Andy Sutton's Extemporania

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Trichet: Signals Flashing Red

by TwoCentsEditor

Published on: 06/23/2011

Categories: Current Events, Economics, Financial Markets

Tags: bailouts, bank failure, banks, dollar, Economics, EU, Euro, stocks

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Editor’s Note: Another bailout anyone???

June 23 (Bloomberg) — European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.

“On a personal basis I would say ‘yes, it is red’,” Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned “dashboard” to monitor risks. “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”

Trichet, who chairs the ESRB, made the remarks as European leaders meet in Brussels to discuss how to stave off a Greek default, while preparing a second bailout. The EU is trying to avoid a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. and resulted in European governments setting aside more than $5 trillion to support banks.

The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity was at 1,388 basis points today, up from 1,317 at the beginning of the month. Swaps on Greece rose 25 basis points to 2,012, signalling an 82 percent chance of default within five years, according to CMA.

‘Moral Support’

Greek bonds have been pushed lower as authorities bickered over ways to support the nation. The ECB and the German government have clashed over how much investors should contribute to alleviating Greece’s debt load, which reached 143 percent of gross domestic product in 2010. The German government has argued for an extension of the maturities of Greek bonds, with the ECB saying it opposes anything that could be interpreted as a default.

While Greek Prime Minister George Papandreou earlier this week won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further financial aid, European finance ministers said earlier this week they would hold off on approving a 12 billion-euro ($17 billion) payment to the country promised for July until passage of the plans to cut the budget deficit and sell state assets.

“European leaders will try and convince Greeks and financial markets when they meet in Brussels today and tomorrow that they have a workable plan to help Athens avoid a debt default,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. They’ll use a “mixture of arm-twisting and moral support” to force Greece to adopt further reform.

‘Serious Threat’

Federal Reserve Chairman Ben S. Bernanke downplayed the risk of a Greek default on U.S. banks, telling reporters yesterday that the impact would be “very small.” With “very few exceptions, the money-market mutual funds don’t have much direct exposure to the three peripheral countries which are currently dealing with debt problems,” he said.

The top U.S. prime money-market funds have about half their assets in securities issued by European banks, Fitch Ratings said in a report on June 21. The Bank for International Settlements estimated European lenders held $136.2 billion in loans to Greece at the end of 2010 and almost $2 trillion in Portugal, Ireland, Spain and Italy. Greece, Ireland and Portugal all received external support.

BNP Paribas SA, France’s biggest bank, and rivals Societe Generale SA and Credit Agricole SA may have their credit ratings cut by Moody’s Investors Service because of their Greek investments, the ratings company said on June 15. German banks could also be at risk from contagion, Fitch said last month.

“The most serious threat to financial stability in the EU stems from the interplay between the vulnerabilities of public finances in certain EU member states and the banking system,” Trichet said. There are “potential contagion effects across the union and beyond.”

Basel Meeting

Part of a wider regulatory overhaul, the 65-member ESRB aims to identify and warn of brewing risks in the financial system. Trichet and Bank of England Governor Mervyn King, vice- chairman of the board, highlighted risks in areas including asset-price imbalances and exchange-traded funds.

King is also at the center of a regulatory overhaul in the U.K. and will hold a press conference in London tomorrow on Britain’s Financial Policy Committee. He said the ESRB meeting highlighted “the ability of banks to reduce maturity and, where relevant, currency mismatches in their funding structures and to absorb losses arising out of the ongoing credit cycle.”

The Frankfurt-based body can pass on matters to the heads of European governments if its warnings aren’t heeded. While the body will monitor macro-prudential risks, it may turn its attention to single institutions deemed systemically important.

The ESRB is one of four bodies in Europe’s financial regulation architecture. The others are the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.

The Basel Committee on Banking Supervision meets in Basel, Switzerland, today to discuss how much extra capital the world’s largest and most systemically important banks will be forced to hold to avert another financial crisis. Global central bank governors are scheduled to meet under the auspices of the BIS in Basel from June 25.

