American Slides Deeper into Depression

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U6 unemployment rate now at 17.3%

December 2009 was the worst month for employment since the economic crisis hit. The labor force contracted by 661,000 mostly due to people exhausting unemployment benefits.

One million families lost their home in the forth quarter of 2009.

The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.

Complete story from the ever colorful Ambrose Evans-Pitchard in the Telegraph.

Light Weight Vehicle Sales Are Below Last Years Level Despite Cash for Clunkers

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Despite the temporary sales blip caused by the 3 billion dollar Cash for Clunkers program, also known as the Car Allowance Rebate System C.A.R.S. Light weight vehicle sales (cars and small trucks) sold at an annual rate of 10.93 million units as of November 2009.




Light weight vehicle sales are part of Economic Indicators (By the Numbers) followed by the Federal Reserve Bank of New York.

Recovery? - U3 Unemployment at 10.0%, U6 Unemployment at 17.2% for November 2009

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The U3 unemployment rate finally fell to 10.0% for November 2009, down .2% from October 2009. U6 unemployment fell to a still astronomical 17.2% for November 2009, down from 17.5% in October 2009. There are quite a few fudge factors involved when calculating the U3 unemployment rate to make it more politically palatable.

For the complete Bureau of Labor Statistics monthly unemployment report click here.

This video provides a great explanation of the calculation (fudging) of official U3 unemployment rate. Note how the former airline pilot who works four hours per week at Home Depot is considered employed when calculating U3.




This is supposed to be a recovery? This is the 23 consecutive month of job losses. 17.2% is more than one out of every six American workers not earning an income that is normal for them. This is a depression era number! 17.2% equals or exceeds the unemployment rate in 1936, 1937, 1939 and 1940.

Year --- Unemployment (% labor force)

1933 --- 24.9
1934 --- 21.7
1935 --- 20.1
1936 --- 16.9
1937 --- 14.3
1938 --- 19.0
1939 --- 17.2
1940 --- 14.6
1941 --- 9.9
1942 --- 4.7
1943 --- 1.9
1944 --- 1.2
1945 --- 1.9

source: Historical Statistics US (1976) series D-86

Dubai to Default on $60 Billion - $120 Billion Debt - Or - Will Abu Dhabi Provide Them a Bailout?

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World financial markets hold their collective breath as conflicting news reports on the how the extraordinary high debt levels racked up by Dubai the freewheeling junior partner to Abu Dhabi will fare after Dubai World asked for a standstill agreement from its creditors while the American financial markets were closed for Thanksgiving.

TimesOnline - The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars.

Bloomberg - Traders bet on Abu Dhabi Rescue.


New York Times - U.A.E. Pledge Calms Markets but Dubai Fears Remain.

Financial Times - Dubai rejects guarantee for Dubai World

The government of Dubai on Monday said it would not guarantee the debt of Dubai World as it sought to clarify comments made last week by the state-owned entity that sent shockwaves through global markets.

Mish - was on top of the situation November 26 with:

Dubai Defaults - Deflation in Action - Watched Pot Theory Revisited


This is a very interesting dichotomy. The British financial MSM are reporting a negative outcome while the American financial MSM remain positive. I am betting the Brit's are correct. The British and European banks are much more exposed to the Dubai debt than their American counterparts.

Will there be two sets of rules in Dubai like in the United States, where the financial elites who caused what world financial meltdown that began in 2007 receive billions in bonuses Goldman Sachs $23 Billion Bonus Pool a little over a year after they were placed on Government Life Support by becoming a bank holding company. While record breaking foreclosures and unemployment for non-elite American citizen are downplayed and ineffectively handled by the Obama Administration.

In essence Socialism for the Rich - Capitalism for Everyone Else.

This is a critical issue for the population of Dubai, because Dubai imprisons people who can't pay their debts.

DUBAI, United Arab Emirates -- Hussein Ali Mubarak sits in prison, surrounded by murderers and burglars. His crime: defaulting on his bank loans.

