped filling the voids we had, we started analyzing what it was that we were really missing. We were missing being around each other."

The Wojtowiczes made a list of the things they could give up if Patrick quit his job and they relied on Melissa's income. They already lived in a house on property Patrick inherited from his father a few years ago.

Gabrielle "put up enough resistance to qualify as being a teenager," Patrick says, but soon she was reminding her parents to turn off lights to save electricity.

Steps such as that, and keeping the thermostat set on 63 degrees this winter, cut monthly electric bills from $300 to $150, Patrick says. He hunts deer and turkeys. Instead of buying books and going to movies, they visit the library weekly. For Christmas, they got canning gear so they can preserve the food they grow.

"The earn, spend, earn era has come to an end for us," he says on truenorthfound.blogspot.com, their blog. "The idea of living a fuller, more satisfying life seems simple to us now. ... Money, cash, credit, maybe they don't matter. Maybe, just maybe, it is those things that impede our ability to be truly happy."

Whatever happens to the economy, the Wojtowicz family hopes to remain self-sufficient. Instead of spending their tax refund, as they usually did, they used it to pay down debt. They stopped using credit cards and they're trying to build up savings. "I'm working harder than ever," Patrick says, "but it's more satisfying work and ... it's much easier to sleep at night."

 

[a_majoor]

Hmmm. Is the John Galt strike slowing down the economy faster than the Obama administration and the Congress can re-inflate it? 

http://www.guardian.co.uk/business/2009/apr/15/us-economy-deflation-recession

US economy goes back to 1955 as deflation returns

'The notion that inflation will pick up in the near-term is completely out of the picture,' said one analyst

The US economy has begun to deflate for the first time in more than half a century as a slump in demand pushes energy and food costs lower.

The consumer price index fell at an annual rate of 0.4% in March, the first decline since August 1955, figures from the US labour department showed today. It was bigger than the 0.1% drop expected by economists.

Compared with the previous month, consumer prices dipped by 0.1%.

The decline was mainly caused by lower energy costs, which offset a surge in tobacco prices, the biggest since 1998. If energy and food costs are excluded, the annual inflation rate stands at 1.8%.

Energy costs fell by 3% on the month and gasoline prices were down 4%. Food and housing costs both edged down by 0.1%.

"It reinforces the deflationary fears that the Fed has been voicing," said George Davis, currency strategist at RBC Capital Markets.

A 2.4% fall in hotel room rates and a 0.2% decline in clothing prices reflected the weakness of consumer demand. But David Buik at BGC Partners pointed out that with "oil prices now stable at close to $50 a barrel, there is no near-term prospect of a further substantial decline in energy prices". He does not think that the latest figures signal the beginnings of widespread deflation this year.

Certainly, inflation is no longer an issue.

"The notion that inflation will pick up in the near-term is completely out of the picture," said Peter Kenny at Knight Equity Markets in New Jersey. "Now we're looking at numbers that speak to recession without the prospect of inflation."

The figures came as the head of Wal-Mart said that he still saw a "lot of stress" in the economy and did not anticipate a quick end to the recession. "It's not a 'V' recession, where we're just going to bounce out and come back," Mike Duke said on NBC's Today Show.

His comments contrasted with those of Barack Obama and Ben Bernanke, the head of the US central bank, who made a concerted effort yesterday to talk up the prospects for the American economy despite fresh evidence of the squeeze on consumer spending. US retail sales unexpectedly fell last month.

"With the unemployment rate and the output gap both headed for 10% and the financial system still crippled, the risk of a pernicious debt-deflation emerging [where the collateral on loans decreases damagingly in value] is still much bigger than the risk that the Fed's quantitative easing actions will lead to runaway inflation," said Paul Ashworth, senior US economist at Capital Economics.

Britain is also on the brink of deflation. Inflation as measured by the retail price index, which is used as a basis for wage negotiations, was zero last month but failed to turn negative as the City had predicted.

 

[a_majoor]

The Obama administration does some belt tightening.....yeah:

 

[a_majoor]

Let history be our guide:

http://pajamasmedia.com/edgelings/2009/04/22/scared-ceos-hamper-economic-recovery/

Scared CEOs Hamper Economic Recovery

By Rich Karlgaard

Monday’s sharp pullback in stocks was attributed to weaker-than-really-reported bank earnings. Andrew Sorkin of The New York Times scorches four big banks for their tricky accounting:

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be–presto!–better-than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

Then again, maybe Monday’s pullback was just the inevitable technical correction. So predicted Doug Kass on Monday morning, presciently once more, just before the market’s open. Kass looks like a wizard these days. He was bearish from late 2007 to March 9, 2009, when he pronounced the market had reached a “generational low.” Kass has been spot-on.