S&P Ratings Threats are a Joke

by TwoCentsEditor

Published on: 06/21/2011

Categories: Current Events, Economics

Tags: bonds, credit ratings, junk bonds, s&p, stocks, treasury bonds

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Editor’s Note: It is time again for the once a month threat from S&P to the USA’s sterling credit rating. These ‘warnings’ are so commonplace now that they fail to even move markets or garner the slightest of attention. The only way for S&P to save face is to apply an honest rating to the most credit plagued entity on Earth.

LONDON (Reuters) – The risks of the U.S. losing its prized triple-A rating over the medium term have increased as the country faces a political impasse and nears its debt ceiling, Standard and Poor’s said on Tuesday.

While the ability to adapt both fiscal and monetary policy was a positive for the United States, the risk of a credit rating downgrade had increased due to a lack of political consensus on how to employ that flexibility, Moritz Kraemer, head of sovereign credit ratings for Europe at Standard & Poor’s, said on Tuesday.

“The problem is this flexibility needs to be employed and for that you need political consensus. That’s not very visible right now,” he said.

The United States is expected to exhaust its ability to meet financial obligations by August 2, but the Treasury department has said that date could shift.

“The downside risks in the medium term have increased and we did assign a negative outlook that signifies there’s a one in three chance the rating might go down in the next few years,” Kraemer told a Euromoney bond conference in London.

Standard & Poor’s threatened in April to downgrade the United States’ AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

Earlier on Tuesday, Fitch ratings said it saw risks of a debt default in the United States, whose top-rated bonds may suffer if the country doesn’t lift its fiscal borrowing ceiling.

IMF economist Paul Mills also took a negative line on the politics surrounding the U.S. debt situation, speaking at the conference.

“I don’t think the debate has yet even begun to understand how big a fiscal retrenchment is going to be needed,” Mills said.

“The parameters of debate are still in the foothills of the problem… we may well see an initial plaster applied until the presidential election then a more fundamental solution after that.”

ESM CREDITOR STATUS

Kraemer said a move to drop preferred credit status for the European Stability Mechanism — the region’s permanent safety net due to come into effect mid-2013 — would help Portugal and Ireland in their efforts to rebuild investor confidence.

Euro zone finance ministers decided on Monday that the regions’s permanent bailout fund will not have preferred creditor status if it lends to Greece, Ireland or Portugal, but would get paid back first in other cases.

Kraemer also said there was little progress in resolving Greece’s debt crisis after a weekend meeting of EU finance ministers deferred a decision to give Athens funding to avoid defaulting next month.

All but one of the 400 participants at the panel discussion — including fund managers, market strategists and economists — thought Greece would avoid another debt restructure even if it secured a new aid package as expected by next month.

Mills said that even though markets had a broad idea of banks’ exposure to Greek sovereign bonds, the risks of a widespread impact on interbank funding markets remained high.

“The concern is the reputational risk to bank funding markets, which will, I think, be the bigger channel (for contagion pressure),” Mills said.

“Peripheral banks are well behind the pace on the debt they plan to issue this year and so that’s increasing the pressure in Spain, Portugal and Ireland.”

Andy Sutton’s Liberty Talk Radio Appearance

by TwoCentsEditor

Published on: 06/17/2011

Categories: Appearances, Current Events, Economics, Financial Markets

Tags: alex jones, andy sutton, Economics, joe cristiano, liberty talk radio, precious metals, stocks

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Andy Sutton appears monthly on joe Cristiano’s Liberty Talk Radio. They discuss economic issues, take questions from callers and discuss how the macrosphere will effect Main Street USA.

The most recent installment was 6/15 and can be listened to by clicking here.

June’s Centsible Investor is Available

by TwoCentsEditor

Published on: 06/15/2011

Categories: Centsible Investor Info., Current Events, Economics, Financial Markets, Foreign Exchange Markets, Technical Analysis

Tags: alex jones, andy sutton, bob chapman, bonds, gerald celente, gold, lady gaga, LLC, money, precious metals, stocks, Sutton & Associates, the centsible investor

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June’s edition of CI is available. Click Here to get your subscription started.

The deepening equity purge, coupled with continued weakness in silver cost the model portfolio about 3% this past month. While we’re not at all happy with 3%, the paper equity markets are down now around 6% during the same period, so that is encouraging. Our two newest components in the dividend slice, ironically, are both showing modest gains since we added them at the end of April and are providing some much-needed diversification.

