2008: An Extraordinarily Long Year

2008 is rapidly winding down. If it seems like it's been a long year, it's because it has been.

Tick tock ... tick: Extra second added to 2008

Those eager to put 2008 behind them will have to hold their good-byes for just a moment this New Year's Eve.

The world's official timekeepers have added a "leap second" to the last day of the year on Wednesday, to help match clocks to the Earth's slowing spin on its axis, which takes place at ever-changing rates affected by tides and other factors.

The U.S. Naval Observatory, keeper of the Pentagon's master clock, said it would add the extra second on Wednesday in coordination with the world's atomic clocks at 23 hours, 59 minutes and 59 seconds Coordinated Universal Time, or UTC.

That corresponds to 6:59:59 p.m. EST (23:59:59 GMT), when an extra second will tick by -- the 24th to be added to UTC since 1972, when the practice began.

The first leap second was introduced into UTC on June 30, 1972. The last was added on December 31, 2005.

Five Themes For 2009

Please take more than an extra second to ponder Five Themes You Need to Know for 2009.

Before we get to 2009, first, think back to a year ago. Deflation was barely on the radar of mainstream economists and financial media. Most viewed it as an impossibility, focusing instead on what was supposed to be the resurrection of the commodities bull market.

Even today, while paying deflation minor lip service here and there, the vast majority of economists and financial media are ill-prepared for just how severe this ongoing deflationary credit contraction and debt unwind is going to be.

Consequently, if there is one theme that stands above all else in 2009, it will be this: The despair that unfolds as the point of recognition emphasizes the "de-" in deflation. The fat is in the fire.

....

2. Putting the "De-" In Deflation

As declining risk appetites manifest in nearly everything in 2009, from our collective views on financial risk to our tastes in culture, music, film and fashion, we will see a focus on declines, destruction and devaluation. Perhaps nowhere will this be more obvious than in the disintegration of large-scale social networks into smaller, more focused and intimate groups.

While peak social mood helped propel the movement toward increasingly open social networking platforms and large scale interactions, the rush to disassociate from the crowd will inevitably manifest as a reduction in broad network exposure and a preference for close-knit, tighter communities. Beneficiaries of this movement will be families, small groups and, to an extent, neighborhoods.

...

5. Markets: Gold Declines, Dollar Rises, Interest Rates Hover at Unimaginable Lows

I recently covered in the article, "Bear Markets Ain't Over 'Til They're Over," the reasons why I believe probabilities favor dramatic new stock market lows in 2009, but what about the other asset classes, gold, currencies and bonds?

It is no secret that in a deflationary debt unwind all asset classes suffer absolute declines. In a relative sense some asset classes may fare better than others, but the problem remains that you can't spend negative relative outperformance.

As for commodities and precious metals, look for 2009 to begin optimistically with commodities retracing some of their disastrous declines this year. Gold is also in the late stages of another attempt at cracking the $1,000 level. Unfortunately, the purpose of deflationary debt unwinds is to crush the spirits (and speculative juices) of all who attempt to participate in financial markets. The point of recognition for this deflationary debt unwind will culminate in another wave of intense selling pressure as the last speculators standing give up.

There has been no shortage of top callers in the bond market of late. From a technical standpoint bonds certainly begin the year with the rubber band stretched painfully to the upside. But do not underestimate the power of deflationary forces to keep a floor under bond prices as interest rates hover at lows that, as recently as a year ago, seemed unimaginable.

So there you have it. Only 366 days until 2010. That's the good news. When all is said and done, perhaps the best thing that will be said of 2009 is that it only lasted a year.

Kevin Depew is always a great read. I encourage you to read the above article in entirety. There's three more points well worth reading. You may even wish to consider bookmarking him. I have.

However, I would be remiss if I did not point out the following: 2009 will be one day and an additional second shorter than 2008. We can all be thankful for that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

CS-CPI Negative 3.1% Year over Year in November

"Owners' Equivalent Rent" (OER) is the largest component in the government measure of the Consumer Price Index (CPI). OER is a process in which the BEA estimates what it would cost if owners were to rent the homes they own from themselves. I do not believe this to be a valid pricing baramoter.

By ignoring housing prices, CPI massively understated inflation for years. The CPI is massively overstating inflation now.

The following chart (courtesy of my friend "TC") shows what happens If one substitutes the Case-Shiller housing index for Owners' Equivalent Rent in the CPI.

Case-Shiller-CPI (CS-CPI)

click on chart for sharper image.

In spite of massive cuts in the Fed Funds Rate to zero, real interest rates are still positive by 3.1%!

Data for the above chart is from two sources.