A third explanation for Monday’s pullback:  Investors sense that the economy is at a crossroads. A political crossroads.

Here is what I mean. The U.S. economy has turned the corner. Not dramatically, but enough to notice that things are better than they were six weeks ago. Where do we go from here? If the president and Congress and regulators would just leave matters alone–go on a long vacation, say–the economy would show positive growth by the second half of this year. Call me nuts, but I think a second-quarter positive surprise would be possible.

The Fed has done it’s job. (Maybe too well, but that’s another story for another day.) Consumer sentiment and spending has ticked up. The headwinds that remain have less to do with bank stress tests, and more to do with CEO sentiment. The Business Roundtable reports “record low” CEO confidence as of early April:

* 71% of CEOs plan more layoffs in next six months.

* Most see declines in capital spending.

* CEO Economic Outlook Index negative for first time.

Let me say this again. The yield curve predicts growth. Check. Consumer sentiment is ticking up. Check. But CEO confidence is lousy, and CEOs are (not) spending accordingly. Whoops. This begs the question: Why are CEOs in such a low mood?

Answer: If you are a CEO in financial services, manufacturing, energy production and health care, you are going to be more regulated. Period, end of story. Your response to forthcoming regulation of yet-to-be-determined complexity will be to hunker down. Keep your name out of the news, improve the balance sheet and hold tight.

This is why the U.S. economy, which wants to turn the corner, is still stuck in the intersection as it decides which way to go.

In her book The Forgotten Man, Amity Shlaes (now a Forbes columnist) wrote that the 1937-38 “depression within a depression” occurred when “capital went on strike.” President Roosevelt’s willingness to “try anything”–including retroactive taxation, laws against discount pricing and an attempted Supreme Court packing–had businesses and their backers so confused about Roosevelt’s rules that they simply withdrew.

This is the risk of Obama’s willingness to “do what it takes.” The words sound positive and action-oriented. But in practice, “do what it takes” really means “anything can happen.” Tearing up of legal contracts … that can happen. Limits to salary and travel … that can happen. Bullying by the Environmental Protection Agency … that can happen. Nationalization of General Motors and Citigroup … that can happen. Nobody knows for sure. Government is sorting it out, day by day.

The yield curve predicts good news. Consumers are bored with the recession and are ready to come back. But CEOs are nervous about deploying capital, and for good reason.

Thus the U.S. economy is not sharply turning the corner toward recovery, as it should be doing at this point in the cycle. It is turning, but very tentatively. That’s why the recovery will be modest, lumpy and disappointing.

And the reaction to an arbitrary and capricious environmrnt is to avoid it. This is another manifestation of the "John Galt" strike.

 

[a_majoor]

More on the administration's assaults on the free market. In one way this may be to the long term benefit of everyone, as VC's contract, new wealth is not created and tax revenues fall further. This will trigger some sort of response, either a tax revolt as people refuse to pay for the ever increasing size of the Administration's project or a true financial collapse if/when government debt gets repudiated (as the obligations can no longer be covered).

A tax revolt will buy time, but as the example of California shows, this is only a temporary measure. Proposition 13 forced tax and spending cuts, but they were not permanent, now California is perhaps the first US State that will have to declare bankruptcy.

Repudiation will also destroy much of the foundation of the Welfare State, and sweep away most or all of the institutions that underpin it, so it is actually the "prefered" solution.

http://proteinwisdom.com/?p=14758

“Why Is Venture Capital Under Assault?”

From Scott Powell, vice president of ELP Capital and a visiting fellow at the Hoover Institution, writing in IBD:

    [...] why would the Obama administration say they want to regulate venture capital firms? Some suggest that it may be an end run in the undeclared war on wealth because venture capital can create enormous fortunes outside of taxable income. But there are several other plausible answers.

    The first is that the Obama administration’s faux pas resulted from a lack of understanding the intricacies of the free market and conflating venture capital with Wall Street, banks and hedge funds. If job-creating venture capital is elusive to our current political leaders surely we are in deep trouble. How then can we trust their judgment on an ambitious restructuring of the national economy, which next targets 15% of U.S. gross domestic product in health care?