This month’s keynote is called ‘Crash Signature’ and takes a look at what a US default will look like on Main Street. We cover the idea of the outright default as well as the slower, inflationary type in situ default where the Fed assists the USGovt in hyperinflating away its debts. Our major creditors are already onto this game. There is actionable information in this article as it gives you some easy steps that will help mitigate the effects of either scenario.

Energy continues to be a hot area. OPEC is now publicly admitting the likelihood of a shortage of crude oil this fall. Saudi Arabia has promised (once again) to pump all that is needed. We doubt they can. We are not alone. Resource constraints are the order of the day moving forward. Better get used to it. Oddly, the same types of changes in living style that will help you deal with a default are the same types of measures that will help you lessen the blow of peak oil.

In our metals report, we analyze CME’s latest salvo against the precious metals markets. They are losing their metal and the battle to keep prices contained. These margin requirement hikes are one of the last weapons left in their arsenal and the fact they are using it means we’re that much closer to the end of the precious metals cartel. We are still offering gratis consults to any of our year or longer subscribers on precious metals. With all the dislocations in the markets right now and what is likely to get even worse moving forward, why not take advantage? It is a free service for any subscriber who has been with us at least a year or is currently paid up for a subscription of a year or more. If you know someone who might benefit from this valuable service, please pass our information along to them – it is how we grow.

A New Mission

by TwoCentsEditor

Published on: 06/10/2011

Categories: Current Events, Economics, Financial Markets, My Two Cents

Tags: andy sutton, Economics, gold, money, My Two Cents, stocks, the centsible investor

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A sabbatical is usually a good thing as it gives a nice opportunity to take a step back, assess, reassess, and potentially relax. I’ve enjoyed the past few months away as I took time to do the above and also to try to impart a little common sense and perhaps some wisdom on the up and coming generation regarding economics, the study thereof, and more importantly, the dire consequences of failing to recognize and follow basic economic laws. So I return, and in many ways, things are not much different than when I took leave back in February. There have been some recurring themes, and in a sad way, it is nice to have been right about so many things, particularly the fraudulent nature of the recovery that was pronounced by the govermedia back in early 2009. Believe me though, for all the people who have had their jobs outsourced, offshored, or eliminated, I’d have much rather been wrong. The same goes for those who are now struggling to support families on a fraction of their prior earnings. I would much rather have had to slink away in disgrace because of a voracious (and healthy) economic recovery than see the suffering endured by so many.

I remember vividly a conversation I had with author Jim Kunstler a few years ago about these matters and we hammered on the need for people to scale down. Sure, we were having that conversation through the lens of the reality of peak oil, but it really applied in the financial sense as well. Perhaps the reality that has struck me the most over the past few weeks is the impact that McDonalds is able to have on the labor market. Who would have ever thought that a fast-food joint would be responsible for half the jobs created in a single month? And that is if you have any reason at all to believe the BLS jobs numbers. I don’t. But that is another story that has been told many times before and we’ll not do it again.

Getting back to my conversation with Kunstler, we talked about the mental paradigm shift necessary to deal with peak oil. The days of the hour-long commute are limited. Driving more than 100 miles a day is going to be a thing of the past soon. Many are now telecommuting a couple of days a week in jobs where that is suitable and that helps. Gas prices were much lower when Jim and I talked than they are now, that is for sure. For the guy who drives 100 miles each day to work, his commuting bill has gone up dramatically while his wages have stagnated. He is pummeled again at the grocery store with increasing prices for quality and quantity of foods that are continuously decreasing. The media and government are doing Joe America a huge disservice by making it sound like these situations are transient in nature, rather than here for the long term. Again, the point of this commentary is not to flesh out the reasons behind what is going on; that’s already been done. The point is that people need to adjust and most simply won’t. It isn’t that they can’t; they just refuse.

