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As a result of Paul Volcker’s tightening of the US money supply (see October 6, 1979), 145 developing and emerging market economies pay a total of $7.673 trillion (in current dollars) in order to service their external debts. $675 billion of this money comes from Africa, the poorest continent in the world. Despite these massive payments, the external debt held by these nations actually increases from $618 billion in 1980 to $3.150 trillion in 2006. (Nakatani and Herera 6/2007)
The breakdown of the import substitution industrialization (ISI) model of development and the advent of neoliberal economic reform in Latin America lead to what is now termed the “lost decade” due to poor economic growth in the region. From 1980 to 1990, the region’s share of the world economy slips from 6 to 3 percent. Also, its average annual percentage change of real GDP per capita growth from 1980 to 1989 is -0.4, lower than any other region in the world and significantly lower than Latin America’s previous rate of 2.5 percent for the period between 1973 to 1980. (Robinson 1999, pp. 112-113)
Pristina University students begin protesting over dormitory and dining hall conditions at the school. The protest grows and hundreds of protesters go off campus, where they are blocked by police. The police try to detain the alleged organizers, which brings out more people overnight, and begins to radicalize their demands. In coming weeks and months, the government and media will blame many groups and countries for the demonstrations, but in interviews years later with Albanian scholar and diplomat Paulin Kola, Kosovan nationalist Xhafer Shatri will say that he thinks the events were unplanned. On the morning of March 12, the crowd is dispersed with tear gas. More demonstrations will erupt in a week.
The Students of Kosovo - Because unemployment is high in Kosovo, many Kosovars turn to further education, making Kosovo’s ratio of students to population the greatest in Yugoslavia—274.7 out of 1,000, while Yugoslavia’s national ratio is 194.9. One in three Kosovars is a student of some kind, yet educational facilities for Albanians are underfunded. Pristina University has 36,000 full-time and 18,000 extension program students, two-thirds more than planned when the university was created, forcing some students to share beds. About 80 percent of the students are in programs such as Islamic art, Albanian history, or folklore, graduating more students than there are available jobs in these fields. Their professors are generally poorly qualified, more than half lack PhDs, and they generally produce little new research and are not well regarded by their colleagues elsewhere in Yugoslavia. The student body is generally disaffected. Many ignore Rilindja, an Albanian language newspaper in Pristina, which covers university news on Wednesdays, and prefer TV and radio from Albania rather than Yugoslavia’s Albanian stations.
Economic Conditions - Kosovo is the poorest part of Yugoslavia, and Albanians are generally poorer than Slavs—for example, in 1980 67,000 Kosovars were unemployed, over 10 percent of the population and the highest rate in Yugoslavia. Out of every 1,000 people newly employed in Kosovo in the early ‘80s, 258 are Montenegrin, 228 Serb, and 109 Albanian, though the majority of Kosovars are Albanians. By 1988, Serbs will be 23.6 percent of the population and have 36 percent of the jobs, and Montenegrins will be 2.5 percent of the population and have 9.3 percent of the jobs. Mahmut Bakalli, president of the Kosovo Provincial Committee of the League of Communists of Yugoslavia, is unable to change Kosovo’s economic relations with the rest of Yugoslavia, which pays very little for natural resources obtained from Kosovo. (Vickers 1998, pp. 196-197, 199-200, 216; Kola 2003, pp. 156-157)
The IMF’s recommended reforms are widely viewed to have a negative effect on the earnings of the average Mexican. For example:
In the period between 1983 and 1988, per capita income falls at a rate of about 5 percent per year.
In the same period, the value of workers’ real wages falls from 40 to 50 percent.
The share of national income received by workers declines from 49 percent in 1981 to 29 percent in 1990.
Adjusted for inflation, the Mexicans’ real wages fall by 75 percent throughout the 1980s. (Global Exchange 9/2001, pp. 4 ; Harvey 2005, pp. 100)
The Mexican government, in 1984, controls about 1,212 firms and entities. By December of 1988, this number will be reduced to 448 through a massive privatization program. (Hart-Landsberg 12/2002)
The Mexican government, with technical assistance from the World Bank, sells off a profitable phone company called Telmex. In the months preceding the sell-off, the Mexican government increases the rate of calls by local users from 16 pesos per minute to 115 pesos per minute in order to make the company more attractive to potential buyers. This makes the privatization of the phone system detrimental to consumers. In a 1992 report, The World Bank will admit that “the privatization of Telmex, along with its attendant pricetax regulatory regime, has the result of ‘taxing’ consumers—a rather diffuse, unorganized group—and then distributing the gains among more well-defined groups, shareholders, employees, and the government.” (Global Exchange 9/2001, pp. 4 )
A team from the Walter Reed Army Institute of Research arrives in the Persian Gulf region to work with “Desert Shield” personnel in handling stress and other psychological issues. (Office of the Special Assistant for Gulf War Illnesses 1/17/2008)
In preparation for the North American Free Trade Agreement (NAFTA), Mexico opens up its financial services to foreign ownership. By 2000, 85 percent of the banking system will be owned by foreign entities and lending to Mexican businesses will have dropped from 10 percent of the GDP to 0.3 percent. (Jones 3/2007, pp. 3)
In early 1994, investors pull money out of the Mexican economy in response to an increase in US interest rates and political instability. This causes the Mexican government to lose massive amounts of reserves and lead it to allow the peso to float in December of 1994. In January of 1995 it again asks the IMF for assistance and receives packages from both the IMF and US Treasury. This time, massive privatizations of “transportation, banking and finance, railways and the petrochemical industries” were recommended as a way of paying off the loans. A devaluation of the peso in 1995 along with an IMF-mandated rise in interest rates triggers the worst depression in Mexico in 60 years. GDP falls by 6.2 percent, wages fall by 25 percent, unemployment doubles, and 12,000 Mexican firms file for bankruptcy. (Global Exchange 9/2001, pp. 4-5 ; Hart-Landsberg 12/2002)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 6.1 percent in 1998 (Colliver 12/8/2003) compared to a 1.6 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 7.3 percent in 1999 (Colliver 12/8/2003) compared to a 2.2 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 8.1 percent in 2000 (Colliver 12/8/2003) compared to a 3.4 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 11.2 percent in 2001 (Colliver 12/8/2003) compared to a 2.8 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 14.7 percent in 2002 (Colliver 12/8/2003) compared to a 1.6 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
The National Review publishes an op-ed piece by Lawrence Kudlow, titled, “Taking back the market… by force,” in which he claims, “The shock therapy of decisive war will elevate the stock market by a couple thousand points.” Kudlow is the CEO of Kudlow & Co. (Kudlow 6/26/2002)
According to the Mercer National Survey of Employer-Sponsored Health Plans, the average total health benefit cost rises 10.1 percent in 2003 (Colliver 12/8/2003) compared to a 2.3 percent increase in the Consumer Price Index. (InflationDate(.com) 6/22/2006)
The US Army Corps of Engineers awards Halliburton subsidiary, Kellogg, Brown & Root (KBR), a sole-source monopoly contract to repair and operate Iraq’s oil infrastructure. The contract is awarded in secrecy without any competing bids from other qualified companies. Halliburton will eventually charge the government $2.4 billion for its work. The Defense Contract Audit Agency will find that about $263 million of these costs are either questionable or unsupported. Despite this, the US Army will pay Halliburton all but $10.1 million, or 3.8 percent, of the disputed costs. (Glanz 2/27/2006; US Congress 3/28/2006, pp. 3-4 )
As enthusiasm for the war in Iraq permeates the US business community as well as mainstream television news outlets (see March 19-20, 2003), billionaire Donald Trump predicts on Fox News that because of the war, “I think the market’s going to go up like a rocket!” (Rich 3/30/2003; Rich 2006, pp. 75)
