US Economy

[a_majoor]

Some good news in the US. There are pockets of economic growth and recovery, and they all share a common factor:

http://pjmedia.com/blog/gop-states-saved-economy-in-2011/?print=1

GOP-Governed and Right-To-Work States Saved the Economy’s Bacon in 2011

Posted By Tom Blumer On January 30, 2012 @ 12:07 am In Column,economy,Politics,US News | 39 Comments

The government’s State and Local Employment and Unemployment report for December [1] released on Tuesday showed that many red states, including most of the “newly-reds” [2] where Republican governors replaced or succeeded Democrats after the 2010 elections, made meaningful progress in job growth and unemployment rate reduction last year. Many blue states didn’t do nearly as well. 2011 again saw right-to-work states significantly outperform those which are not.

Let’s start with the four states where the unemployment rate increased. The worst performer by far was Illinois (all amounts and rates in this column are seasonally adjusted):

Bottom4StatesUnempRateChanges2012

The unemployment rate in President Barack Obama’s home state, which began 2011 below that of nearby Indiana, Missouri, Kentucky, Ohio, and Michigan, ended the year higher than each — yes, even higher than Michigan, the previous decade’s basket case. Illinois only gained 8,000 jobs during the year’s final ten months after gaining 45,000 during the first two.

Who besides entrenched public-sector union-beholden tax-and-spend Democrats didn’t see this coming? In January, the state increased its personal and corporate tax rates by 66% and 45% [3], respectively; yet its bond rating, recently downgraded, is the nation’s worst [4]. Despite increased tax collections, Illinois continues to be chronically late in paying billions of dollars owed to vendors and medical providers. Promised public-sector union givebacks have been trivial.

Mississippi appears to have been more hurt by the fallout from the BP Gulf oil spill than its neighbors, while Hawaii’s unemployment rate is still pretty low and was at least accompanied by half-decent job growth. That isn’t true of North Carolina, whose puny job growth and stagnant unemployment rate indicate that Democratic Governor Beverly Perdue, who on Thursday announced [5] that she will not run for reelection, didn’t do much in 2011 besides make national news for suggesting [6] that this year’s congressional elections should be suspended.

Now let’s look at the largest unemployment-rate reductions:

FiveBiggestStateUnempRateDdrops2011.png

The top four states listed have Republican governors. Nevada’s comedown beats going in the other direction, but job growth was pathetic, and there is obviously much need for improvement (that the Silver State’s legislature is Democrat-dominated doesn’t help). Newly-reds Michigan and Florida, whose governors are in long-term cleanup mode following the walking, talking disasters known as Jennifer Granholm and Charlie Crist, respectively, saw nice job growth in addition to their rate reductions. Newly-red New Mexico’s 23% rate drop (2.0% divided by 8.6%) was the largest in the country.

Having already noted Nevada, let’s address the other two of the three states with the highest year-end unemployment rates:

ThreeHighestStateUnempRates1211

Democrat-dominated California, whose residents are already among America’s most heavily taxed, where the business tax climate is third-worst [7] in the nation, and where overpaid public-sector unions run rampant, made some progress in 2011. But Governor Jerry Brown, who has placed tax increases [8] on this November’s ballot and is ramping up [9] already out-of-control regulation, seems hell-bent on ruining any future prospects for improvement. Rhode Island’s fiscal situation became so perilous last year that in November it finally enacted meaningful public-sector pension reform. Here’s hoping they can make what some are calling [10] “The Rhode Island Miracle” stick.

Now let’s look at the top six job-gainers in percentage employment growth:

TopSixStatesJobGrowth2012

All six have Republican governors and are right-to-work states. Imagine that. Louisiana has been especially resilient despite the federal government’s deliberately slow approvals of post-spill Gulf drilling permits.

Indiana Governor Mitch Daniels and his state’s legislature have decided that 2012 ought be the year to get with the right-to-work prosperity. Though the Hoosier State outperformed most of its neighbors during the former George W. Bush budget director’s first four years in office, the past couple have been more than a little rough. In 2011, the state added only 18,000 jobs, and its unemployment rate dropped by only a half-point to 9.0%. Daniels and Republicans rightly believe that passing right-to-work would improve the state’s competitiveness, especially against its other Midwestern rivals.

At the time this column was drafted, Indiana’s House had passed [11] the legislation, and State Senate approval followed by Daniels’ signature appeared to be a virtual certainty, while organized labor and Indiana’s Democratic legislators were quite furious. The PR-challenged unions were seriously considering disrupting the Super Bowl [12] in Indianapolis on February 5.

Earlier this month, in one of the most ignorant moves I’ve seen in some time, union leaders brought in two members from Oklahoma, which in 2001 [13] was the last state to enact right-to-work legislation, to moan in public about how miserable the Sooner State has since become.

Hoosier state workers should be so unfortunate:

    * At 6.1%, Oklahoma’s year-end unemployment rate was almost a third lower than Indiana’s; at the end of 2003, the two states’ rates were almost identical.
    * Since 2001, the Sooner State, whose workforce is about half of Indiana’s size, has added over 87,000 jobs, about the same number as Indiana has lost.
    * The deal closer is a stunner which yours truly did not expect. Oklahoma’s per capita personal income [14], which trailed Indiana’s by 9% in 2001, exceeded it by 4% just nine years later.