    A second possibility is that venture capital needs to be constrained, lest its free-market reliance to pick winners and losers highlights the deficiencies of central planning and socialized sectors of the economy.

    As the administration attempts to regulate decision-making in every industry in which it gets involved, price distortions and misallocation of resources will become glaring.

    Venture capital needs no help from the government, except perhaps relief from bad laws like Section 404 of Sarbanes-Oxley — a regulation that disproportionately hurts VC-backed startups that can’t go public without huge operating cost increases.

    In remaining silent about this, the administration tacitly favors big business while neglecting small-business capital formation.

    The third and most plausible answer is the administration’s distrust of venture capitalists is simply an extension of its antipathy toward the free market. It suspects that venture capital seeks economic returns over political ends and will not direct enough funding to politically favored sectors — particularly after recent disappointments with clean-tech investments in fuel cells and ethanol. Regulating VCs is an indirect but very real means of forcing alignment with the political objectives of the administration.

    [...]

    In any case, U.S. recovery and progress is surely jeopardized if venture capitalists and entrepreneurs are diverted from economic to political calculation.

    There is plenty of blame to go around for our current economic mess, with moral ambiguity and weak leadership from big business being increasingly acquiescent to the encroachment of the federal government.

    Now is the time for entrepreneurs everywhere and those specifically in venture capital and Silicon Valley who delivered a disproportionately large Obama vote to speak up and demand some candor and accountability about all this.

Obama is either in clearly in over his head, or else he is working to undermine the foundations of the capitalist system from within in order to strengthen the centralized power of the state.

And yet as Powell intimates, even many of his erstwhile supporters — who make their living as venture capitalists — are either too afraid of the administration or too ashamed for having supported this disaster to step forward and declare their Savior wanting.

Ego. It isn’t just for waffles anymore.

Discuss.

(h/t Lamontyoubigdummy)

****
update: Break out your copy of Foucault’s Pendulum.

Where’s Norm McDonald these days, anyway…?

****
update 2: Break out The Crying of Lot 49, too, while you’re at it.

 

[tomahawk6]

The democrats run Michigan and California [legislature]. What is happening in those two states is what the rest of the country will look like on a national scale.

 

[a_majoor]

The face of Obamanomics.....

http://www.slate.com/blogs/blogs/kausfiles/archive/2009/04/24/the-hole-in-tnr-s-big-obama-theory.aspx

The Hole in TNR's Big Obama Theory

Plot Holes: In their New Republic cover story divining Obama's "new theory of the state"--which turns out to be "Nudge-o-cracy," or having the state "monkey around with the choices people face, seeking to influence decision-making rather than mandate decisions"--Franklin Foer and Noam Scheiber declare that:

    Obama has set out to synthesize the New Democratic faith in the utility of markets with the Old Democratic emphasis on reducing inequality. [E.A.]

They go on to describe Obama policymakers' shift in attitude since the Clinton administration:

    In recent months, several of the architects of Clintonomics--Larry Summers, Gene Sperling, Rahm Emanuel--have reassembled to take another crack at creating broad-based prosperity. What's striking is the change in their thinking about how to pull it off.

    In fact, the center-left had revised its economic theories while the bubble was still inflating. Beginning in 2004, the data gradually began to undermine the Clintonites' central assumption: that the benefits of growth would accrue to the poor and middle class. Their policies, it turns out, had only temporarily tamped down the income inequality that had been rising since the 1970s. Workers' wages had once tracked productivity growth. Now workers were producing more, but only the wealthy were reaping the rewards; everyone else's income had basically flattened out.[E.A.]

But Foer and Scheiber's description of Obama's attempt, in the face of these realities, to restore through the old Dem emphasis on reducing income inequality never gets around to giving us the Obama nudge-o-cracy plan to reduce income inequality. Just thought I would point that out! I suspect it's because there is no Obama nudge-o-cracy plan for reducing income inequality--which, I suspect, is because there is no conceivable nudge-o-cracy plan that could reduce income inequality in the face of the global economic forces of trade and increasing returns to skilled labor.

Obama at least claims to have a non-nudgeocratic plan, based on restoring the power of labor unions through the Employee Free Choice Act ("card check"). But a) the Employee Free Choice Act is dead in the water, for now, b) Obama doesn't seem to be pushing it very hard; c) the idea that signing up more workers in labor unions will reverse growing inequality (at least while maintaining prosperity) is wishful thinking untested. The backup EFCA mechanism for propping up middle class incomes--mandatory arbitration--is pretty much the opposite of mere "nudging." It's the direct mandating of wages by federal mediators.