As part of a White House media campaign to promote “good news” from Iraq (see Mid-October 2003), Commerce Secretary Donald Evans goes on a brief visit to selected areas in Baghdad and comes back to Washington with stories of the “thousands” of new businesses that have cropped up since the “liberation” of that country. Asked for an example, Evans cites two boys’ roadside soft drink stand. (Hanley 10/17/2003)
A laboratory releases two reports focusing on the unique properties of the dust from the World Trade Center collapses, and finds evidence of extremely high temperatures involved in these collapses. The laboratory, RJ Lee Group of Pennsylvania, is the largest commercial electron microscope laboratory in the world. (RJ LeeGroup, Inc. 5/2004, pp. 1 ) In April 2002, it was retained on behalf of Deutsche Bank Trust Company Americas to investigate environmental contaminants in this company’s building at 130 Liberty Street, New York. (RJ LeeGroup, Inc. 12/2003, pp. 1 ) The building, located next to the World Trade Center, was heavily damaged on September 11, suffering a 24-story gash when the South Tower collapsed. (Wyatt and Bagli 6/20/2003; Real Estate Weekly 9/14/2005) RJ Lee collected samples from it, which it then analyzed “using industry standard analytical laboratory methods.” (RJ LeeGroup, Inc. 12/2003, pp. 3-4 ) In December 2003 and May 2004, it releases two reports that evaluate the features of the dust from the WTC that was deposited in 130 Liberty Street. It calls this evaluation “the most extensive microscopic investigation related to WTC dust ever performed.” (RJ LeeGroup, Inc. 12/2003, pp. 1-2 ; RJ LeeGroup, Inc. 5/2004, pp. 4 ) The reports describe phenomena that indicate extremely high temperatures were involved in the WTC collapses:
“Various metals (most notably iron and lead) were melted during the WTC event, producing spherical metallic particles. Exposure of phases to high heat results in the formation of spherical particles due to surface tension.” (RJ LeeGroup, Inc. 12/2003, pp. 17 )
“The amount of energy introduced during the generation of the WTC dust and the ensuing conflagration caused various components to vaporize.… Many of the materials, such as lead, cadmium, mercury, and various organic compounds, vaporized and then condensed during the WTC event.” (RJ LeeGroup, Inc. 12/2003, pp. 21 )
“An additional characteristic of WTC dust is the presence of coated particles and fibers.… The presence of lead oxide on the surface of mineral wool indicate the existence of extremely high temperatures during the collapse which caused metallic lead to volatilize, oxidize, and finally condense on the surface of the mineral wool.” (RJ LeeGroup, Inc. 5/2004, pp. 12 )
“WTC dust markers exhibit characteristics of particles that have undergone high stress and high temperature. Asbestos in the WTC dust was reduced to thin bundles and fibrils as opposed to the complex particles found in a building having asbestos-containing surfacing materials. Gypsum in the WTC dust is finely pulverized to a degree not seen in other building debris. Mineral wool fibers have a short and fractured nature that can be attributed to the catastrophic collapse. Lead was present as ultra fine spherical particles. Some particles show evidence of being exposed to a conflagration such as spherical metals and silicates, and vesicular particles (round open porous structure having a Swiss cheese appearance as a result of boiling and evaporation).” (RJ LeeGroup, Inc. 5/2004, pp. 17-18 )
The reports offer no explanation for the origins of the extremely high temperatures that are indicated. But physics professor Steven E. Jones (see November 8, 2005) will later claim that molten metal found in the debris of the WTC is evidence that the towers were brought down deliberately and involving the use of an incendiary substance called thermite, which can melt steel. (Jarvik 11/10/2005; Dean 4/10/2006)
The International Advisory and Monitoring Board for Iraq (IAMB), an independent agency formed to oversee the Development Fund for Iraq (DFI) and Iraq’s oil exports, notes in briefings to the CPA that the production of crude oil is going unmetered. It will later say in a report that such practices could result in the diversion of Iraq’s oil resources. It recommends that the CPA properly install metering equipment as soon as possible. (International Advisory and Monitoring Board for Iraq 12/2004, pp. 2, 4 )
The International Advisory and Monitoring Board for Iraq (IAMB) learns during one of its meetings that the CPA has not yet installed metering equipment due to “security and technical” issues despite the fact that money has already been allocated for that purpose. This comes four months after the IAMB informed the CPA of the importance of metering Iraq’s oil production (see February 2004). (International Advisory and Monitoring Board for Iraq 12/2004, pp. 4 )
A Massachusetts Institute of Technology economist writes that according to economic indicators, the US military surge in Iraq is not working, and actually may be undermining US military efforts to bring order to that ravaged nation. Until now, few have tried to measure the success of the surge by using financial indicators, in part because of the lack of usable economic data available from Iraq, but Michael Greenstone of MIT’s economics department has made just such an attempt, using the long-term performance of Iraq state bonds to gauge how investors believe the prospects in Iraq are shaping up. Greenstone is not optimistic. “After the surge, there was a sharp decline in the price of those bonds, relative to alternative bonds,” Greenstone writes. He judges the performance of Iraq state bonds and credit default swaps against benchmark performers such as the Lehman Brothers emerging markets bond index, and against bonds issued in Qatar. Greenstone draws the conclusion that the global market is betting more and more on the likelihood that Iraq will default on its bonds, and concludes, “This finding suggests that, to date, the surge is failing to pave the way toward a stable Iraq and may in fact be undermining it.” (Gaffen 10/11/2007)
Unemployment rates in several states rise to their highest levels since 1976. The states are California, Nevada, North Carolina, Oregon, Rhode Island, South Carolina, Florida, and Georgia. There is also a year-on-year increase in unemployment in all 50 states and the District of Columbia. As in all prior months, Michigan leads the nation with 14.1 percent, up from 12.9 percent in April; Oregon is second with 12.4 percent, up four-tenths of a percent from the previous month. Thirteen other states post rates above 10 percent. In recent months, the manufacturing sectors in Michigan and Rhode Island have been decimated, and Chrysler and GM plant closings in early May are particularly devastating to Michigan. Only Vermont has no change in its rate, while Nebraska’s rate decreases 0.1 of a percentage point to 4.4 percent. Both Nebraska and North Dakota tie for lowest unemployment rates while, nationally, the unemployment rate hits a 26-year high as it rises to 9.4 percent, from 8.9 percent in April. The highest regional jobless rate of 10.1 percent is reported in the West, followed by the Midwest at 9.8 percent. Not since September 1983, when the Midwest posted a 10.1 percent rate, has any region recorded a rate of 10 percent or more. The Pacific and South Atlantic regions also post record highs in May. (Luhby 6/19/2009)
The Royal Bank of Scotland (RBS) predicts “a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks.” RBS credit strategist Bob Janjuah says, “A very nasty period is soon to be upon us—be prepared.” Bolstering Janjuah’s dire predictions, the RBS bank research team warns that the Wall Street equities index, Standard & Poor’s (S&P) 500 index is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from what the Daily Telegraph describes as “the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world [markets] would amount to one of the worst bear markets over the last century.” Janjuah also warned of the credit crisis in 2007. RBS predicts that Wall Street would rally a little in early July before quickly fizzling out. “Globalization was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point,” Janjuah says. RBS debt market chief Kit Jukes says Europe will not be immune from the problems: “Economic weakness is spreading and the latest data on consumer demand and confidence are dire.” (Evans-Pritchard 6/19/2008)
The US’s two most popular conservative radio hosts, Rush Limbaugh and Sean Hannity, are repeatedly labeling the current economic collapse the “Obama recession,” even though the recession has started already, and President-elect Barack Obama was only elected on November 4 and will not assume the presidency until January 20, 2009.