Though we shouldn’t forget that Oklahoma’s immigration law-enforcement measures enacted several years ago have also worked in its favor [15] (another thing organized labor has opposed [16]), it’s hard to see why the vast majority of Hoosiers who are not union members shouldn’t have the opportunity to see Sooner-like improvements.

The bigger picture is that if it weren’t for the states where Republican governors are applying common sense solutions to fiscal and economic problems, along with most of the states where getting many jobs doesn’t require you to pay union dues, the economic “recovery,” such as it is, would be somewhere between awfully weak to nonexistent. Yet Washington’s Democrats, led by the president, continue to insist on applying baked-over versions of the policy choices which have left the country as a whole feeling blue during his three years in office.
(Thumbnail on PJM homepage assembled from multiple Shutterstock.com [17] images.)

Article printed from PJ Media: http://pjmedia.com

URL to article: http://pjmedia.com/blog/gop-states-saved-economy-in-2011/

URLs in this post:

[1] for December: http://bls.gov/news.release/archives/laus_01242012.htm

[2] the “newly-reds”: http://pjmedia.com/blog/data-show-majority-of-job-gains-in-red-states/

[3] by 66% and 45%: http://www.csmonitor.com/USA/2011/0112/Illinois-tax-increase-why-lawmakers-passed-66-percent-income-tax-hike

[4] the nation’s worst: http://www.moodys.com/research/MOODYS-LOWERS-STATE-OF-ILLINOIS-GO-RATING-TO-A2-FROM--PR_234787

[5] announced: http://hotair.com/archives/2012/01/26/nc-governor-wont-run-for-second-term/

[6] for suggesting: http://www.bizzyblog.com/2011/09/27/nc-governor-perdue-suspend-elections-to-congress-for-two-years-raleigh-paper-insists-it-was-a-joke/

[7] is third-worst: http://www.taxfoundation.org/research/show/22658.html

[8] has placed tax increases: http://www.cbsnews.com/8301-505245_162-57362663/calif-gov-defends-tax-increase-to-business-group/

[9] is ramping up: http://www.calwatchdog.com/2012/01/11/brown-proposes-new-anti-business-super-agency/

[10] what some are calling: http://online.wsj.com/article/SB10001424052970203471004577142973695704092.html?mod=googlenews_wsj

[11] had passed: http://www.reuters.com/article/2012/01/25/us-unions-righttowork-indiana-idUSTRE80O2NH20120125

[12] disrupting the Super Bowl: http://www.washingtonpost.com/sports/ind-unions-see-super-bowl-leverage-in-right-to-work-battle-but-hesitate/2012/01/19/gIQAXV0mBQ_story.html

[13] which in 2001: http://www.indystar.com/apps/pbcs.dll/article?AID=2012201110377

[14] per capita personal income: http://www.infoplease.com/ipa/A0104652.html

[15] worked in its favor: http://www.bizzyblog.com/2010/05/16/over-two-years-into-immigration-reform-oklahoma-is-more-than-ok/

[16] has opposed: http://www.aflcio.org/mediacenter/prsptm/pr08042011a.cfm

[17] Shutterstock.com: http://www.shutterstock.com

 

[cupper]

The latest bombshell today:

Freddy and Fanny were hedging their questionable mortgages with credit default swaps.

In other words, beting against the same mortgages that they were backing.

How soon before we see a 2012 version of Mary Shelly's Frankenstein?

 

[a_majoor]

"Unexpectedly!"

http://www.reuters.com/article/2012/01/31/us-usa-economy-idUSTRE7BM0AB20120131

Home prices drop, consumers turn gloomier
   
By Leah Schnurr

NEW YORK | Tue Jan 31, 2012 5:07pm EST

NEW YORK (Reuters) - Home prices fell more steeply than expected in November, and consumers turned less optimistic in January, highlighting the hurdles still facing the bumpy economic recovery.

After accelerating at its fastest pace in 1-1/2 years at the end of 2011, the U.S. economy is expected slow in early 2012.

The S&P/Case-Shiller composite index of single-family home prices in 20 metropolitan areas, released on Tuesday, declined 0.7 percent on a seasonally adjusted basis, a bigger drop than the 0.5 percent economists expected.

The decrease added on to the 0.7 percent decline in October from September.

Separately, an index of consumer attitudes fell to 61.1 in January from 64.8 the month before, as Americans turned gloomy about the job market and income prospects, said the Conference Board, representing private companies.

The data frustrated expectations for an increase after sharp gains in consumer confidence in November and December.

"We are braced for a more bumpy picture over the next few months. A lot of expectations probably ran away or got a little too lofty coming into the end of the year," said Sean Incremona, economist at 4Cast Ltd in New York.

"We are still in a very modest recovery, and we do see consumption slowing this quarter, and data like this supports that picture."

Some improving housing data in late 2011 had raised hopes the recovery was finding its footing. But weaker numbers this month have underscored how lengthy the healing process will be.