Our entitlement society is heading for a brick wall. The major underpinnings of our gimme society are insolvent. Our debt is skyrocketing. Our bonds are junk. Our currency is a joke. Our ‘free’ press is in the pockets of the same people who have brought all of this economic despair to Main Street. Joe America nearly shut down this corrupt system in 2008-09 simply by curtailing his expansion of borrowing. Nobody wants to talk about that. The proof is irrefutable and the connections are clear. America stops borrowing and the fiat system is dead on arrival at the Fed’s triage center: the FOMC. We hear dire warnings about the government’s debt and the statutory debt limit. Threats are made, promises of doomsday echo from the same ratings agencies who saw fit to apply AAA ratings to junk mortgage bonds and will mercilessly downgrade the PIIGS for problems that are several orders of magnitude less than what we face.

Joe America is largely unfazed, however. Sure, there are pockets of hurt, and there are many, many people who have re-evaluated their personal situations and have embraced individual austerity. Yet in the aggregate, we’re back on the credit card. It is hard to discern at this point whether the uptick in borrowing is for essentials or discretionary goods. Based on the anecdotal evidence, it is likely both. People have been trained to borrow, make minimum payments, and to live as a servant to the creditor. When you think about it, the ‘money’ that has been used to create this servitude has been created from nothing, yet must be repaid with something very real – the sweat of one’s brow. Hardly seems like a fair deal to me, yet we not only accept it, we demand it. Have we really spent any time thinking about these matters? It is almost funny when I look at the latest opinion polls regarding the national debt. The vast majority of Americans think that Congress needs to put the country’s fiscal house in order, yet most of those same people refuse to do it in their own backyard.

Yes, America is in dire need of a mental paradigm shift towards a simpler life, with less emphasis on accumulation of toys and materialism and more of an emphasis on stewardship and restoring the economic environment that allowed this country to become what it was. That should be our mandate. However, I am a realist and I know deep down that most will not heed this or any other call for a change of thinking. Unfortunately, history is firmly on the side of this pessimistic disposition. I have decided in my time off to focus at the micro level instead of the macro level. My days of open letters to Congress and calls to economic action are over. My days of open letters to individuals have begun. These commentaries and my firm’s newsletter will be geared more towards helping individuals who recognize our changing world to adjust, cope, and prepare for what is inevitable rather than attempting to convince those who will continue to deny the obvious until the time for meaningful action has long passed.

These words are not meant to be harsh, but have come over months of reflection as I’ve had some time to ruminate over the human condition and its predilection to lemming-like behavior. The one silver lining in all this is that if people live more responsibly and in a simpler manner from a financial perspective, they will be taking many of the steps that will be necessary for the preparation of the effects of peak oil. Yes, peak oil is real. Even the big banks are now talking about ‘resource constraints’ in the energy space and figuring it into their forecasts. Oil companies are hammering like crazy in the Marcellus shales to bring natural gas to market that hasn’t sold for over $5.50 a thousand in what seems to be a dog’s life.

If you are one of those people who understand these matters, then this column and anything else I can do to help are here for you to utilize. From here forward this work will be dedicated to the awakened rather than to the process of awakening. If you’re not there yet, there are plenty of mainstream media outlets that will gladly satiate your desire for information.

This month’s Centsible Investor Keynote will focus on the debt ceiling, government debt in general, and most importantly, some steps you can take on an individual basis to assist you in mitigating the effects of continued runaway borrowing. In addition, we’ll provide our traditional analysis of energy, precious metals, and the major financial markets. For more information, click here.

Total Government Debt at $61.9 Trillion?

by TwoCentsEditor

Published on: 06/07/2011

Categories: Current Events, Economics, Financial Markets

Tags: bonds, credit, debt ceiling, fiscal gap, lady gaga, money, nfl strike, stocks

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Editor’s Note: Too bad these numbers are 5 years old. Either that or their methodology is incorrect. The real number is well north of $200 Trillion.

The federal government’s financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.

Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check.

The $61.6 trillion in unfunded obligations amounts to $534,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

“The (federal) debt only tells us what the government owes to the public. It doesn’t take into account what’s owed to seniors, veterans and retired employees,” says accountant Sheila Weinberg, founder of the Institute for Truth in Accounting, a Chicago-based group that advocates better financial reporting. “Without accurate accounting, we can’t make good decisions.”

Michael Lind, policy director at the liberal New America Foundation‘s economic growth program, says there is no near-term crisis for federal retirement programs and that economic growth will make these programs more affordable.