Blaming Obama for Wall Street Plunge - According to reports by progressive media watchdog site Media Matters, Hannity’s guest Dick Morris, a conservative political operative, tells a Fox News audience on November 6 that the stock market plunge is directly attributable to Obama’s election and his intention to “raise the capital gains tax.” Hannity calls the stock market plunge “the Obama tanking.” On the same day, Limbaugh says on his show: “We have the largest market plunge after an election in history. Thank you, man-child Barack Obama.” (Media Matters 11/7/2008) Hannity says on November 11 that Obama’s election is directly responsible for plunging stock market performances, telling his listeners: “Wall Street keeps sinking. Could it be the Obama recession: The fear that taxes are gonna go up, forcing people to pull out of the market?” On November 12, Limbaugh echoes Hannity’s characterization, telling his listeners that, as reported by MSNBC’s Chris Matthews, “the recession isn’t President Bush’s fault. It’s the fault, catch this, of the president who hasn’t yet taken office. It’s an ‘Obama recession’; that’s what he’s calling it.” Matthews, clearly impatient with Limbaugh’s characterization, calls the host’s statement an example of “the bitter sore loser’s rhetoric we are hearing from the right these days.” (Media Matters 11/12/2008)
Experts Credit Obama with Wall Street Stabilization - Experts refute Limbaugh’s and Hannity’s attribution of the nation’s economic calamity to Obama, with the Wall Street Journal giving Obama credit for a post-election upturn in the stock market and blaming “lame economic data” and the continuing “drumbeat of bailouts, potential bailouts, and worries about other bailouts” for the stock market’s poor performance. (Gaffen 11/12/2008) Fox News business commentator Eric Bolling credits Obama’s election with stabilizing the stock market until a dismal national employment report caused the market to drop again. And Fox Business Channel’s vice president, Alexis Glick, tells her audience on November 7: “I so did not believe that the market reaction over the past two days was about Obama. Wednesday morning we walked in, we saw the Challenger and Gray [planned layoff] numbers, we saw the ADP numbers, the weekly jobless claim numbers—yeah, well, they were basically in line, but we knew two days ago that this was going to be a bloody number. Frankly, we probably knew several months ago that it was going to be a bloody number.” The Wall Street Journal and New York Times both agree with Glick’s assessment. (Media Matters 11/7/2008; Grynbaum 11/7/2008)
According to a report published in February 2009 by the Japanese government, Japan’s economy—the world’s second largest—suffers the biggest monthly drop since records began more than half a century ago, with January marking the fourth successive month that factory output has fallen. Officials conclude that the country is in its worst recession in decades. The figures are published days after government reports that exports plunged nearly 46 percent in comparison to a year ago, reportedly suffering from a fall in foreign product demand. A preliminary report by the Ministry of Economy, Trade, and Industry predicts that output will further fall to 8.3 percent in February, but increase in March by 2.8 percent. The report concludes that a 17.3 percent production drop in transport equipment, including cars and trucks, had the largest negative impact on the overall output decline, and that electronic parts and devices was down 21.8 percent from December, followed next by general machinery and steel, with all 16 industrial areas cutting their output. According to the Japan Automobile Manufacturers’ Association, the country’s car production plunges a record 41 percent in January and vehicle productions decrease by nearly 50 percent to 576,539 vehicles produced in January 2009 compared with 976,975 in January 2008. “Fearful of losing their jobs in the global turndown, consumers no longer want to buy Japanese electronic gadgets and cars,” says Roland Buerk of BBC Tokyo. “The Japanese are shopping less and average household spending fell 5.9 percent in January compared with the same month a year ago.” Jobs are also being slashed, with unemployment rising by more than 200,000 in January 2009. “Japan was once seen as relatively immune to the global crisis because its banks were not as exposed to bad loans as those in the US and Europe,” Buerk will say. “Their reliance on foreign markets to drive its economy out of a long slump in the 1990s has left it painfully exposed.” “The recession is having an increasing impact on the real economy,” Finance Minister Kaoru Yosano will say. (BBC 2/27/2009; Hongjiang 2/27/2009)
According to a Commerce Department report, in January, new home purchases drop 10 percent to an annual pace of 309,000, the lowest level since data tracking began in 1963. The report, published in February 2009, will attribute the fall to high unemployment and foreclosures. In addition, at 13.5 percent, the median home price falls the most in almost four decades. (Schlisserman 2/26/2009)
The California Nurses Association (CNA) releases the results of a study which found “a national single-payer style health care reform system would provide a major stimulus for the US economy by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the US economy.” The study was conducted by the Institute for Health & Socio-Economic Policy (IHSP), a “non-profit policy and research group” that is “the exclusive research arm of the California Nurses Association/National Nurses Organizing Committee.” In addition to the growth in jobs and revenues generated by covering the 47 million Americans who were uninsured as of 2006, the study also found that universal coverage “could be achieved for $63 billion beyond the current $2.1 trillion in direct health care spending,” according to the press release for the study, which also notes that this figure is “six times less than the federal bailout for CitiGroup, and less than half the federal bailout for AIG.” (CalNurses.org 1/14/2009)
Depending on the extent and length of the economic crisis, the International Labor Organization (ILO) predicts in its annual Global Employment Trends Report that global unemployment could increase from 33 million to 51 million people, up 18 million from 2007 figures. The ILO urges global governments to emphasize job creation in their fiscal stimulus packages and improve social protection systems for the unemployed and the employed. “We are now facing a global jobs crisis,” Juan Somavia, ILO director general says. “Progress in poverty reduction is unraveling, and middle classes worldwide are weakening. The political and security implications are daunting.” The ILO is a United Nations organization that has painted three 2009 global unemployment scenarios, ranging from bad to worst. “In all scenarios, there will be a global unemployment rate increase in 2009, particularly the developed economies,” the ILO report says. Its most optimistic scenario is based on the International Monetary Fund’s November 2008 world economic growth projection, which indicates that there would be a global unemployment rate at 6.1 percent. This scenario has 18 million more people unemployed by the end of 2009, in comparison to the end of 2007, with a global unemployment rate of 6.1 percent. Under the ILO’s second and third scenarios, the numbers could rise by 30 million or even 51 million, with a much slower economic recovery, with unemployment reaching higher levels in developed countries. Under the ILO’s third scenario, approximately 200 million workers could be pushed into extreme poverty with incomes as low as $1.25 a day; 140 million would be in Asia. “The world is facing an unprecedented crisis that calls for creative solutions,” the organization says. (Deutsche Presse-Agentur (Hamburg) 1/28/2009)
Global recession fears deepen as uncertainty regarding bank bailout plans drives negative investor sentiment on Wall Street. The Dow Jones index closes down 196.01 points, or 2.7% at 7169.66, the lowest since October 1997. The S&P 500 index loses 2.9% to 747.94, below its lowest close since April 1997. Investors initially welcomed reports that the Feds would convert an earlier investment in Citigroup into a large common stock holding, but enthusiasm faded as long-standing uncertainty about the government’s ultimate plan for banks resurfaced to pull indexes lower. European stocks also retreat, sending the Dow Jones Stoxx 600 Index to a new six-year low. It slides 0.9% to 175.29, dropping for a second straight day and closing at its lowest level since March 13, 2008. National benchmark indexes dropped in 15 of the 18 western European markets. (Gibson 2/23/2009)
The European Commission announces that an index of euro-region executive and consumer sentiment has dropped to 65.4 from 67.2. This is a record low and is caused by the global economic crisis. Responding to this and other bad news Jacques Cailloux, chief euro area economist at Royal Bank of Scotland in London, says, “Today’s data has dashed any hope of a tentative stabilization” in the economy. He also predicts a change in policy by the European Central Bank (ECB): “Any sense that the ECB may pause after a March rate cut can be thrown out the window. They will go very low and they will have to start embarking on additional measures.” (Thesing 2/26/2009)