"I'm absolutely of the opinion we've bottomed out. The debate now is whether the recovery begins, and I'm not sure that recovery is earnestly underway," said Eric Lascelles, chief economist at RBC Global Asset Management in Toronto.

"The reality is the housing market is so far from normal that it will take years to get back to its normal state. Similarly it will take a while before it really is contributing properly to economic growth."

U.S. housing prices have plunged by about a third from their peak before the financial crisis, and a combination of high unemployment, tight mortgage lending conditions and more foreclosures in the pipeline are holding back a recovery.

Would-be homeowners have also shied away and data from the Commerce Department on Tuesday showed the homeownership rate dipped in the fourth quarter to 66.0 percent from 66.3 percent.

Aside from the second quarter of 2011 when the rate was at 65.9 percent, homeownership is at its lowest level since the second quarter of 1998.

The day's disappointing data took Wall Street lower, undermining earlier optimism over a possible Greek debt deal.

Also weighing on the market was a report that showed business activity in the U.S. Midwest grew more slowly than expected in January - the index fell to 60.2 compared with a forecast of 63 - hurt by a weaker labor market.

A wider reading of the U.S. factory sector is due on Wednesday with the release of the Institute for Supply Management national manufacturing survey.

Last week, the Federal Reserve showed the extent of its concern about the uncertain U.S. economic recovery by signaling it would keep interest rates near zero for nearly three more years. That gloomy assessment was echoed on Tuesday by a Congressional Budget Office report that saw U.S. unemployment above 8 percent this year and in 2013.

Companies are feeling the pinch too. Growth expectations for first-quarter earnings are declining sharply, due to worries about slowing growth and weak revenue trends at major U.S. firms, according to Thomson Reuters data.

A report released on Monday showed spending was flat in December as Americans focused more on saving.

Once a key pillar of the U.S. economy, Americans have taken a more frugal tack as many struggle with hefty debt burdens.

"With the global economy slowing and domestic fiscal policy a drag on growth, the wellbeing of the U.S. consumer is crucial to the recovery," Alistair Bentley, economist at TD Bank Group, wrote in a note.

"Today's number, coupled with yesterday's disappointing personal spending data, offers a reminder that underlying demand is still too soft to absorb the economy's excess slack."

On a seasonally adjusted basis, 17 of 20 cities racked up monthly home price declines, and average national prices were around levels seen in mid-2003, according to S&P/Case-Shiller.

Prices in the 20 cities also steepened their year-over-year decline, falling 3.7 percent compared to a 3.4 percent decline in October.

Last week, the Obama administration took steps to head off a new foreclosure crisis but critics and even some supporters said it was unlikely to prove much more successful than other government programs to date.

Some Federal Reserve officials have said the central bank should consider buying more mortgage-backed securities to help boost the struggling sector, though some economists question how effective that would be with borrowing costs already so low.

(Additional reporting by Chris Reese; Editing by Chizu Nomiyama)

 

[a_majoor]

More bad news on the job front. This should be a major issue in the upcoming elections (rather than class warfare rhetoric), but I suspect it won't receive the coverage that it should:

http://www.zerohedge.com/news/art-cashin-explains-why-several-hundred-thousand-jobs-are-about-vaporize

Art Cashin Explains Why Several Hundred Thousand Jobs Are About To "Vaporize"
Submitted by Tyler Durden on 01/31/2012 11:05 -0500

Art Cashin BLS Bureau of Labor Statistics MF Global


Two days ago we learned that when MF Global goes bankrupt, billions in cash can just "vaporize" (no, really - see here, and of course, in the passive voice. can't say something like Jon Corzine vaporized $1.2+ billion in client money now can we). Next we have Art Cashin explain why it is that the US economy is about to see several hundred thousand jobs "vaporize" as well. Perhaps "vaporize" should be the motto of the current Administration: confidence "vaporized", hope "vaporized", and "evaporation" you can believe in, as it condenses on the teleprompter...

From Art Cashin UBS Financial Services:

Disappointing Jobs - While everyone seems to debating what the non-farm payroll numb will be Friday, a few are looking toward the annual revisions in the much debated Birth/Death model.

As you probably recall, it does not refer to the birth or death of humans. The badly named model refers to the birth and death of businesses. Each January the BLS revises the number, usually vaporizing thousands of jobs.

We were going to try and calculate the likely revision, but our sharp-eyed friend over at Bloomberg, Rich Yamarone, as usual, beat us to it. Here’s what he wrote in his Notepad column recently:

The Net Birth/Death (NBD) statistic adjustment – an adjustment the BLS uses to account for job creation or loss with respect to births and deaths of businesses – is always the weakest during January. Over the last five years the NBD for January has averaged -335k. [January 2011: -339k, January 2010: -427k, January2009: -356k, January 2008: -378k, January2007: -175k.]

So, if past is prologue, we could see three or four hundred thousand jobs vanish. Nothing like a dependable indicator.