“The false claim that Social Security and Medicare are about to bankrupt the United States has been repeated for decades by conservatives and libertarians who pretend that their ideological opposition to these successful and cost-effective programs is based on worries about the deficit,” he says.

USA TODAY has calculated federal finances based on standard accounting rules since 2004 using data from the Medicare and Social Security annual reports and the little-known audited financial report of the federal government.

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund’s key asset: federal IOUs.

‘Durability’ of Recovery Now Questioned by Optimists

by TwoCentsEditor

Published on: 06/05/2011

Categories: Current Events, Economics, Financial Markets

Tags: austin goolsbee, economic recovery, economy, Jerome Corsi, kenya, obama, stocks

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Editor’s Note: Murphy was probably right on the glass being half empty; especially when it comes to this sham of a recovery. Don’t forget, the media will protect its credibility, and you know things are going to get worse when the mainstream press is out there talking about how the economy is failing (again). After all, if they lied all the time even the dimmest bulbs would start to light up. And Austin Goolsbee is a disgrace; he is a shill who will say whatever he is paid to say. The fact that anyone listens to even one word out of his discredited mouth means we’re in big trouble.

June 6 (Bloomberg) — A string of disappointing economic data capped by last week’s jobs report is prompting even some of the more optimistic economists to question the durability of the U.S. recovery.

While analysts such as Stephen Stanley of Pierpoint Securities LLC and Michael Feroli of JPMorgan Chase & Co. still see growth strengthening in the months ahead, they voiced concern that the lull in the economy may prove prolonged, leaving it more vulnerable to external shocks or policy missteps.

“We’ll do better in the second half,” said Feroli, chief U.S. economist for JPMorgan in New York and a former member of the Federal Reserve’s forecasting team. “That said, the concern is that there’s enough weakness that could feed on itself.”

Policy makers have limited leeway to respond to the accumulating signs of slowdown. The Fed is completing its purchase of $600 billion of Treasury securities this month, leaving it with a $2.77 trillion balance sheet that some central bankers fret is already too big.

The record $1.6 trillion federal budget deficit that the White House projects this year has left President Barack Obama with little room to use fiscal policy to spur the economy, especially with Republican lawmakers calling for cuts in spending, rather than more investment.

“Our economy is not creating enough jobs, and Democrats’ binge of taxing, spending, borrowing and over-regulating is a big part of the reason why,” John Boehner, speaker of the House of Representatives and a Republican from Ohio, said in a statement on June 3.

Jobless Rate Climbs

Payrolls grew at the slowest pace in eight months in May and the unemployment rate unexpectedly climbed to 9.1 percent from 9 percent in April, Labor Department figures released on June 3 showed. The 54,000 rise in jobs followed a 232,000 gain in April and was below the 165,000 median increase forecast by economists in a Bloomberg News survey.

The jobs numbers followed a series of economic statistics suggesting that the economy is decelerating. Manufacturing grew at its slowest pace in more than in year in May, according to Institute for Supply Management data released last week. Consumer spending, which accounts for 70 percent of the economy, rose less than forecast in April as households felt the pinch of grocery and energy costs, a Commerce Department report showed.

Stanley, who is chief economist at Pierpoint in Stamford, Connecticut, said he is betting that the softness in the economy will prove to be temporary, the result of a surge in gasoline prices that has since subsided and supply disruptions from the March earthquake and tsunami in Japan. Like Feroli, though, he is becoming more concerned.

Animal Spirits

“I’m starting to get worried,” Stanley said. The economy’s “animal spirits are fragile.”

Investor concern over the economy sent stocks down. The Dow Jones Industrial Average lost 97.29 points, or 0.8 percent, to 12,151.26 in New York on June 3, extending a fifth straight weekly loss, its longest slump since 2004. The Standard & Poor’s 500 Index dropped 1 percent to 1,300.16. Treasuries rose, pushing yields on two-year notes down three basis points to 0.43 percent, the lowest this year.

Feroli and Stanley started the year more optimistic than many of their peers. The economy was forecast to expand 3.1 percent in 2011, according to the median estimate of economists in a Bloomberg News survey published Jan. 13. At the time, Stanley’s projection was 3.8 percent, while Feroli predicted 3.3 percent growth. Stanley has since cut his forecast to 2.9 percent while Feroli has lowered his to 2.4 percent.