According to a survey of factories released by Credit Lyonnais South Asia (CLSA), a brokerage firm that monitors Asia-Pacific markets, although Chinese manufacturing contracted in January and February, the rate was slower in February than the previous month. The survey is issued as China’s legislature and a top government advisory body meet in Beijing. It is expected that the meeting will yield additional measures to stimulate the economy. In a statement released with the survey, CLSA declares, “The rate of contraction remained marked, reflecting a reduction in global demand and an uncertain economic outlook.” Manufacturing is reportedly 40 percent of China’s economic output. A drop in exports demand has led to thousands of factory closures, prompting protests by laid-off workers. Chinese leaders are concerned that additional job losses may fuel unrest. According to the CLSA survey, production and new orders fell in February, and manufacturers continued to shed jobs in an effort to cut costs. “Manufacturing activity is still contracting, only at a more moderate pace than at the end of 2008,” says Eric Fishwick, the head of CLSA’s economic research. China is one of the few major economies still growing, although growth fell to a seven-year low of 6.8 percent in the final quarter of 2008, compared with the same period a year earlier. Last November, the government announced a $586 billion plan to boost domestic consumption in an attempt to assist in cushioning the impact of the global slowdown. Officials say that the effects of public works spending will be slow. Quoting Premier Wen Jiabao, Xinhua News Agency reports that some indicators, such as recent upturns in power demand and rising steel output, suggest that the economy is stabilizing. However, trends remain dismal in the US and around the globe. “China cannot expect to recover just by spending its way out of the slowdown,” says Jing Ulrich, JP Morgan’s chairwoman of China equities in a report issued today. “While early signs of economic stabilization are encouraging, it remains to be seen if this uptrend is sustainable.” (International Herald Tribune 3/2/2009)
John Boehner (R-OH), the House Minority Leader, calls on the Obama administration to implement a freeze on government spending, and for President Obama to veto a $410 billion spending bill. Boehner says recent spikes in unemployment figures are a sign of a worsening recession, and the only way to address the recession is to freeze government spending until the end of the fiscal year. He calls the spending bill, crafted in December with input from Congressional Democrats and Republicans as well as from the Bush White House, full of wasteful “earmarks” and “pork.” (Associated Press 3/6/2009) Boehner introduces a resolution calling for the freeze in the House; it fails, even though all House Republicans present for the vote and eight Democrats vote for it. (Hair 3/6/2008) Two days after Boehner’s call for a spending freeze, conservative columnist David Brooks calls the proposal “insane” and blames the influence of conservative talk show host Rush Limbaugh for the idea. Brooks says that Limbaugh and the Republican Party is fixated on repeating a Reagan-era economic agenda. “The problem with them and the problem with Limbaugh in terms of intellectual philosophy is they are stuck with Reagan,” Brooks says. “They are stuck with the idea that government is always the problem. A lot of Republicans up in Capitol Hill right now are calling for a spending freeze in a middle of a recession/depression. That is insane. But they are thinking the way they thought in 1982, if we can only think that way again, that is just insane. And there are a lot of Republicans like David Frum… who are trying to say Reagan was right for his era, but it is time to move on. And there are just not a lot of them on Capitol Hill right now, and I think the party is looking for that kind of Republican.” (Huffington Post 3/8/2009)
Regulatory reports on Bank of America, Citibank, HSBC Bank USA, JP Morgan Chase, and Wells Fargo indicate that, as loan defaults of every kind soar, the institutions face “catastrophic losses” should economic conditions “substantially worsen.” Already suffering as a result of what the banks term “exotic investments,” the reports disclose that, as of December 31, 2008, current net loss risks from derivatives—quasi-insurance bets tied to loans or other underlying assets—have swelled to $587 billion. According to McClatchy journalists Greg Gordon and Kevin G. Hall, obscured in the year-end regulatory reports that they reviewed were figures reflecting a jump of 49 percent net loss in just 90 days.
Bailout Money Shoring Up Reserves - Taxpayer bailout money has already shored up four of the five banks’ reserves, with Citibank receiving $50 billion and Bank of America $45 billion, in addition to a $100 billion loan guarantee. According to their quarterly financial reports as of December 31:
JP Morgan had potential current derivatives losses of $241.2 billion, overrunning its $144 billion in reserves, and future exposure of $299 billion.
Citibank had potential current losses of $140.3 billion, outstripping its $108 billion in reserves, and future losses of $161.2 billion.
Bank of America reported $80.4 billion in current exposure, lower than its $122.4 billion reserve, but $218 billion in total exposure.
HSBC Bank USA had current potential losses of $62 billion, over three times its reserves, and potential total exposure of $95 billion.
San Francisco-based Wells Fargo, which took over Charlotte, N.C.-based Wachovia in October 2008, reported current potential losses totaling almost $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion. (Gordon and Hall 3/9/2009; Idaho Statesman.com 3/9/2009)
In a speech to the Tulsa Chamber of Commerce, Federal Reserve Bank of Kansas City President Thomas Hoenig declares that US banks’ ability to remain viable during a deeper recession—while undergoing federal government stress tests—demonstrates that most don’t need more taxpayer money. “Although the United States has several thousand banks, only 19 have more than $100 billion of assets,” Hoenig says. “After supervising authorities evaluate their condition, it is likely that few would require further government intervention.” Designed to demonstrate how much extra capital banks may need to survive a deeper economic downturn, the stress tests are to conclude by April 30, 2009, with the 19 biggest banks’ test results to be disseminated to President Barack Obama in meetings with his economic team. Hoenig reiterates his view that the government shouldn’t prop up failing financial institutions but take them over temporarily and wind them down, as with the 1984 takeover of Continental Illinois National Bank & Trust Co. “I encourage Congress to enact a new resolution process for systematically important firms,” he says. “There has been much talk lately about a new resolution process for systemically important firms that Congress could enact, and implement it as quickly as possible, but we do not have to wait for new authority. We can act immediately, using essentially the same steps we used for Continental. An extremely large firm that has failed would have to be temporarily operated as a conservatorship or a bridge organization and then reprivatized as quickly as is economically feasible. We cannot simply add more capital without a change in the firm’s ownership and management and expect different outcomes.” Hoenig declares that calling a firm “too big to fail” is a “misstatement” because a bank deemed insolvent “has failed.” “I believe that failure is an option,” he says. After the government’s fourth rescue of American International Group Inc. (AIG), Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke called for new powers to take over and sell off failing financial companies, and also called for stronger regulation to constrict risks that might endanger the financial system. The Federal Deposit Insurance Corporation has the authority to take over failing firms, and dispose of their assets, but no such authority exists for non-banking financial firms such as a hedge fund or AIG, which have extensive links throughout the banking system. During a Q&A after his speech, Hoenig tells the audience that the Fed must be prepared to make a timely removal of its stimulus to deter a period of high inflation that could be likened to that of the early 1980s. “You cannot wait until you know for sure the economy is recovering,” Hoenig says, adding that “employment growth tends to lag” and may not be the best indicator of recovery. “We will watch every indicator of data that suggests we have a recovery under way.” He also says that if the US manages its economy well, the US dollar should remain the world’s reserve currency. “It is a matter of running your economy properly,” he says. “When the US does that, and I think we will, I think we will remain the largest, most successful reserve currency on the face of the earth.” (Bloomberg 4/9/2009)
President Barack Obama implements a home mortgage rescue plan that he says will prevent as many as 9 million Americans from losing their homes to foreclosure. Obama says that turning around the battered economy requires stemming the continuing tide of foreclosures. He says that the housing crisis that began last year set many other factors in motion and helped lead to the current, widening recession. “In the end, all of us are paying a price for this home mortgage crisis,” Obama says. “All of us will pay an even steeper price if we allow this crisis to deepen. The American dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods. While this crisis is vast, it begins just one house and one family at a time.” Of the nearly 52 million US homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their home is currently worth. Obama’s plan contains three initiatives:
Fannie Mae and Freddie Mac homeowners owing between 80 and 105 percent of what their homes are worth can refinance their mortgage. Prior to implementation of the rescue plan, only those borrowers with at least 20 percent home equity could refinance. Refinancing at a lower rate may save borrowers thousands of dollars yearly on their mortgage payments.