 

[a_majoor]

Well now we know how the unemployment number is dropping (Remember U3 is actually 11%):

http://www.zerohedge.com/news/record-12-million-people-fall-out-labor-force-one-month-labor-force-participation-rate-tumbles-

Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low
Submitted by Tyler Durden on 02/03/2012 08:51 -0500

BLS Bureau of Labor Statistics Unemployment Withholding taxes

A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.

Chart below shows it all - that jump is not a fat finger!

And Labor Force Participation:

This is the largest absolute jump in 'Persons Not In Labor Force' on record...and biggest percentage jump in 30 years.

Chart: Bloomberg

 

[Nemo888]

This time I am in complete agreement with you regarding the statistical shenanigans Thucydides. It gets even worse IMO. The number of US jobs has technically grown  by 2.5 million from Sept 2010 to Jan 2012.  The Treasury was depending on increased tax revues from new jobs to meet expenses. But the strange thing is revenue from income taxes is down by 1.5%. So good paying jobs are still disappearing at an alarming rate and they are rapidly being replaced by crap.
This while posting a GDP growth rate of 2.8% in 2010 and 1.8%(??) in 2011. WTF?


So if the old average American salary of 26k was not competitive enough what are we going to sell these paupers?

 

[cupper]

But the strange thing is revenue from income taxes is down by 1.5%. So good paying jobs are still disappearing at an alarming rate and they are rapidly being replaced by crap.

Many companies saw the opportunity to reduce the deadwood from their employment rolls, or just downsize overall using the excuse of the economic downturn. As a result, when it came time for them to ramp up again, they could move younger employees up and replace them with entry level positions.

OR

They used the savings from reduced payroll to invest in improved production equipment to make the existing workforce more productive.

Thus the diminished return of tax revenues, even though the GDP has increased.

 

[a_majoor]

Wow, more good news just when we need it [/sarc]. We will live in interesting times:

http://www.nationalreview.com/exchequer/290140/armageddon-strip-mall

Armageddon at the Strip Mall

By Kevin D. Williamson
February 4, 2012 4:00 A.M. Comments 26
Remember 2007? Glory days, right? Everything was booming, and nothing was booming quite as much as real estate — especially commercial real estate. Malls, hotels, warehouses, industrial parks: Everything was being built, and everything was being financed on ridiculously generous terms. Remember interest-only loans? Good times.

But commercial real estate is different from residential in one important way: Your standard residential mortgage goes 20 to 30 years. Your standard commercial loan goes for five years, at the end of which you either make a big balloon payment (what it is that balloons remind me of?) or you refinance, the idea being that five years is long enough to get your project built or developed, to secure tenants and leases, get your cash flow flowing, etc. Five years: Seems like it was only yesterday. By my always-suspect English-major math, that means that a whole bunch of commercial mortgages written at that poisonous sweet spot when prices were highest but lending standards were lowest are coming due . . . oh, any minute now.

In New York City alone, there’s about $70 billion worth of commercial mortgages — some of which have been sold off as mortgage-backed securities, naturally — coming due this year. The national total is more than $150 billion, or a bit more than 1 percent of U.S. GDP. That’s going to be a little awkward: The value of U.S. commercial properties has declined by an average of 45.7 percent since their all-time high in 2007, according to Real Capital Analytics. Those 2007 vintage loans weren’t exactly bulletproof: Typical terms included a 20 percent down payment and a five-year payment schedule that required little more than interest payments. An $80 million mortgage on a $100 million property is not so bad, but an $80 million mortgage on what is now a $60 million property is a problem. More than half of the 2007-vintage loans are expected to have trouble refinancing, and maybe well more than half.

This is true even for borrowers who have never missed a payment. Banks are required to take into account a number of factors when rating commercial mortgages. One of the most important is the loan-to-value ratio, which has a lot of borrowers over a particularly uncomfortable barrel: They may have the cash to make their payments, and they may have the cash flow to continue making payments on a refinanced loan, but their properties still are worth less than their mortgages, so nobody wants to refinance. And those are the lucky ones: Just as those loans were mostly for five years, most commercial leases are for about the same length of time. With retail and office-space rentals down, lots of commercial borrowers are sitting on largely vacant properties that are not producing much in the way of cash flow. Among the more high-profile cases, the WTC 3 tower at the World Trade Center still has not located an anchor tenant, which could put the much of the project on ice. Thousands of strip malls across the fruited plains have empty storefronts, and thousands of office buildings have floor upon vacant floor.

Standard & Poor’s advises: “One-third of maturing loans are for office properties, for which five-year lease terms are fairly common — and if tenants don’t renew these leases, securing new, long-term lease commitments may be more difficult in the current environment. Those leases [were] signed in 2007, at peak rents will likely reset to lower levels as five-year leases roll.” S&P’s bottom line: “50%-60% of the 2007 vintage five-year-term loans maturing next year may fail to refinance, and retail loans are at the greatest risk.”

Translation: Armageddon at the strip mall.