Not Alone

The two are not alone in shaving their forecasts. Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, projected growth of 3.3 percent for 2011 at the start of the year, on a fourth-quarter over fourth-quarter basis, and has reduced that to 3.1 percent.

Dean Maki, chief U.S. economist at Barclays Capital Inc., has trimmed his 2011 forecast to 2.5 percent, down from a 3.1 percent estimate at the beginning of the year.

Economists aren’t the only ones with reason to worry: the latest jobs numbers pose a challenge to President Obama, whose re-election prospects hinge on pushing the jobless rate lower.

“The danger is that if we continue to take two steps forward, two steps back, people are going to continue to suffer a high level of economic anxiety,” said Bill Carrick, a Democratic strategist. “There’s no way that can be good politically for the president.”

Austan Goolsbee, Obama’s chief economist, said the jobs report represents a “little bump” in the road to recovery and that the broader trends are “substantially more positive” than when Obama took office in January 2009.

Facing Headwinds

“We should never read too much into any one month’s report,” Goolsbee, chairman of the Council of Economic Advisers, said in a June 3 interview on Bloomberg Television. “No doubt we face some headwinds.”

The slow pace of the recovery doesn’t come as surprise to Kenneth Rogoff, a former International Monetary Fund chief economist who is now a professor at Harvard University in Cambridge, Massachusetts. History shows that it takes time for economies to recover from financial crises like the one that hit the U.S.

Greenspan ‘Scared’ Over Deficit

by TwoCentsEditor

Published on: 06/03/2011

Categories: Current Events, Economics, Financial Markets, Foreign Exchange Markets

Tags: alex jones, charlie sheen, federal deficit, money, nascar, stocks

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Editor’s Note: I’m not sure who these people think will actually believe this. Alan Greenspan and the system he is servant to caused this deficit, yet he’s scared of it. This would be funny if it weren’t so serious.

The debt and deficit problem in the US is so serious that former Federal Reserve Chairman Alan Greenspan finds himself in the position of recommending the highest tax rates in more than a decade.

In an interview with CNBC, the former central bank chief described himself as a “small government, free-market economist” who nonetheless believes that in order to raise revenue and close the debt gap, 1990s-era taxes must be reinstituted.

It’s a measure, he said, of how serious the problem has become.

“The fact that I am in favor of going back to the Clinton tax structure is merely an indicator of how scared I am of this debt problem that has emerged and its order of magnitude,” he said.

The marginal tax rates fell in the early 2000s under former President George W. Bush, who instituted sweeping cuts that last year were renewed in a deal between President Barack Obama and congressional Republicans.

But the rates, particularly those on Americans earning more than $200,000 a year, have been the focus of intense debate and are considered in peril depending on how next year’s elections go. Congressional Democrats see higher taxes as a key to raising revenue to close the budget gap.

Greenspan expressed concern over the tenor of negotiations in Washington. He also endorsed the deficit cuts from Rep. Paul Ryan (R.-Wisc.) that have run into strong opposition due to targeting Medicare and Medicaid.

“If I had my own way, I like the Ryan budget in all respects and I think that essentially that sort of thing is what I would vote for if in fact we’re voting,” he said. “But the problem essentially is that is not going to get a majority vote in Congress or be signed by the president of the United States. The question is, what’s my fallback position?”

Telling America’s aging population that its entitlement programs such as Social Security and Medicare will survive without significant changes is dishonest, Greenspan added.

“It’s not an issue of saying we’re going to have a choice for what we’re going to do. We don’t have the physical resources,” he said. The government is telling people “they’re guaranteed their medical services, and I think that’s not accurate. We cannot do that granted our lack of resources.”

Yet Greenspan said Congress has no choice but to approve raising the debt ceiling as the US would risk catastrophe if it does not meet its obligations.

“The problem is we’re all going and maneuvering around and as the days pass we’re getting closer and closer to the debt ceiling,” said Greenspan, who called Washington brinkmanship on the issue an “extraordinarily dangerous problem for this country.”

“What’s happening now is that there’s a realization of how serious this problem is and everyone is coming together to talk,” he said. “But compromise…?”