Banks will be encouraged to work with homeowners to modify existing mortgages, which is different from refinancing. The Bush administration plan, “Hope for Homeowners,” passed late in 2008, tried to do what Obama has now accomplished, but, since banks were not eager to modify terms to help people stay in their houses, the Bush plan is considered a failure. Under Obama’s plan, banks who received TARP funding will have to participate and, if they do not, Obama may request that the Congress allow bankruptcy judges to modify mortgage terms. Before Obama’s new plan, judges already had the power to modify mortgage terms on a homeowner’s second and third homes, although not on their primary residences.
Interest rates will be kept low by having the Treasury Department buy up mortgage-backed securities from Fannie Mae and Freddie Mac, in the hope of re-inflating the market for mortgage-related products, even if Treasury may be overpaying for toxic assets in a market with few, if any, other buyers. (Baumann 2/18/2009; Luhby 4/16/2009)
According to a recent Manpower, Inc. survey, US employers’ plans to hire for the third quarter of 2009 are at a record low, and the jobless will have to wait many months more before finding a job. The agency reported that after they adjusted results for seasonal employment variations, its employment gauge for July through September 2009 was negative. In a statement released to media, Jonas Prising, president of Americas for Manpower, says employers are “treading slowly and watching with guarded optimism, hoping a few quarters of stability will be the precursor to recovery.” The report underlines economists’ predictions that unemployment will continue to climb even if layoffs subside. Recent Labor Department statistics reported a loss of 345,000 US jobs in May. Although less than the job losses recorded in the last eight months, the May 2009 jobless rate surged to its highest level in nearly 26 years. In a repeat of results from the two previous periods, 67 percent of employers anticipated zero change in third quarter 2009, Manpower says. Those who expected to boost their payrolls remained at 15 percent for a second time in a row, while those projecting additional job cuts fell to 13-14 percent. “While the numbers may not be as optimistic as we would like, it is positive to see no further deterioration,” says Jeffrey Joerres, Manpower’s chairman and chief executive officer. Six of 13 industries employers surveyed estimated better employment conditions than in the second quarter, with gains in leisure, hospitality, wholesale, and retail trades, while those in construction stated they would add staff for the first time in a year. The biggest hiring corrosion occurred in education, health services, and at government agencies. In three of four regions, the net employment gauge measured negative, and was zero in the Northeast. The measurement improved in the South, dropped in the West, and was little changed in the Northeast and Midwest. Net employment gauge figures are tallied by subtracting the percentage of employers that predict an employment decrease from those that foresee an increase. Manpower’s global outlook survey demonstrated that the net employment gauge for third quarter 2009 improved in 12 countries from the previous three months. Plans for hiring were strongest in India, Norway, and Poland. The Manpower Inc. survey is a quarterly measurement with a margin of error of plus or minus 0.49 percentage point in the US. The employment agency interviewed over 28,000 US employers for its national outlook and surveyed 70,000 companies for its third quarter global measurement. Manpower Inc. is billed as the largest temporary workers employment agency in the world. (Schlisserman 6/9/2009)
The World Bank predicts a 2.9 percent contraction in the global economy and adds that unemployment and poverty will continue to rise in developing nations in 2009. The revised previous estimate of a 1.7 percent decline causes a slide in US and European stocks and commodities. Three months ago, the World Bank issued a new estimate of 2 percent in 2010. Although the S&P 500 remains up 33 percent from its 12-year low in March, since June 12, the index has fallen 5.1 percent. Last week, the S&P 500 lost 2.6 percent, as a turndown in crude oil wounded fuel producers and Standard & Poor’s rating agency downgraded 18 banks’ credit ratings. Speaking in Paris today, economics professor Nouriel Roubini—who predicted the current financial crisis as early as 2006—says the global economy could suffer another slump due to higher oil prices and increasing budget deficits. “I see the worry of a double whammy” because of energy costs and fiscal burdens, thus increasing the risk of a setback in the economic recovery. He says that oil might rise to $100 a barrel. The increase in the value of the dollar blunted the appeal of commodities as an alternative investment, and sent copper, gasoline and oil prices lower. Amid the resignations of two more board members, bringing the total of departing directors to seven since April, Bank of America stock falls 6.1 percent to $12.41, the bank’s steepest intraday decline since May 15. It is expected that at the end of their two-day meeting on June 24, Federal Reserve officials might announce that the US is showing signs of surfacing from the worst recession in 50 years, although, after their last meeting in April, they announced that the economy would “remain weak for a time.” It is anticipated that central bankers will keep the benchmark interest rate in the range of zero to 0.25 percent. (Thomasson 6/22/2009)
The jobless rate in Britain climbs to its highest level since 1995, according to the Office of National Statistics in London. The number of people out of work hits 2.47 million, while unemployment claims rise to 1.61 million for the month of July. Data recently released by the statistics office indicate that unemployment through July rose to 7.9 percent, the most since 1996, compared to the European Union’s latest figure of 9.5 percent, 9.7 percent in the US, and 5.7 percent in Japan. Bank of England Governor Mervyn King says that even after the economy stops shrinking, households will continue feeling the recession’s pain, since “unemployment is either going to continue rising or remain high.” As much as £175 billion ($288 billion) is being printed to aid economic growth and avoid deflation. “If anything, the UK economy is only just emerging from recession, and this is a lagging indicator,” says economist Philip Shaw of London’s Investec Securities. “We’re looking at unemployment peaking towards the middle of next year. Things are likely to improve at a slow rate, but it’s likely to remain uncomfortable for a long time.” Employment minister Jim Knight tells BBC News: “Unemployment still remains a real problem for families up and down the country. We’ve got to keep the support going and not be tempted to celebrate the recovery.” In speaking on the recovery, Prime Minister Gordon Brown—up for re-election in 2010—says the economic rebound “is still fragile” and stimulus programs that boost the economy should be maintained. “There are no signs of recovery here,” Trades Union Congress General Secretary Brendan Barber says. “It might look rosier in city dealing rooms but, out in the real world, unemployment is the number one issue.” (O?Donnell 9/16/2009)
On his website “Roubini Global Economics (RGE) Monitor,” New York University economics professor Nouriel Roubini interprets June’s unemployment report as a strong indication that any economic recovery indicators are “alleged green shoots” that are “mostly yellow weeds that may eventually turn into brown manure.” Known as “Dr. Doom” for his prescient 2006 speech to the International Monetary Fund warning fellow economists that the housing bubble would eventually lead to major global recession, Roubini analyzed June’s loss of 460,000 jobs as a strong indication that conditions in the labor market remain “extremely weak.” He also predicts that unemployment could reach 10 percent by the end of summer and that, by the end of 2009, the jobless rate “may well be at 10.5 if not 11 percent.” Roubini cites numerous reasons that an economic recovery, stumped by record high joblessness, is not likely to occur until unemployment falls below 8.5 percent in late 2013.
Roubini June 2009 Jobs Report Analysis -
Details of the unemployment report are worse than reported since, not only are there presently large job losses, but firms are inducing workers to reduce their hours and their hourly wages. According to Roubini, when observing the effect of the labor market on labor income, include three important elements in the total value of labor income—jobs, hours, and average hourly wages. Roubini says all three elements are currently falling, making their effects on labor income much more significant than job losses alone.
Job losses continue to exceed those in the last two recessions, and the unemployment rate has been rising steadily in the current cycle.
Rising unemployment will raise default on consumer loans and further pressure bank balance sheets.
Without home equity or easy credit, ongoing job losses and slower income growth will also keep up the pressure on consumer spending.
Large unemployment, underutilization of labor, and sharp slowdown in wages will add to deflationary pressures in the coming quarters.
Bank losses and tight lending are impacting households who already face wealth losses from housing and equity markets.