And it’s not just a problem for New York City and other big, coastal cities. Richmond, Va., has it worse than Manhattan, Washington, or Los Angeles, according to the local Times-Dispatch, which reports that a dozen large commercial properties have gone into foreclosure recently and that 12 percent of the commercial properties in the Richmond-Norfolk market are “distressed.” In Bergen County, N.J., commercial foreclosures are up 7 percent this year over last year. In the first year of the recession, there were 373 foreclosure actions filed in Bergen County, while in 2011 there were 1,586. Commercial foreclosures are up 10 percent for the state as a whole.

In hard-hit Phoenix, about half of the commercial mortgages backing securities are at risk of default, and a couple of hundred, mostly strip malls and other retail, office buildings, and apartments, already are in default.

Taking a look at the commercial MBS (CMBS) market, Standard & Poor’s issued this advice: “Buckle Up.”

Trepp, a CMBS-analysis firm, in its most recent report (data as of October 2011) finds that the delinquency rate for multifamily-property mortgages is 16.73 percent; for hotels, 14.12 percent and rising; for offices, 8.95 percent and rising; for industrial properties, 11.59 percent and rising; and for retail, a steady 7.61 percent. Trepp managing director Matt Anderson does not sound like a ray of sunshine: “Overall, we do not expect 2012 to be a repeat of 2008, but there will be more disappointments than pleasant surprises in the New Year. The banking sector has not yet returned to ‘normal’ despite two years of earnings growth. With increased regulation and the temptation for banks to take additional risks in order to preserve margins, 2012 should be a very interesting year.”

Not as bad as 2008 — is there a better example of damning with faint praise?

Trepp gets to the real concern here, which is that these mortgages and mortgage-backed securities are sitting on the balance sheets of a bunch of still-wobbly banks. How wobbly? About 100 banks went under last year, and about 250 are expected to go under this year. Trepp finds that, of the banks that went toes-up in 2011, bad commercial real estate accounted for two-thirds of their failing loans.

This is a textbook case for the Austrian business-cycle theory: Artificially low interest rates and loose money produce overinvestment, by both bankers and builders, in a bubble — this time, offices, apartment buildings, and retail space — that can’t be sustained once the artificial stimulation comes to an end, as it must. In this case, that malinvestment has to be worked out at two levels: At the financial level, among the lenders and borrowers, but also at the physical level: There’s going to be a lot of dark storefronts out there, with serious long-term consequences for nearby neighbors and for local real-estate markets: Foreclosures will put more property onto the market, driving down rents and subsequently making existing loans less tenable as the cashflow of commercial properties is diminished. They called the Depression-era tent cities “Hoovervilles.” The next time you see a mile of half-abandoned strip malls, think “Obamaville.”

Not as bad as 2008? Probably not — and let’s hope it is not even close. But there’s a $3 trillion commercial-mortgage market lurking out there, and a lot of CMBS investors — banks and insurance companies in particular — that Washington thinks are “too big to fail,” a problem we persistently refuse to address.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

 

[GAP]

The Geography of Government Benefits
The share of Americans’ income that comes from government benefit programs, like Medicare, Medicaid and Social Security, more than doubled over the last four decades, rising from 8 percent in 1969 to 18 percent in 2009.

http://www.nytimes.com/interactive/2012/02/12/us/entitlement-map.html?ref=us

 

[a_majoor]

The Economist on US regulation:

http://www.economist.com/node/21547789

Over-regulated America
The home of laissez-faire is being suffocated by excessive and badly written regulation

Feb 18th 2012 | from the print edition

AMERICANS love to laugh at ridiculous regulations. A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an “F” at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children’s lemonade stands because the enterprising young moppets did not have trading licences. The list goes hilariously on.

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.
In this section

Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.

Hardly anyone has actually read Dodd-Frank, besides the Chinese government and our correspondent in New York (see article). Those who have struggle to make sense of it, not least because so much detail has yet to be filled in: of the 400 rules it mandates, only 93 have been finalised. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.

Flaming water-skis

Dodd-Frank is part of a wider trend. Governments of both parties keep adding stacks of rules, few of which are ever rescinded. Republicans write rules to thwart terrorists, which make flying in America an ordeal and prompt legions of brainy migrants to move to Canada instead. Democrats write rules to expand the welfare state. Barack Obama’s health-care reform of 2010 had many virtues, especially its attempt to make health insurance universal. But it does little to reduce the system’s staggering and increasing complexity. Every hour spent treating a patient in America creates at least 30 minutes of paperwork, and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.

Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity.

The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

A plea for simplicity

Democrats pay lip service to the need to slim the rulebook—Mr Obama’s regulations tsar is supposed to ensure that new rules are cost-effective. But the administration has a bias towards overstating benefits and underestimating costs (see article). Republicans bluster that they will repeal Obamacare and Dodd-Frank and abolish whole government agencies, but give only a sketchy idea of what should replace them.

America needs a smarter approach to regulation. First, all important rules should be subjected to cost-benefit analysis by an independent watchdog. The results should be made public before the rule is enacted. All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them.

More important, rules need to be much simpler. When regulators try to write an all-purpose instruction manual, the truly important dos and don’ts are lost in an ocean of verbiage. Far better to lay down broad goals and prescribe only what is strictly necessary to achieve them. Legislators should pass simple rules, and leave regulators to enforce them.