• Case Shiller December 2008 Release
  
• BLS Consumer Price Index Report for November 2008.

CPI for All Urban Consumers (CPI-U)



click on chart for sharper image

On a seasonally adjusted basis, the CPI-U decreased 1.7 percent in November, the second consecutive record decrease. For the 12 month period ending in November the CPI was up 1.1 percent, compared to 5.6 percent for the twelve months ending July of this year.

Notice the numbers in the red box. The BLS is reporting housing dropped .1 percent month over month but rose 2.7% year over year. In contrast the Case-Shiller 20 city composite is down 18% year over year.

Those watching the CS-CPI have not been shocked by the dramatic plunge in long term interest rates. Those watching CPI-U were screaming "bond bubble" and shorting treasuries at 5%.

10-year treasuries are now close to 2% and most missed the biggest bond rally in history.

In normal times with rents in sync with home prices, it did not matter much if one used OER or actual home prices. It's a remarkably different story now. We have just seen the biggest housing bubble in the history of the world. At the peak of insanity, home prices were 3 standard deviations above rental prices and 3 standard deviation above wage growth.

Now, the important factor is that home prices are crashing, with quite a big drop still needed to get back to historic norms. With that in mind, housing can be expected to be weak for quite some times.

The treasury market seems to have figured all this out quite nicely. Those screaming "treasury bubble" clearly have not.

In summer of 2005 the above chart shows the CPI at just over 4% with the Fed Funds Rate just under 4%. CS-CPI, a better measure of the CPI, was near a whopping 8%. Thus real interest rates were stunningly low starting in 2003. The Fed kept interest rates too low for two years. This clearly contributed to the housing bubble.

The Situation reversed in Autumn of 2006 with the Fed Funds rate at 5.25% and CS-CPI under 1%. This helped pop the bubble (a good thing) but it would have been better to not have the bubble in the first place.

Notes From "TC"

1. The "relative importance" or weight of OER has changed over time - it was 19.10 in 1987 and is now 23.942. I've included the yearly weight within the data.

2. The Case-Shiller 20 city composites represent sales that are a couple months old while the CPI reflects the previous month.

3. I've modified the CS-CPI to reflect the 20 city Case-Shiller index vs. the National Case Shiller index used in last month's chart. The quarterly national index lags by far too much.

4. For Nov 2008 the CS-CPI was a whopping negative 3.1% YOY as compared to a positive 1.7% for CPI-U.

5. The divergence between the two CPIs is increasing as the Government OER data continues to move higher. In fact since the housing market's peak in July 2006 the 20 city Case-Shiller index has declined over 24% while the Government's OER has increased nearly 7%. Deflation is clearly here, and the treasury market is responding to it. You just have to know where to look.

Do home prices belong in the basket?

I have had many people over past year tell me they do not care about home prices because they rent, or tell me that do not care about home prices because they own their home outright, or tell me they do not care about home prices because their house is a long term investment.

People may not care (or more realistically they may think they do not care), but the treasury market sure cares about something, and the most likely something is the destruction of wealth in housing along with the ramifications the housing market has on bank credit, corporate earnings, consumer attitudes, etc.

It's true that a person does not buy a home every week but that same person does buy food and gasoline every week. However, that does not make the price decline any less real. More importantly, it is naive to think treasuries should ignore the ongoing destruction of wealth in housing and the bank writeoffs that bust is causing.

Let's look at this from a practical standpoint. What's more important, home prices dropping $50,000 to $250,000 in value over the course of a few years or the price of gasoline going from $2.00 a gallon to $4.00 a gallon over the course of those same few years?

From a macro-economic standpoint, the correct answer to the above question is housing even though consumers were constantly griping about gasoline prices until the recent selloff. The easily seen is gasoline price hikes because people buy it every week. Practically speaking, the destruction of housing wealth matters far more. Here is the question to ask: How many tanks of gas will it take to equal the loss of $50,000 on a house?

On this basis, the so-called "irrational behavior" of the long bond specifically, and the entire treasury curve in general, does not seem so irrational.

Is there Justification For This Methodology?

For the record, I do not think it is possible to easily define and measure the prices of a representative basket of goods and services. However, CS-CPI makes more sense than the widely used CPI basket. It at least explains the so-called "irrational bond market" and also "Greenspan's Conundrum". I argue the treasury market could see the deflationary credit bust coming that Greenspan helped create.

Thus while one can dismiss the theory, I counter that it explains what happened in practice, and that is what matters. From a practical standpoint alone, housing is a consumption item requiring continual maintenance, not a bond one can hold to maturity and forget about. Also from a practical standpoint, CS-CPI properly accounts for home ownership instead of attempting to figure out how much rent one would pay renting a house from oneself.