More than 1,200 people in Dubai's central jail -- about 40 percent of the prison population -- have been convicted of not repaying money borrowed from banks so they could get married, buy a car or house, or invest in the stock market. Complete Article

Apparently the population of Dubai gave a heads up on the situation in February of 2009.

New York Times Laid-Off Foreigners Flee as Dubai Spirals Down

With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The Fed and the Coming Redefinition of Government Regulation - Too Big to Fail - Too Big to Exist

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James B. Bullard President of the Federal Reserve Bank of St. Louis presentation at the Business Today International Conference - Weathering the Storm: The Challenges and Opportunities of a Global Slowdown


Key Problem: Too Big to Fail

• The crisis showed that large financial institutions worldwide were "too big to fail." (TBTF)
• If we let large financial firms fail suddenly, global panic ensues.
• Reform efforts must focus on getting this intolerable situation under control.
  

The Rise of the Shadow Banking Sector

• Large, global non-bank financial institutions took on bank-like activities and a large fraction of all financial intermediation in the U.S.
• Some institutions borrowed short - on collateral - to fund longer term investments.
• The crisis showed that runs on non-bank, non-deposit-taking financial institutions are possible as well as very destructive.
• This was not previously considered a problem.

CGW here - please consider our previous report Electronic Run On Banks - $550 Billion Withdrawn In 1 Hour, Federal Reserve Halts Withdrawls - US Economy Would Have Collapsed that was published Febuary 8, 2009.


Smaller Banks are Not the Problem

• Smaller banks did not cause the problem and do not need to be re-regulated.

The Fed and the Coming Redefinition of Government Regulation -

Q: What is the difference between Iceland and Ireland?

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A: One letter and one year.

How Geitner and Bernanke Really Determine Who to Bailout or Why Rescue AIG but let Lehman Fail?

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Are you confused how Treasury Secretary Timothy Geithner and Federal Reserve Chairman Dr. Ben Bernanke determine which firms get bailed out and which firms are allowed to fail? Why was Lehman Brothers allowed to fall into bankruptcy, yet AIG was bailed out with over $180 billion in U.S. Taxpayer's money? Rest assured your federal officials are not reacting randomly or by the seat of their pants, they have a formalized methodology for making these critical decisions.



For more fun see - The TARP Song, Doctors' opinions of the bailout and Bailout the Game.

The Tent City in Sacramento the Capital of Hard Hit California Now has 1200 Residents

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The tent city that has sprung up along the banks of the American river in Sacremento California now has 1200 residents. California had a headline unemployment rate (U3) of 10.1% in February 2009. Information on the much higher real rate of unemployment (U6) can be found here.

California has been hit harder during the economic crisis as this graph shows.

The Daily Mail reports in Pictured: The credit crunch tent city which has returned to haunt America.

A century and a half ago it was at the centre of the Californian gold rush, with hopeful prospectors pitching their tents along the banks of the American River.

Today, tents are once again springing up in the city of Sacramento. But this time it is for people with no hope and no prospects.

With America's economy in freefall and its housing market in crisis, California's state capital has become home to a tented city for the dispossessed.

Additional photos of the crisis can be found at KNX1070.com.

Dow Below 7000 - AIG Has Largest Quarterly Loss in History, $61.7 Billion - Freddie Mac's CEO Resigns After 6 Months on the Job

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To top it all off it is snowing! Man do I hate Mondays.

From Bloomberg.

Stocks fell worldwide, sending the Dow Jones Industrial Average below 7,000 for the first time since 1997, and Treasuries rose after Warren Buffett said the economy is in “shambles” and American International Group Inc. reported a $61.7 billion loss.


From the BBC, hence the £43bn.

Insurance giant AIG has reported a loss of $61.7bn (£43bn) in the final three months of 2008 - the largest quarterly loss in corporate history.

And the firm will receive an extra $30bn from the US government as part of a revamped rescue package.


From CNN.

Freddie Mac's chief executive, installed last year after the government took over the troubled mortgage finance company, is resigning, the company and its regulator said Monday.