Would this hand too much power to unelected bureaucrats? Not if they are made more accountable. Unreasonable judgments should be subject to swift appeal. Regulators who make bad decisions should be easily sackable. None of this will resolve the inevitable difficulties of regulating a complex modern society. But it would mitigate a real danger: that regulation may crush the life out of America’s economy.

 

[larry Strong]

U.S. gas prices, already high, set to hit spring record

Read more: http://www.ctv.ca/CTVNews/TopStories/20120219/united-states-gas-prices-120219/#ixzz1mqBtctDK

Shared in accordance with the "fair dealing" provisions, Section 29, of the Copyright Act.

NEW YORK — Gasoline prices have never been higher this time of the year in the U.S.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.

"You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research, referring to people staying at home on their vacations. "When the price gets anywhere near $4, you really see people react."

Already, W. Howard Coudle, a retired machinist from Crestwood, Missouri, has seen his monthly gasoline bill rise to $80 from about $60 in December. The closest service station is selling regular for $3.39 per gallon, the highest he's ever seen.

"I guess we're going to have to drive less, consolidate all our errands into one trip," Coudle says. "It's just oppressive."

The surge in gas prices follows an increase in the price of oil.

Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that's imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 per cent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 per cent to around $103 a barrel. That's 19 per cent higher than a year earlier.

Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That's only 0.2 per cent of the total U.S. economy, but economists say it's a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 per cent in the fourth quarter, a rate considered modest following a recession.

Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence -- and lower pump prices.

"Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel," Gingrich said at a campaign event in Los Angeles Thursday.

High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.

Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that's required in the summer.

That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.

The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.

The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That's up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.

Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn't unusual -- states on the coasts charge some of the nation's highest gas taxes.

High gas prices put a strain on many people's budgets.

Americans spent 8.4 per cent of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That's double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS.

Gary Goodman commutes into Manhattan from Edgewater, New Jersey, because gas, tolls and parking make the cost of driving prohibitive.

Goodman, an accountant, commutes by bus. He uses his car mostly for trips to the grocery store or for occasional nights out. He says he has no choice but to eat the higher gas costs.

"I already drive as little as possible," he says.

Paul Dales, a senior economist at Capital Economics says it would take a bigger shift in the global economy -- say, a deep recession in Europe or a slowdown in Asia's manufacturing -- for pump prices to drop noticeably. Either event would slow oil demand, depressing prices.

But experts expect demand to keep rising. World oil demand is expected to increase by another 1.5 per cent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.

In the short term, tensions with Iran are feeding fears that oil supplies could be blocked.

The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran's attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world's third largest oil exporter.

In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world's oil flows.

On Friday, an international banking clearinghouse crucial to Iran's oil sales said it is prepared to discontinue services to Iranian financial institutions being targeted by the EU and U.S. sanctions. That could ratchet up the pressure on Iran, but also send oil prices soaring.

The price of Brent crude fell 53 cents on Friday to $119.58. WTI gained 93 cents to $103.24.

 

[cupper]

Anybody know what the difference between winter and summer blend is, and why we need two different blends?

 

[muskrat89]

Summer blend contributes less to smog.

http://www.theoildrum.com/story/2006/9/13/234043/431

http://blog.gasbuddy.com/posts/Winter-blend-gasoline-rolling-out-drops-in-MPG-possible/1715-422955-413.aspx

http://ask.cars.com/2009/02/whats-the-difference-between-summerblend-gasoline-and-winterblend-gasoline-does-it-affect-my-cars-pe.html

 

[a_majoor]

More on US employment. The long term unemployed will be a drag on the system for a long time to come; their work skills will have atrophied or become obsolete, and of course their income will probably be much lower starting in new jobs if/when the economy recovers. Wealth creation shold be the overarching goal of any government, since it drives everything else:

http://blog.independent.org/2012/02/19/private-employment-has-recouped-only-three-eighths-of-its-recent-loss/

Private Employment Has Recouped Only Three-Eighths of Its Recent Loss
By Robert Higgs | Sunday February 19, 2012 at 8:45 PM PST

As the most widely reported rate of unemployment (U-3) has fallen in recent months, people with a political agenda served by painting a rosy picture of the recovery have made considerable noise about this decrease. Their political opponents have responded that one reason for the decline is that the labor force has fallen as more people have given up looking for work, some of them going into retirement sooner than they would have if the labor market had been more robust.

The best way to avoid the parsing and cherry-picking that plague such debates is to look not at unemployment, but at employment. After all, it’s employment that contributes to the production of goods and services and generates earnings for the job holders. Employment is less subject to interpretive ambiguity than unemployment is.

The most recently reported data on private nonfarm employment, for January 2012, show that employment has indeed continued its recovery. Since reaching its current-recession trough about two years ago, it has increased by about 3 million persons. Before starting a celebration, however, we should recognize that private nonfarm employment is still about 5 million persons less than it was at its pre-recession peak in 2008.