Impact of financial sector problems on the real economy are intensifying job losses and leading to lower work hours and wage growth. This puts further pressure on consumer spending while raising mortgage, credit card, and other debt defaults (the unemployment rate is highly correlated with delinquencies on credit cards and auto loans), also putting additional pressure on financial and corporate sector balance sheets.
US labor market aspects are worsening. Factor discouraged and partially-employed workers into jobless statistics, and the true and current unemployment rate is above 16 percent.
Temporary jobs are falling sharply, also an indicator that labor market conditions are becoming worse.
The average unemployment duration is at an all-time high, indicating that people are not only losing jobs, they’re finding it much more difficult to find new jobs.
Based on the birth/death model, the Bureau of Labor Statistics (BLS) continues to add approximately 150,000 to 200,000 jobs, distorting downward the number of job losses. However, based on the initial claims for unemployment benefits, job losses are closer to 600,000 per month rather than officially reported figures such as the 467,000 in the June report.
Should unemployment rates peak at or around 11 percent in 2010, expected bank loans and securities losses will be much higher than estimated in recent stress tests.
While there was a retail sales boost and a boost in real consumer spending during January and February 2009, the numbers from April, May, and now June remain extremely weak in real terms.
The significant increase in real personal income in April and May occurred only because of tax rebates and unemployment benefits.
There was a sharp fall in real personal spending in April, with only a marginal increase in May, suggesting that, just as in 2008, most tax rebates were saved rather than spent. In 2008, people expected the tax rebate to stimulate consumption through September, yet the personal spending increase in April, May, and June 2008 fizzled out by July.
Expect further significant reduction in consumer spending in the fall after the effects of the tax rebates fade since, according to Roubini, 2009 households are much more worried about jobs, income, credit cards, and mortgages than they are in personal consumption and spending. Roubini suggests that only approximately 20 cents on the dollar—rather than the 30 cents of 2008—is going to be spent in the fall of 2009.
By the end of 2010 and in 2011, large budgets and their monetization will eventually increase expected inflation, leading to a further increase in 10-year treasuries, long-term government bond yields, and mortgage and private-market rates. Combined with higher oil prices partly driven to increase by the treasuries, bonds, mortgage, and private market wall of liquidity, as opposed to fundamentals alone, this “could produce a double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011, so the outlook ahead for the US and global economy remains extremely weak.”
The unemployment rate is already over 10 percent in approximately 13 states—and steadily rising. The ISM Employment Index for manufacturing and non-manufacturing has been contracting at a slower pace in recent months. Manpower Survey shows most employers plan to hold head count steady in the third quarter of 2009 relative to the second quarter of 2009. Online job vacancies fell in June, but have shown some improvement since March. JOLTS: The job openings level in April was at its lowest point since the series began in 2001. The hiring and job openings rates were unchanged and remained low (see June 9, 2009).
Nobel Laureate Agrees - Economist Paul Krugman, 2008 Nobel laureate, comments: “Workers at any one company can help save their jobs by accepting lower wages and helping make the company more competitive. But when employers across the economy cut wages at the same time, the result is higher unemployment and lower wages in the economy. This will keep pressure on paying off debt and on consumer spending and the real economy.” (Roubini 7/2/2009)
Eighteen consecutive months of job losses and an economy on the verge of collapse have left record numbers of US consumers either unable to pay their debts or chronically late in payments during the first quarter of 2009. According to the American Bankers Association, home equity loan delinquencies rose to 3.52 percent, from 3.03 percent of all accounts in the last quarter of 2008. Late payments on home equity credit lines climbed a record 1.89 percent, and an index of eight types of loans rose to 3.23 percent from 3.22 percent for a fourth consecutive quarter. In a telephone interview with Bloomberg, the American Bankers Association’s chief economist, James Chessen says: “The number one driver of delinquencies is job losses, which we’ve seen build and build. Delinquencies won’t come down without a dramatic improvement in the economy, and businesses will have to start hiring again.” For the first quarter of 2009, the US economy lost an average of 691,000 jobs in each of the quarter’s three months. According to a Bloomberg survey of 61 economists, since the recession began in December 2007, more than 6.5 million jobs have been cut, and the US economy will shrink in 2009 the most since 1946. Outstanding debt on bank card delinquencies rose a record 6.60 percent in first quarter 2009, from 5.52 percent in the fourth quarter of 2008, indicating that unemployed borrowers are relying on bank cards, as housing prices corrode their home equity. The ABA stated that more borrowers are using cards to meet daily expenses following their job losses. US banks distributed 9.8 million credit cards from January through April 2009, a 38 percent decline from the same period a year earlier, with the average limit for a new bank card falling 3 percent to $4,594, according to data released by credit reporting agency Equifax. “There is less equity to draw on and certainly financial institutions have been scaling back the available lines of credit,” Chessen says. (Chadbourn 7/7/2009; American Bankers Association 7/7/2009)
The second quarter of any year is generally considered peak leasing season in the US, but reports show that during the second quarter of 2009, the apartment vacancy rate rose to a 22-year high because of rising unemployment that decreased apartment rental demand. Rents plunged fastest in markets such as New York and San Jose, California, where many white collar jobs have been lost. Additionally, markets such as Las Vegas and Orange County, California, that have transformed foreclosed homes and condominiums into rental property also suffered a decrease in vacancies. Nationally, vacancy levels rose from 6.1 percent in 2008 to 7.5 percent in the April to June 2009 period. Victor Calanog, Reis’s director of research, says: “Everyone expected spring leasing to save apartment landlords. That hasn’t happened.” Initially, the housing catastrophe offered property owners a chance to entice distressed homeowners into the leasing market, but job losses occurred at such a rapid pace that any increases that apartment leasing might have garnered from the housing crisis were destroyed. The rise in apartment vacancies began at the end of 2007, further quickening with the worsening of the economy in fall 2008. Meantime, rents have continued to fall at the swiftest pace in more than a decade and effective rents—concessions by landlords such as a month’s free rent—fell 1.1 percent in first quarter 2009 and 0.9 percent in the second quarter, and averaged $975 per month. At 5.8 percent, New York City marked the largest 12-month rent decrease with an average of $2,680 per month. Statistics are based on a survey by Reis Inc., a New York real estate research firm, which tracked 79 markets, of which 45 showed vacancy increases. (Timiraos 7/8/2009)
According to the US Labor Department, August jobless rates rise to record highs in California and Nevada; 27 other states see a rise in unemployment as well. Unemployment numbers climb to 12.2 percent in California and 13.2 percent in Nevada. With its unemployment rate rising to 15.2 percent in August, Michigan continues to lead all states, with Rhode Island rounding out the top four states with the highest unemployment since data collection began in 1976. Economists predict that the national unemployment rate will reach 10 percent in 2009, an indication that the recovery will not be led by consumers, although the job market is reportedly showing signs of stabilization, and economic growth may resume in the third quarter. States reporting at least 10 percent unemployment fell from 15 to 14 with Indiana’s rate dropping below the threshold. For a fourth consecutive month, joblessness in the District of Columbia exceeded 10 percent as well, rising from 10.6 percent to 11.1 percent. Nationally, unemployment climbed to a 26-year high, to 9.7 percent. According to Steven Cochrane, director of regional economics at Moody’s Economy.com: “There’s still a fair amount of weakness in some of the larger states. State finances are probably going to be among the last of all the various components of the broad economy to turn around.” Since the recession began in December 2007, the US economy has lost 6.9 million jobs. It is the largest national job loss since the Great Depression.