Finally, the CS-CPI clearly show that the Fed overshot in both directions by misinterpreting or just plain ignoring the data that it had. This is further proof that it is time to abolish the Fed and let the market set rates.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Case Shiller and CAR Analysis December 2008 Release

California Association of Realtors C.A.R. Data

The following chart is from my friend "TC" who has been monitoring California Association of Realtors (C.A.R.) and DQNews data. C.A.R. data contains resale single family residences and new homes. DQNews data contains resale single family residences and new homes.



Median nominal prices in CA are now down 52% according to CAR and 46% according to DQNews - and those declines are in 18-19 months!

Case-Shiller is a more accurate way of looking at home prices than median prices. Case-Shiller data follows.

Case Shiller December Release

Inquiring minds are considering the Case Shiller Home Price Release for December 2008.

New York, December 30, 2008 – Data through October 2008, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 14 of the 20 metro areas showing record rates of annual decline and 14 now reporting declines in excess of 10% versus October 2007.

The chart below depicts the annual returns of the 10-City Composite and the 20-City Composite Home Price Indices. Following the lead of the 14 metro areas described above, the 10-City and 20-City Composites set new records, with annual declines of 19.1% and 18.0%, respectively.

“The bear market continues; home prices are back to their March, 2004 levels.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Both composite indices and 14 of the 20 metro areas are reporting new record rates of decline.

As of October 2008, the 10-City Composite is down 25.0% from its mid-2006 peak, and the 20-City Composite is down 23.4%. In October, we also saw three new markets enter the ‘double-digit’ club. Atlanta, Seattle and Portland are reporting annual rates of decline of 10.5%, 10.2% and 10.1%, respectively.

click on chart for sharper image

Case-Shiller Declines Since Peak

The following charts were produced by my friend "TC" who has been monitoring Case-Shiller Data. Although individual cities topped at varying times, the top-10 and top-20 city composites peaked in a June-July 2006 timeframe.

Case-Shiller Declines Since Peak Current Data



click on chart for sharper image

Case-Shiller Declines Since Peak Futures Data



click on chart for sharper image

"TC" writes:

With regards to today's release of the Case-Shiller index it's more of the same. Prices continue to head south as all 20 metros tracked by CS moved lower in Oct 2008.

Prices have now declined by 10% or for all but 3 metros and only Charlotte and Dallas have escaped any meaningful decline. Lastly, the futures continue to indicate a Fall 2010/Spring 2011 rebound; although this needs to be viewed skeptically as the volume is razor thin.

Thanks "TC"

With unemployment poised to rise in 2009 it is extremely unlikely that housing bottoms anytime soon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

200,000 Retail Store Closings Coming in 2009

This Christmas season was the worst ever for many retailers. And with too many stores and too few customers, expect to see A Rash of Retailer Closings in 2009.

The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down. And analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.

"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. "The downturn has been catastrophic."

The retail casualties, which were first among home furnishing stores and then many apparel stores over the past year or so, are expected to cut across all sectors as shoppers have slashed their spending on non-essentials, from TVs to jewelry.

About 160,000 stores will have closed this year and 200,000 more could close next year, said Burt P. Flickinger III, managing director of consulting firm Strategic Resource Group. That would be the industry's biggest contraction in 35 years. Flickinger expects 2,000 to 3,000 malls to close in March and April.

AlixPartners, a turnaround consulting firm, predicts that 25.8 percent of 182 major retailers it tracks are facing major financial distress or will face a significant risk of filing for bankruptcy next year or in 2010 -- the highest level in the 10 years that the firm has been compiling the figures. That compares with the 4 percent to 7 percent that it predicted would face financial woes in the previous two years.

Wave of Bankruptcies and Closures Coming

International Council of Shopping Centers comes up with a different set of numbers numbers as reported by Bloomberg in Holiday Sales Drop to Force Bankruptcies, Closings.

U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”

Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.

The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira.

Retailers’ pricing models are being challenged by consumers, according to Richard Hastings, consumer strategist at Global Hunter Securities LLC of Newport Beach, California.

“The whole pricing system is becoming an old-fashioned bazaar,” Hastings said today in a telephone interview. “They’re going into the stores and they’re looking at the stuff and they’re saying ‘You know what? I know that that price is way too high,’ and they have figured out that the signage doesn’t mean that much.”

List of Retail Store Closings

Terri Potratz has a List of Retail Store Closings in US. Most will recognize the names on the list.

Evidence is now irrefutable that the Shopping Center Economic Model Is History.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Economic Potpourri December 30, 2008

The barrage of noteworthy economic news continues as we head into the new year. Here are a few headline news reports of interest from the past couple days.