Americans Lower Expectations for Making Money

by TwoCentsEditor

Published on: 06/03/2011

Categories: Current Events, Economics, Financial Markets

Tags: economy, jobs, money, stocks, wealth

Comments: No Comments

Squeezed on both sides by stagnant wages and rising prices, consumers believe the chances of bringing home more money one year from now are at their lowest in 25 years, according to analysis of survey data by Goldman Sachs.

Goldman’s economist Jan Hatzius looked at the University of Michigan and Thomson Reuters poll, which asks consumers whether they believe their family income will rise more than inflation in the next 12 months. Hatzius applied a six-month moving average to smooth out the data and found that wage pessimism is at its lowest in more than two decades.

“Households are already very pessimistic about future real income growth,” wrote Goldman’s economist to clients. “A slowdown in job growth would presumably translate into a further deterioration in (expected and actual) real income growth. This would heighten the downside risks to our current forecast that real consumer spending will grow 2.5 percent to 3 percent over the next year and might call for another downward revision to our forecast for US GDP growth in 2011 and 2012.”

Real hourly wages have dropped 2.1 percent on an annualized basis over the past six months, a rate of decline not seen in 20 years, according to Goldman. This analysis is backed up by the other most-watched consumer survey from the Conference Board, which indicated earlier this week that the proportion of consumers expecting their incomes to increase was below 15 percent in May.

“I am much more concerned that the second half resurgence we all expect never arrives and by early 2012 we are in a recession,” said Joe Terranova, chief market strategist for Virtus Investment Partners and a ‘Fast Money’ trader.
yield broke below 3 percent Wednesday as investors bought bonds as a safehaven in case of the slowing economy.

The fact that income expectations are so low, makes the jobs outlook that much more important, argues Goldman and other investors. These same surveys show that consumers are not nearly as pessimistic about job growth. So once enthusiasm on the labor front is dented at all, then all aspects of consumer confidence are lost.

“The labor market is particularly important because household finances currently seem even more dependent on job growth than they are normally,” said Hatzius.

A typical recovery pattern goes like this: stock market bottoms, economic growth bottoms and then hiring and wage increases return. What’s unique and scary about this recovery is that the last piece of the recovery is not there.

In the 2001 recession, the country lost 2 percent of jobs from peak employment and then made that back in a 48- month cycle, according to data from money management firm Trutina Financial. In 1990, the jobs lost during the recession were recovered in 30 months. Right now, about 38 months from peak employment during the housing boom, there are still six percent fewer jobs out there. Making up that amount of jobs in 10 months or less would be unprecedented, if not impossible.

“The crawl out of this economic ditch is going to be long and slow,” said Patty Edwards, chief investment officer at Trutina. “Even if they’re employed, many consumers aren’t earnings what they were two years ago, either because they’re in lower-paying jobs or not getting as many hours.”

Global Economy Loses Steam

by TwoCentsEditor

Published on: 05/27/2011

Categories: Current Events, Economics, Financial Markets

Tags: alex jones, bonds, credit, debt, debt limit, Economics, economy, jim willie, max keiser, stocks

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Editor’s Note: We told everyone that this ‘rally’ in growth was a sham, bought with debt, and paid for with our kids’ future. Few listened. Now, 2 years later, the MSM is finally starting to admit the truth; always a day late and many, many dollars short.

May 27 (Bloomberg) — The world economy is losing strength halfway through the year as high oil prices and fallout from Japan’s natural disaster and Europe’s debt woes take their toll.

Goldman Sachs Group Inc. now expects global economic growth of 4.3 percent in 2011, compared with its 4.8 percent estimate in mid-April, while UBS AG has cut its projection to 3.6 percent from 3.9 percent in January. Downside risks also include a shift to tighter monetary policy in emerging markets.

“The world economy has entered a softer patch with the incoming growth data mostly disappointing,” said Andrew Cates, an economist at UBS in Singapore. “We suspect this soft patch will endure for longer.”

Data this week backed that outlook as reports showed Chinese manufacturing expanding at the slowest pace in 10 months, orders for U.S. durable goods dropping the most since October and confidence among European executive and consumers sliding for the third straight month. Investors are tuning in, pushing the MSCI World Index of stocks in advanced economies down 4.2 percent this month.