Jobless Benefits Claims - Ian Shepherdson of High Frequency Economics says first-time unemployment claims have to drop by 100,000 to about 432,000 to be steady with company payrolls. He expects a reasonable decline in first-time claims by next spring. Initial claims categorize those filing their first week of unemployment benefits, while continuing claims reflect those filing each week until the end of their 26-week benefit year. Jobless figures generally do not include those who have moved to state or federal extensions, nor do the figures include those whose benefits have ended. (Hornan 9/18/2009; Yousuf 9/24/2009)
Orders for durable goods in the US fall by a seasonally adjusted 2.4 percent in comparison with July, according to a report that will be released by the Commerce Department in late September. One reason is a 40 percent monthly decline in orders for civilian aircraft. Computer, electrical equipment, and transportation equipment orders all fall as well, with durable goods shipments slipping 1.4 percent for the month. In total, durable goods orders are down 25 percent from the same time last year. Except for transportation, orders for durable goods are flat in August. (Healy 9/25/2009)
McClatchy reports that economies in Latin America are beginning to improve following the global financial crisis. The signs of the recovery include a “booming” construction industry in Peru, strong property sales in Peru, and expanding software companies in Chile. However, McClatchy says that the recovery in Mexico and other Central American countries is lagging behind, due to the slow recovery in the US. Prior to the global financial crash, Latin America had experienced its best five years of prosperity since the 1950s. (Bridges 9/28/2009)
In their new report, “The State of Working America 2008-2009,” two economists at leading US think tank Economic Policy Institute (EPI) issue warnings that US workers will face harsh challenges as what they term “the Great Recession of 2007” draws to a close.
Unemployment - Heidi Shierholz and Lawrence Mishel, co-authors of the report, say that the extent of the huge global crash would have been much worse without President Obama’s American Recovery and Reinvestment Act of 2009. “The disaster would have been even worse without the stimulus law President Obama pushed through earlier this year,” Shierholz says. “Job losses would have been so high that the July unemployment figures would have been 9.6 percent or 9.7 percent, not 9.4 percent. We expect a steady climb in the unemployment rate up and over 10 percent by the end of the year. And it’ll rise slightly above 10 percent for a few months in 2010 before turning downwards. Until the economy is adding 122,000 jobs per month to take care of the people coming into the job market, unemployment will stay high. We still have a long way to go.”
Human Cost - Both economists speak of the human penalty. “This is more than a bunch of dry numbers,” Mishel declares. “One-third of the jobless—a record—have been out of work at least six months. Many have exhausted their unemployment benefits, which translate into bankruptcies, lost homes, no medical care, and more ills afflicting workers—even employed workers. This recession is much more than just the numbers of unemployed and underemployed, which is also setting a record,” he says. “Employed workers are seeing their hours cut, there’s an implosion in wage growth, and about 17 percent of large private employers have resorted to unpaid furloughs to save money.” Mishel explains that a one-week furlough is the equivalent of a 2 percent pay cut for a worker and his or her family.
Media Coverage Poor - In their report, the economists also criticize major media’s coverage of the crisis, urging workers not to fall for the usual chatter that things will automatically improve once productivity rises. “In the popular media, economic experts endlessly debate dynamics and causes of the downturn but most of these debates have very little to do with the real economic challenges facing working families today. The men and women of the workforce have worked harder and smarter to make the US a world-class economy and the mantra among economists and policy makers is that ‘as grows productivity, so shall living standards improve.’ Would that it was so.”
'YOYO Economics' - Prior to the crash, the report says, workers faced “rising inequality and lower real incomes for all but the richest 5 percent, diminished bargaining power, less health coverage, riskier pensions if any at all, income constraints that prevent workers’ kids from getting college educations to better themselves, and fewer high-paying jobs for those college grads, due to off-shoring and outsourcing.” The report nicknames it “YOYO (‘You’re on your own’) economics.” “We are in a unique position to judge the results of this experiment in reduced worker bargaining power and YOYO economics,” write the two economists. “The macro-economy is in serious disrepair and policymakers must move beyond temporary patches to fundamentally remake the economy so that it works for workers.”
Effect of Stimulus - The two offer praise for the Obama administration’s move to correct economic imbalances with the $787 billion stimulus package, the “cash for clunkers” program, initiatives to help the Detroit auto industry, and the $500 million “green jobs” initiative that have “partially staunched the bleeding.” Mishel predicts that, in conjunction with these programs, Congress will pass a second federal extension of unemployment benefits. They also argue that there should be fundamental restructuring away from “free market” policies that give corporations and financiers free sovereignty while the masses are forced to tighten their belts. (Wojcik 9/4/2009)
Research conducted by the Experian credit bureau and the international management consulting group Oliver Wyman reveals an alarming tendency: homeowners with excellent credit are more likely to “strategically default” on their homes than those who are financially strapped. Using an enormous sample of 24 million individual credit files, the study found that those with super prime credit scores are 50 percent more likely to “abruptly and intentionally” dump their mortgage. Researchers found that, with foreclosures, delinquencies, and loan losses at record levels, so-called “walkaways” are at or near the top of the most-discussed real estate finance topics. The Experian-Wyman study group identified specific patterns with strategic defaults. Among its findings:
Strategic default numbers are much higher than industry estimates. For example, 588,000 super-prime credit holders defaulted during 2008, double the number from 2007;
Warning signs, such as non-payment of other debts, are virtually non-existent;
Walkaways often go from perfect payment histories to no mortgage payments whatsoever, in severe contrast with most financially stressed borrowers, who attempt mortgage payments even when delinquent on other credit accounts;
Strategic defaults are located mostly in negative equity markets where home values skyrocketed during the boom before taking a huge dive after 2006. For example, last year in California, strategic defaults were 68 times higher than in 2005; in Florida, they were 46 times higher than in 2005. In most of the rest of the country, walkaways were nine times higher in 2008 than in 2005;
People with large mortgage balances are more likely to walk away. Those with the two highest VantageScore credit ratings (as created by Experian and the other national credit bureaus, Equifax and TransUnion) are far more likely to default than homeowners in lower score categories;
Walkaways seem to understand the consequences of their actions but may view it as a business decision, and the most practical solution under the circumstances.