Moreover, such private employment is currently more than a million persons less than it was in December 2000, more than eleven years ago, on the eve of the dot-com bust. So, at this point, we have suffered more than the proverbial “lost decade” in the private labor market—the one in which employees are hired to produce goods and services that consumers and investors have demonstrated they actually value (or for which producers are convinced that such demand will be forthcoming).

To be sure, labor productivity has increased during this period, yet the likelihood is slight that sustained economic growth can take place in the future without long-term growth in private employment. A very large recession-related loss of private employment remains to be recouped, however, before we can even begin to think about the long-term growth of employment. The situation has improved somewhat in the past two years, no doubt, yet the labor market has a long way to go—it has about 5/8 of its recent loss to make up—merely to get back to its pre-recession peak.

Addendum I: Some recent survey evidence on why small businesses are not hiring:

http://www.ncpa.org/sub/dpd/index.php?Article_ID=21618&utm_source=newsletter&utm_medium=email&utm_campaign=DPD

Although such evidence must always be interpreted with extreme care, giving due attention to how the questions are framed, what the sampling design is, and so forth, it seems clear that uncertainties related to the future costs of Obamacare and other regulations are a significant factor in deterring hiring. Note, too, that when businesses are not hiring because they do not foresee sufficient demand to justify expanding their payroll, this reason may also reflect indirectly the effect of regime uncertainty, which may depress demands by the surveyed small businesses’ potential customers.

Addendum II: U.S. population grew by 9.7 percent between 2000 and 2010. In recent decades the annual rate of growth has averaged approximately 1 percent per year.

 

[a_majoor]

Curves of death. The one graph that says it all:

 

[GAP]

More on US employment. The long term unemployed will be a drag on the system for a long time to come; their work skills will have atrophied or become obsolete, and of course their income will probably be much lower starting in new jobs if/when the economy recovers. Wealth creation shold be the overarching goal of any government, since it drives everything else:

http://blog.independent.org/2012/02/19/private-employment-has-recouped-only-three-eighths-of-its-recent-loss/

The chart shown in your post indicates that it takes 18 - 24 months for an employment recovery to start after a recession...

 

[a_majoor]

2008 was four years ago...

 

[GAP]

post partum depression.....

 

[a_majoor]

Actually a spike in US gas prices that shuts down consumer spending or any sort of upset in the Eurozone could set the US economy reeling and depress tax receipts to the point that the debt ceiling could lower on them by the end of summer. Another "black swan" could be a Capital Strike as business simply shuts down new hires, investments and expansion plans in response to escalating energy prices, coupled to ongoing uncertainty over taxes and regulations. That would certainly change the "narrative" for econmists and the political parties, especially as the election campaign will be in high gear by that point. A credit downgrade at that point would probably kill the Obama administration:

http://news.investors.com/article/602351/201202270822/national-debt-ceiling-congress-obama.htm

Debt ceiling limit looms months sooner than expected, during fall campaign

Remember that major political struggle last summer over raising the nation's debt ceiling? How President Obama said Congress simply had to do it, even though he voted against a similar maneuver during his brief Senate stay?

How Republicans said simply, No way!' without serious spending cuts, even though GOP President George W. Bush sought an increase in 2006?

It was great precipice politics, allowing both sides to grandstand and construct a Rube Goldberg compromise that left it up to a special committee to cut spending and that didn't work either.

One of the key calculations in that deal was that by raising the limit $2.1 trillion to $16.4 trillion, it bought enough time for the country to get through this fall's presidential election before the next big debt-spending confrontation over raising the national limit. (The limit was $12.1 trillion shortly after Obama took office.)

Well, maybe not.

A new study released on Friday now suggests that slimmer federal tax receipts than anticipated from the sluggish Obama economy along with continued abundant spending by the Obama administration will likely move the date of the next debt deadline considerably forward so that it comes during this fall's presidential election, with political debate beginning even earlier.

The Bipartisan Policy Center previously predicted the newly-enlarged borrowing limit would not be reached until well into the first quarter of 2013. But no more.

A new examination by the center, as reported in The Hill, now suggests the limit could be reached months sooner, possibly during the election month of November. That means the fall presidential and congressional campaigns would most likely contain highly-charged debt-spending debates in addition to other contentious issues.

Obama and his strategists have sought with some success to steer the early campaign discussion toward social issues such as birth control, abortion and education, where they feel Republicans are at a disadvantage, and away from the economy's stubborn sluggishness, which is Obama's major vulnerability.

The recently enacted payroll tax cut extension, unemployment insurance extension and Medicare fixes, all unfunded in the legislation, will cause further borrowing in excess of $100 billion, bringing the limit even closer.

Much of the timing depends on the federal government's tax harvest come April 15 and beyond, including business taxes. They could be severely affected if, as expected, this year's prematurely rising gasoline prices slow consumer and business spending, as well as confidence.

Once again, Obama could be expected to dodge the spending vs cutting argument in favor of how important it is to avoid default on the country's debts and protect the nation's credit rating, already reduced by credit agencies for the first time ever during his Democratic administration.

 

[GAP]

The latest in bulk buying? Houses
Reuters  Mar 1, 2012
Article Link

By Michelle Conlin

When Vena Jones-Cox entered the foyer of the once-grand Colonial-style home in downtown Columbus, Ohio, she stepped onto a wood floor that was so moldy and mushy that it actually wiggled. As Cox proceeded down the basement stairs, they disappeared from underneath her.