Goldman Sachs economists led by Dominic Wilson and Jan Hatzius said in a May 25 report they now expect “less upside in equities” with their colleagues reducing price targets for most of the major regions even though they still anticipate another 10 percent gain in developed markets this year.

The concern comes as leaders from the Group of Eight conclude a summit in Deauville, France, with a statement that declared the world economy is “gaining strength” and that its recovery will pave the way to debt reduction. They identified commodity prices as a “significant headwind” to expansion.

The MSCI World Index rose 0.6 percent at 6:15 a.m. in New York today, paring its weekly lose, after the G-8 statement.

Energy Costs

Oil prices reached a 31-month high of $114.83 on May 2 as the war in Libya cut supply. Goldman Sachs this week raised its forecast for Brent crude at the end of 2012 to $140 a barrel from $120, suggesting the price’s path will be 20 percent higher than anticipated at the start of the year. That’s enough to shave 0.5 percentage point from U.S. growth over two years and a little less in other wealthy nations, they said.

The fallout from Japan’s earthquake, tsunami and nuclear disaster may also be reverberating, said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who calculates the international expansion will duck beneath its long-term trend this quarter.

Japan’s Consumers

Japan’s retail sales fell 4.8 percent from a year earlier in April, the Trade Ministry said in a report released today, underscoring the impact on consumers from the March disasters and forecasts for gross domestic product to shrink for a third straight quarter in the three months to June.

While spillover to Asia’s emerging economies has been “surprisingly modest,” Hensley said supply-chain disruption is “likely to rise with time” as Japanese production and exports remain depressed before beginning to recover around September.

“The global economy is losing momentum,” Hensley said.

China, after powering the global economy out of the 2009 recession, may also be slowing. The world’s No. 2 economy has raised interest rates four times since mid-October and boosted banks’ reserve-requirement ratio eight times since November, most recently on May 12.

ING Groep NV this month cut its estimate for China’s full- year growth to 9.8 percent from 10.2 percent and reduced its second-quarter forecast to an annual pace of 9.6 percent, from 10.3 percent. Credit Suisse Group AG adjusted its 2011 expansion estimate to 8.8 percent from 9.1 percent. China’s stocks this week fell by the most in eleven months.

Central Banks

“Investors are worried that the tightening is overdone and concerns have widened to a slowdown in earnings and economic growth from just inflation,” said Wang Zheng, chief investment officer at Jingxi Investment Management Co. in Shanghai, which manages about $120 million.

Emerging-market central banks elsewhere are also throttling back. Those in India, the Philippines, Chile, Poland, Peru and Malaysia all raised their benchmark borrowing costs this month to cool price pressures.

Europe’s 18-month debt crisis is another brake on growth as its policy makers prepare a second aid package to save Greece from default and other so-called peripheral economies deploy austerity measures to slash debt. At the same time, the euro’s 6 percent gain against the dollar since the start of the year and the European Central Bank’s shift toward tighter monetary policy may be slowing expansion elsewhere in the region.

Impact on Companies

The global economy’s change in tone is reflected in some company announcements. Chicago-based Boeing Co., the world’s largest aerospace company, said it received two orders last month compared with 98 in March. Hermes International SCA, the Paris-based maker of Birkin handbags, said on May 11 that its forecast for 2011 is “clouded by geopolitical and economic uncertainties.”

The slower growth may still be short-lived and by cooling the oil price could even provide some support for consumers and inflation relief for central bankers, allowing them to keep monetary policy looser for longer. Other reasons for confidence include job growth in the U.S., expectations for an infrastructure-led bounce in Japan’s economy, supportive equity markets and a likely recovery in inventory accumulation, said Hensley at JPMorgan Chase.

Economists Nariman Behravesh and Sara Johnson of IHS Inc. said in a May 24 report that while they expect worldwide growth to slow to 3.5 percent this year from 4.1 percent in 2010, it will rebound to 4 percent in each of the next two years as the pain of austerity, Japan’s woes and high oil prices passes.

“Assuming these shocks do not get any worse and that the world economy is not hit by additional unforeseen jolts, chances are good that the period of slow growth will be relatively short and that the recovery will pick up steam again,” they said.

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