 

[tomahawk6]

What our friends on the left dont grasp is when you reduce the maximum wage that a person can make that reduces the amount of taxes the government will see. Raise prices on gasoline,electricity ect and people will conserve also reducing taxes to the government. This is why socialism fails.

 

[a_majoor]

Big labour doing it's part for Obamanomics:

http://www.slate.com/blogs/blogs/kausfiles/archive/2009/04/27/big-labor-s-big-box-strategy.aspx

Big Labor's Big Box Strategy

One of Robert Reich's answers to The Economist makes the strategy behind the proposed card check ("Employee Free Choice") bill clearer in a way I hadn't completely understood before (though I should have): 

    DIA: You have said that America needs unions "to restore prosperity to the middle class". But traditional union bastions like manufacturing are disappearing; the cost of pensions and health care are rising; more and more jobs are freelance, and more and more businesses are non-union. Have we seen the end of unions in America? If not, what form will they take in the future?

    Mr Reich: We'll see more unionisation in the personal service sector of the economy -- especially in big-box retailers, restaurant chains, major hotels, and hospitals. Jobs in this sector don't compete with lower-cost imports. And because they require that people do them, they're not easily supplanted by computerised machines. Most of these jobs pay very low wages and offer minimal benefits. Unions would help give these workers the bargaining leverage they need. [E.A.]

OK, so the idea is to target unskilled workers who do work that can't be outsourced, and who work for large institutions. Questions:

    a) Is this an admission that traditional power of unions--to go on strike--is no longer a very effective weapon? So unions have to rely on corporate campaigns--which work best against big, respectable institutions--and mandatory arbitration? A union card no longer becomes a way to engage in a (sometimes risky) "economic contest" with management through walkouts and picketing. It's a ticket that lets you summon a federal mediator who will raise your wage, whether or not your union has any strike power. Labor must think these chain retailers are sitting ducks. After all, why not sign the card and get the government to award you a raise?

    b) Are there really enough workers in these service jobs to "rebuild the middle class," even if they all get 50% raises?

    c) How is Obama going to "bend the curve" of health care costs downwards if all the hospitals get unionized?

    d) If these non-outsourcable low skilled jobs are the key to raising incomes at the bottom, how does it make sense to allow a continued "insourcing" of unskilled illegal immigrants to bid down wages in these jobs (which happens even if the immigrants work for competing small-box service providers)? The retail jobs don't compete with cheaper foreign workers--until the cheaper foreign workers come here. Does Robert Reich really think the Democrats proposed legalization plan will stop the future flow of the undocumented unskilled (as opposed to establishing a precedent that will attract more of them)? Are American labor leaders that naive? Or is the idea that once the nontradable chain retail sector is organized, unions will reverse their current support for legalization and become restrictionists?

    e) It sounds as if the "big box" middle-class-rebuilding strategy is based on a model of the economy in which the main activity is consuming (and providing services to people who are in the process of consuming) things that are produced elsewhere. But doesn't Obama talk about a future economy based less on private consumption--in which Best Buy, Cheesecake Factory and the Ritz Carlton have a much smaller role? I sense a contradiction.

    f) Of course, if unions do for Best Buy what they did for Chrysler, they'll shrink the sector quite effectively. But they won't rebuild the middle class. ... 

 

[a_majoor]

One housing crisis wasn't enough, apparently:

http://www.foundingbloggers.com/wordpress/2009/05/democrats-setting-up-another-sub-prime-mortgage-bust/

Democrats Setting Up Another Sub-Prime Mortgage Bust
May 4, 2009 |
The Wall Street Journal is running an editorial that examines how the current Congress is setting us up for our newest housing bust and bailout.

Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.

The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law FHA must carry a 2% reserve (or a 50 to 1 leverage rate), and it is now 3% and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.

And you will never believe which caucus supports this.

As soon as this new sub-prime market crashes, the same Socialist-Progressive Democrats pushing these loans will blame capitalism and greedy predatory lenders for signing the very mortgages the government tells them to.