“I found myself lying on the floor,” says Jones-Cox, 45. “Staring at a dead rat, by the way.”

The house tour from hell didn’t stop her from making an offer on the place. While she was at it, she bid on some other houses, too. Forty nine houses, actually.

She’s paying $3,000 for each, a bit more than the cost of an Apple Mac Pro. “We’re at a bottom,” says Jones-Cox. “I mean, where else is there to go but up?”

As the greatest real-estate fire sale in the history of the United States rages on, the bulk buy is the dead hot deal of the moment. In some of the most foreclosure-ravaged parts of the country, it is almost as if the housing market has become the new big box store, with investors wiping out whole shelves at a time.

The idea is to arbitrage other people’s misery. With the ranks of the rental class expected to swell, investors can buy houses at clearance sale prices, pour some money into repairs and then take advantage of the difference between their low cost of capital and the rent they receive. Often, they bank cash from day one.

Hedge funds and private equity shops like McKinley Capital Partners started to quietly become landlords by buying up inventory last year. Now Main Street investors are following suit.

“They aren’t just buying one rental property,” says Oak Park, Illinois realtor Kyra Pych. “This is a frenzy. They are loading up.”

Pych has five clients who are in the process of buying more than one condo in Forest Park. Illinois. Units that sold for $180,000 during the boom are now going for as little as $13,500. So instead of putting that money into a retirement account, her customers are putting the cash into homes and renting them out.

In Detroit, the Midwest’s aspiring Donald Trumps are buying bungalows for $500 each. In Atlanta, a group of Florida investors are in the process of buying the remaining 322 units in downtown Atlanta’s swank, Art Deco Atlantic Residences, with room service and maids, near Atlantic Station. The prices start at $180,000.

In California, Waypoint Homes, which has already purchased 1,000 single-family homes, got $250 million in funding in January from Menlo Park private equity firm GI Partners for more bulk buys.

“The floodgates are starting to open,” says John Burns, the founder of Irvine, California-based John Burns Real Estate Consulting. “There’s billions of dollars of capital, of my clients alone, (looking) to invest in single-family rentals.”

GETTING EASIER TO BUY

Up to now, the business of buying foreclosed homes was often an old-fashioned affair. They were usually one off deals, and often involved an auction on the courthouse steps.

But the recent news of Fannie Mae’s pilot auction of a bulk sale of 2,500 homes was a signal to many housing experts that bulk buying is about to undergo a quantum change. The coming auctions will not only put mammoth amounts of inventory up for bid; they will also streamline and automate current procedures.

Amherst Securities managing director Laurie Goodman, a major housing bear who expects further declines in home prices, believes such bulk sales are the key to cleaning out the foreclosure pipeline before any kind of housing recovery gains traction.

It is not hard to see why U.S. housing is turning into the new value asset class of the moment. In an analysis of the 325 major metropolitan real estate markets across the globe, the U.S. was home to the top 24 most affordable markets, according to Demographia’s 2012 International Housing Affordability Survey.

No one can argue with the landlord’s seductive math. There are bank accounts and bonds and annuities with their less-than-one-percent returns, and then, west of Boca Raton, there’s the string of newly-renovated two-bedrooms overlooking the golf course, pool and cabana, along with all the people who have been foreclosed on who are now looking to rent.

For $19,000 in cash, investors can pocket $300 a month, after taxes and homeowner association dues, on each, a 19 percent annual return that compares to the zombie yields from most savings accounts.
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In Charlotte, North Carolina, Cheryl and Bob Littlefield, who have five children, are already making the bulk buy work.

Two years ago, the Littlefields inherited $200,000. They considered all of their investment options. Like a lot of people, they found the stock market to be a scary, bi-polar nerve frayer. Bonds and bank accounts offered nothing.

Then there was the lovely little house for $16,000. After putting in a few grand, they cleared $600 a month, after taxes. It went so well they bought another house. And then another. Now they own eight and are in the midst of exploring financing to do a bulk deal for several more.

“I know houses, I don’t know stocks,” says Cheryl Littlefield, who estimates rental income covers 40 percent of the family’s expenses, the rest being covered by her husband’s work as a contractor. “I don’t know what to do if something goes wrong with Exxon Mobil. I know what to do if something goes wrong with a house.”

CAN’T BUY, BETTER RENT

The cruel irony known to every aspiring homeowner is that there has never been a better time to buy a house. It is cheaper to own – based on the monthly payments at the current interest rates of under four percent – than it is to rent in just about every market across the United States. In Phoenix, for example, it is 21 percent cheaper to own than it is to rent. In Minneapolis, it is 28 percent, according to Burns.

But most who aspire to the property ladder are shut out of the homebuying opportunity. They have no access to credit. They are crushed by record-levels of student debt. A greater share than ever of their paycheck is already going to housing costs, according to Harvard University’s Joint Center for Housing Studies.

That’s where bulk buying comes in to play.
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