California Unemployment Surging Ahead of the Nation Now at 10.1% (U3) - a Wide Disparity Over the U.S. East Coast

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CapitalismGoneWild.com has developed this chart using data obtained from the databases of the Federal Reserve Bank of St. Louis to graphically illustrate the widening chasm in unemployment between California and the East Coast. The headline unemployment rate U3 from the Federal Reserve District of San Francisco (Red) is significantly higher than unemployment from the Federal Reserve District of New York (Blue) and the Federal Reserve District of Boston (Green). The graph uses data from June 1, 2007 and ends December 1, 2008,(3 months ago). According to this article from the Los Angeles Times unemployment (U3) reached a whopping 10.1% in California in January 2009, a full 2% higher!

Apparently the Govenator has his hands full.

For information on how headline unemployment (U3) vastly understates real unemployment (U6) click here.




Click on the graph above for a larger image.

Layoffs (The Comedy)

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Citigroup Shares Collapse

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Citigroup shares (C) collapsed in premarket trading today and are down over 40%, on news that the U.S. government will not be injecting additional money into the firm but will be converting $25 billion dollars of preferred shares into common stock.

“This gradual step-by-step process doesn’t work, or has not worked so far,” said Marino Valensise, chief investment officer of London-based Baring Asset Management Ltd., who helps oversee about $30 billion for clients.

Citigroup Chief Executive Officer Vikram Pandit is trying to bolster confidence after his bank’s stock sank to $1.95 last week -- the lowest price in 18 years. The government is supporting the company, which had 200 million customer accounts in more than 100 countries at the end of last year, because of concern its failure might roil already weak global markets.

From Bloomberg.

January 2009 Exports for Japan, Taiwan, Korea, and China are Cliff Diving

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So much for decoupling. Year over year January export figures:

Japan - down 46%
Taiwan - down 44%
Korea - down 33%
China - down 18%

Update: Jon Anderson of UBS argues that China’s electronics exports have collapsed in line with the exports of the rest of Asia. However, China’s low-tech exports — shoes, textiles, toys, furniture — have held up well. To put it just a bit differently, he argues that a lot of the press coverage about the fall in China’s low-end exports and the resulting fall in employment has the story wrong. China’s low-end, labor-intensive exports are doing (relatively) well compared to China’s electronics assembly business. He also argues that the fall in investment in Chinese real estate and related materials has added to the woes of other Asian exporters

From Brad Setser at the Council on Foreign Relations.

Humor - Deficit Financing (You need to laugh with all that is going on with: Citibank, Bank of America, HSBC, Natwest, Lloyds, Barclays and UBP)

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Very funny! - from Accross the Street.



Get happy with the TARP song and Doctor's opinions of the bailout.

From Reuters - Bank Nationalization

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Professor Matthew Richardson of NYU's Stern School of Business explains how it would work and what would happen.

Also, Nationalization for Citigroup and Bank of America?



The Obama administration has stated that it "continues to strongly believe that a privately held banking system is the correct way to go." according to the WSJ. Why is the Obama administration so reluctant to nationalize the zombie banks? A remark from the 2/9/09 Base Line Scenario nails it right on the head:

The forthcoming (due this week) attempt to deal with banking system problems in the US will be insufficiently forceful. The structure of executive compensation caps introduced last week suggests the Obama Administration currently is unwilling to take on the large banks politically. The degree of recapitalization will be too small and the measures will help existing management stay in place. Large banks will remain “too big to fail” and shareholders will still be unable to constrain executive compensation.
Zeroing in further on the crux of the problem: High Noon: Geithner vs. The American Oligarchs.

We have a powerful banking industry that has mismanaged its way into deep trouble. Yet these banks obtained an initial bailout - the Troubled Asset Relief Program, or TARP - on generous terms, and have consistently failed to use the opportunity provided by this government support to turn their operations around. Not only that, but they have flaunted their power - and their arrogance - through paying themselves large and largely inappropriate bonuses.