 

[a_majoor]

Reality intrudes on the land of "Hope and Change"

http://www.google.com/hostednews/ap/article/ALeqM5jmT59dgLTTziX4p9X9MRBRpWZGdQD981KVDG4

Weak Treasury auction sends stocks lower

By TIM PARADIS and SARA LEPRO – 6 hours ago

NEW YORK (AP) — Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government's ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.

Investors also pocketed some gains after strong rally in stocks this week and ahead of the government's April employment report on Friday. Investors were jittery ahead of the formal release of results from the government's "stress tests" of bank balance sheets, which came out later Thursday.

Major stocks market indicators slid more than 1 percent, including the Dow Jones industrial average which lost 102 points after gaining nearly the same amount Wednesday.

Stocks fell almost from the start of trading as investors quickly looked past upbeat reports on the job market and retail sales as traders asked "What's next?" and cut back their holdings following what had been a 4.8 percent gain this week in the Standard & Poor's 500 index.

Analysts said investors are already starting to expect economic numbers that aren't as bad as they had been and are now looking for the next catalyst that could take stocks higher after a surge of more than 30 percent from 12-year lows in early March.

"This is a market that is starting to bake in a lot of positive surprises," said Craig Peckham, a market strategist at Jefferies & Co.

According to preliminary calculations, the Dow fell 102.43, or 1.2 percent, to 8,409.85 a day after the blue chips jumped 102 points to close above the 8,500 level for the first time in four months. The index is down 4.2 percent for the year.

The S&P 500 index fell 12.14, or 1.3 percent, to 907.39, and the Nasdaq composite index fell 42.86, or 2.4 percent, to 1,716.24.

Technology shares posted the biggest losses Thursday after security software maker Symantec Corp. posted weaker-than-expected results. Retailers were mixed even after many of them, including Wal-Mart Stores Inc., reported better-than-expected April sales.

"The fact that we're seeing the retailers sell off on these positive surprises suggests the bar has been raised on what companies need to do to take stocks higher," Peckham said.

Wal-Mart said sales of Easter merchandise and more shoppers in its stores helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. Wal-Mart rose 80 cents to $50.31.

The well-being of retailers is key to the economy because consumer spending accounts for more than two-thirds of economic activity.

Symantec reported a loss for its fiscal 2009 fourth quarter, hurt by a hefty goodwill impairment charge and lower-than-expected revenue. The stock fell $2.60, or 14.8 percent, to $14.99.

Financial stocks mostly fell after big gains Wednesday and ahead of the government report cards on banks. The tests, designed to determine which banks would need a stronger capital base if the economy weakens, are at the crux of the Obama administration's plan to fortify the financial system. The market rallied this week ahead of the results, despite some initial concerns that the tests would show more pain in the industry.

Citigroup Inc. fell 5 cents to $3.81, while Bank of America Corp. rose 82 cents, or 6.5 percent, to $13.51. Regions Financial Corp. fell 60 cents, or 10.3 percent, to $5.23, while Wells Fargo & Co. fell $2.33, or 8.7 percent, to $24.51.

Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 2 billion shares.

"Today was a little dose of reality and maybe a little fear coming back into the market," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.

Saluzzi said investors shouldn't mistake the strong trading volume seen this week as a sign of conviction behind the moves. He said an absence of the big block trades that large financial firms make suggests the trading is more speculative, particularly in financial stocks.

"The real investor needs to be careful," he said.

In economic news, new applications for unemployment benefits fell last week to the lowest level in 14 weeks. The Labor Department's tally of new jobless claims fell to 601,000 from 631,000 the previous week, well below the 635,000 economists had been expecting. A four-week moving average of initial jobless claims that smooths out fluctuations fell from a high in early April.

The employment reading follows a better-than-expected private snapshot of the labor market on Wednesday and comes a day ahead of the government's April employment report. It is often regarded as the most important economic news each month because a drop in unemployment could bolster everything from banks to retailers if consumers can continue to make mortgage payments and go shopping.

There were also reports showing that productivity rebounded slightly in the first quarter while wage pressures eased.

In other trading, the Russell 2000 index of smaller companies fell 12.15, or 2.4 percent, to 492.94.

The dollar was mixed after the European Central Bank cut its key interest rate a quarter point to 1 percent. Gold prices rose.

Light, sweet crude rose 37 cents to settle at $56.71 per barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average jumped 4.6 percent. Britain's FTSE 100 rose 0.1 percent, Germany's DAX index fell 1.6 percent, and France's CAC-40 fell 1 percent.

Copyright © 2009 The Associated Press. All rights reserved.