Although the Experian-Wyman study does not explore the ethical and legal facets of strategic defaults, a major suggestion arising from it is that lenders and loan servicers take steps to spot walkaways in advance to avoid offering them loan modifications, since they will probably default on these as well. (Harney 9/20/2009)
After surveying 28,000 US companies on their future hiring plans, Manpower CEO Jeff Joerres reports that two-thirds of US employers will not change their staffing in the fourth quarter, thus dealing a blow to a consumer-led US economic recovery. Education and health services US employers are more positive about job prospects, while the remaining 11 employment sectors surveyed are more cautious in their plans to hire. The largest declines are in construction, leisure and hospitality, and professional and business services. The survey comes just a few days after the US jobless rate rose to a 26-year high in August to 9.7 percent, although job losses slowed. “Companies are still not going to be in hiring mode,” Joerres says. “They are in cautious mode.” According to Manpower’s international survey of 72,000 employers, previous quarter hiring expectations improved in 20 of 34 countries, although all 34 countries and territories report weaker hiring plans than a year ago. Employers in 15 countries and territories are cutting rather than adding jobs, but Asia and Europe are likely to be first to recover from the global recession. Job prospects in several Latin American countries improved. Prospects in most of Asia and Western Europe are stronger or more stable, although weaker in countries in Eastern Europe. As in the US, Mexico’s hiring plans are the weakest in the survey’s history, but optimism is higher in Canada, revealing better prospects in finance, construction, and real estate. The most optimistic employers in Asia are in India; future hiring looks improved in China, Hong Kong, and Singapore, while Japan’s fourth quarter employment view is flat. “Consumers in Asia and Europe had no need to curtail spending to the extent that Americans did,” says Joerres. “You look at major countries like the UK, Italy, France, Germany, Sweden, they’re all up. Their economies haven’t had the same hits. Other than Spain, you didn’t have a housing market as bad as this. Britain’s housing bust hurt the London area, but hiring plans are stronger in the Midlands.” Joerres cautions that because many economies still rely on exports, especially to the US, an Asian or European recovery could prove short-lived. “They can come out, but they can’t sustain the coming out until the US starts spending.” The US survey by Manpower, a global employment services company based in Milwaukee, is considered a leading indicator of labor trends. The company does business in 80 countries, generating most sales and earnings outside the United States, and conducts quarterly employer surveys. Its US survey dates back to 1962. (Zieminski 9/8/2009)
Moody’s Investors Service reports that write-offs for credit cards have risen from 10.52 percent to 11.49 percent, and the number of 30 and 60 day overdue credit balances has increased as well. Many economists say that throughout the recession delinquency rates for credit cards are likely to continue to steadily rise because of a continuously high rate of unemployment. Experts warn that joblessness will stay high for a long time, even after the recovery. Currently, the national unemployment rate is 9.7 percent, with predictions that it will exceed 10 percent before heading for a significant decrease. In the short term, with so many unemployed people behind on credit card payments, delinquencies are expected to remain high. (Storie 9/24/2009)
With unemployment rates for American Indians at 27 percent, African-Americans logging jobless rates of 15 percent, and Hispanics at 13 percent, experts say that for these ethnic groups, the economic recession is more of a “Great Depression.” The foreclosure crisis is equally ominous, having worsened with increasing joblessness, unduly impacting minority groups at a staggering rate. Dr. James Carr, chief operating officer of the National Community Reinvestment Coalition, explains: “The crisis is now fueled by unemployment and loss of income. In 2009, nearly 60 percent of foreclosures are triggered by unemployment.… The Obama administration’s endeavors to curtail foreclosures aren’t working.” He emphasizes that the loan modification program has “plenty of carrots” for the banks, “but no meaningful sticks to compel more responsible actions.” On average, lenders lose 10 times as much on foreclosures than loan modifications, or about $144,000 as opposed to a loan modification tax write-off of $14,000. Because they can, banks are choosing to deduct the greater loss on their current tax bill by foreclosing rather than modifying the loan. Consequently, only 12 percent of homeowners eligible for modification have received such through voluntary Making Home Affordable program set up by the Obama administration. According to Raymond Skinner, Maryland’s secretary of housing and community development: “Foreclosures are taking on a different face. As of the second quarter of 2009, the majority of the nation’s foreclosures are now on prime loans.”
Bankruptcy Law Reform, Homeowners Loan Corporation - What is needed, says Carr, is bankruptcy reform to allow judges to modify mortgages using the same methods they use to modify yacht and investment property payments; at least 30 percent of loans on the way to foreclosure could be helped by reformation of bankruptcy laws. Still, experts agree that even loan modifications won’t help many unemployed persons. Carr is calling for “a new version of the Great Depression-era Homeowners Loan Corporation” (HOLC) to allow the use of eminent domain to purchase loans between current market value and face value cost. The discount could then be used to modify the loans so that the unemployed homeowner could enter into rental agreements to stay in their homes, or even obtain emergency grants or loans to continue paying their mortgages. HOLC, however, is not under consideration by either Congress or the Obama administration.
Insufficient American Recovery and Reinvestment Act Resources - Some argue that the 2009 American Recovery and Reinvestment Act did not provide the resources needed by those hardest hit by the recession, which was supposedly the goal of the bill. As a result, there is now an immediate need for a targeted stimulus for job creation and unemployment benefits extension. “Channeling dollars to the individuals and communities that need them most will immediately stimulate the economy and save and create jobs for both the neediest households and the US population generally,” Carr says. “Families that live on the edge of survival will pour these recovery dollars immediately back into the economy through spending on groceries, medicine, clothing, childcare, energy, transportation, and other basic necessities. That spending would support multiple sectors of the economy and have positive impacts far outside of the communities where dollars are immediately spent.” Additionally, racial barriers and continuing discrimination need to be addressed to guarantee access to affordable housing alternative, transportation, education, and economic opportunity. (Kaufmann 9/25/2009; NPR 9/28/2009)
Following the furloughs of nearly 8,000 workers in May, Puerto Rico announces that it will lay off an additional 16,970 public workers to prevent a government shutdown as well as to prevent damage to the island’s credit. Government officials are hoping that the layoffs will assist in allaying a $32 billion deficit. Cuts in contract spending, a freeze on hiring, and temporary taxes have already been implemented. The island is in the third year of a recession and the unemployment rate is at 15 percent. Says Carlos Garcia, president of the Government Development Bank of Puerto Rico, “Today is an extremely difficult day for all Puerto Ricans.” Garcia adds that, as a result of the layoffs, the island’s unemployment rate will rise to 17 percent, higher than any US state. Some of the workers will be contracted by the US Treasury to assist in collecting outstanding debts of over $3.6 billion owed by residents, private companies, and other entities. Others will be hired for jobs in education. Most workers will be laid off on or around November 6. According to Garcia, the move could save the island $386 million. “The layoffs are unavoidable,” Governor Luis Fortuno tells Puerto Ricans in a recorded news media event. “Not doing anything would have been devastating to our economy, your pocketbook, your family, and our society,” he says. “It would have meant more increases, more taxes, and another government shutdown.” Organized labor leaders have announced an October 15 protest to be held all over the island. (Huliq News 9/25/2009; Sanchez 9/26/2009)
The Group of 20 (G20)‘s pledge to return balance to the world economy may place the US dollar in a precarious position in the long run, experts feel. Over recent weeks, the dollar has fallen 4.3 percent this quarter because of equity market weakness as well as emerging major currencies as other countries begin their recovery from the worst economic downturn since the 1930s. Some G20 meeting attendees see the dollar as susceptible to damage while questioning its stability as well as its status as the global reserve currency, although the recent weakness of the dollar is not being blamed on the weakness of the US economy. Analysts say that short-term effects to the G20 meeting of other wealthy, developing economies will be subdued; however, they say that over a longer period, bank stocks and energy prices as well as the dollar may be harmed by G20 economic balancing actions. World leaders have expressed concern that the US economy’s recovery cannot be sustained because its rebound is due to government stimulus and increased borrowing. During the meeting in Pittsburgh, the leaders agree that to balance the global economy, the US needs to save more while the massive exporter China needs to consume more to support its growth. David Gilmore, partner at FX Analytics in Essex, Connecticut, explains, “The real problem is the world needs a huge consumer and the US has been basically doing it for decades, and now it’s spent.”
US Dollar as Reserve Currency - Robert Zoellick, president of the World Bank, says the US should not take the dollar’s status as the key global reserve currency for granted now that other options are emerging. Zoellick says that shifting global economic forces reveal that it is time to prepare for growth to come from multiple global sources. Although the world’s largest economies also agree to phase out subsidies on oil and other fossil fuels over the “medium term” to combat global warming, they acknowledge that the phase-out probably will not affect energy markets in the short term. In the long term, they say, the move could weigh on energy markets, cutting fuel demand in emerging markets. As for emergency economic support, G20 leaders promise to continue support until recovery is “at hand,” thus providing some relief for foreign currencies.
Economic Rebalancing Equals Shift from Dollar as Reserve Currency? - Global economic balancing is a two-edged sword for the dollar because the currency has been damaged by extremely low interest rates and the glut of dollars in the international monetary system. But the recession already has triggered partial rebalancing as US consumers cut spending while China spends $600 billion to stimulate its economy while making itself less dependent on exports. Analysts quickly note that minus tangible steps, the pledge only serves as lip service. The analysts also say it is improbable that countries would bend to G20 rules on how to run their economies. Nonetheless, the plan would be a clear shift, signaling a move away from the dollar. Currency strategist Kevin Chau of New York’s IDEAglobal says: “In the long run, I think they want another reserve currency, whether it’s the Special Drawing Rights or the Chinese yuan. For any country’s currency to gain that kind of credibility and trust, it would take years of development.” Still, last week, the dollar fell to a new low against the euro and even dropped below the key 90 yen-per-dollar level. (Reuters 9/27/2009)
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