Japan mulls scheme to buy bad loans

Japan's government and central bank are considering a $110 billion scheme to buy bad loans and other financial assets from banks to ease a credit crunch gripping the country's businesses, daily Sankei Shimbun said on Tuesday.

Such a scheme would come on top of Tokyo's efforts to keep the world's second-largest economy from sliding deeper into recession as the global credit crisis hurts exports and corporate funding conditions tighten.

The government has announced extra spending plans and its biggest ever budget for the next fiscal year, while the central bank cut interest rates to near zero and offered to temporarily buy commercial paper outright earlier this month, echoing some of the emergency steps taken by the U.S. Federal Reserve.

Venezuela to seize gold concessions as oil falls

Venezuela will seize several gold mining concessions that previous governments granted private operators, in a bid to supplement falling oil prices with proceeds from state-controlled gold, President Hugo Chavez said Saturday.

Chavez named no specific contracts or companies to be affected, but his mining minister has vowed to next year take over the nation's largest mine, Las Cristinas, which is operated by Canadian mining company Crystallex International Corp.

"We are taking back some concessions that former governments have given, and whose permits are still held by some rich people," in order to reduce public reliance on oil, Chavez said.

Chavez acknowledges that oil prices — down 70 percent since topping $147 a barrel in July — will affect Venezuela, but he insists the wealthy will suffer more than the country's poor, who benefit from social spending programs that he vows to continue.

"Social investment will not be halted," Chavez said Friday. "This, for us, is sacred."

Saks, Macy’s Discounts Spark Vendor Spat After Holiday Slump

Clothing makers, balking at the deep holiday discounts offered by retailers such as Macy’s Inc., may force department stores to eat more of the markdowns.

Liz Claiborne Inc., HMS Productions Inc. and a raft of apparel companies plan to push back at the retailers who have slashed some prices by 70 percent amid what’s shaping up as the worst holiday shopping season in four decades.

Apparel manufacturers and department stores will meet before the retail fiscal year ends on Jan. 31 to determine how to split discount costs. Vendors, as is customary, pledged six to nine months ago to compensate retailers for price cuts needed to sell their goods with so-called markdown dollars.

Department-store owners typically set discounts with input from their suppliers and in previous years have had leverage in passing on markdown costs. This time, the retailers may be willing to shoulder more of the burden to help keep vendors solvent, said Michael Appel, a managing director at Quest Turnaround Advisors LLC, a Purchase, New York-based firm that provides crisis management services to retailers.

Department stores have gone beyond “what the markdown rate ought to be,” Liz Claiborne Chief Executive Officer Bill McComb said on a Nov. 11 conference call. “There’s no way that every vendor is going to be paying 100 percent of their liabilities here.”

Markdowns are the new reality. If vendors won't eat the markdowns stores will order less, if at all.

Toyota May Modify Just-in-Time to Ease Supplier Shock

Toyota Motor Corp. and Honda Motor Co., Japan’s two largest carmakers, may modify their so-called “just-in-time” manufacturing system to avoid possible supplier bankruptcies disrupting production.

“We continue contingency planning” even after the bailout, Mike Goss, a spokesman for Toyota’s North American manufacturing unit in Erlanger, Kentucky, said by e-mail. “We hope the loans provided to Detroit will also help to stabilize suppliers, but the very slow market remains a concern for all.”

Ford Hopes Self-Parking Vehicles Boost Curb Appeal

Ford Motor Co. plans to offer two Lincoln models next year that can park themselves, the latest move in a strategy aimed at improving the public's image of the auto maker.

The automatic parallel-parking system will be shown next month at the North American International Auto Show in Detroit, and will be offered as an option on the Lincoln MKS sedan and MKT crossover-utility vehicle.

Similar technology is already available from Toyota Motor Corp.'s Lexus division, but Ford's push reflects a wider effort championed by Chief Executive Alan Mulally to cast the company in a more favorable light. At the Detroit show, Ford also will show a hybrid version of the Ford Fusion sedan rated at 41 miles a gallon in city driving -- eight more than Toyota's Camry hybrid.

Ford's system requires less driver input and reduces the risk of selecting a too-small spot, said Ali Jammoul, Ford's chief engineer for steering systems.

Hospitals ill from more bad debt, credit troubles

Gainesville's first community hospital has been on life support since the Shands Healthcare system in northern Florida bought it a dozen years ago.

Like many U.S. hospitals, Shands is being squeezed by tight credit, higher borrowing costs, investment losses and a jump in patients -- many recently unemployed or otherwise underinsured -- not paying their bills.

All that has begun to trigger more hospital closings -- from impoverished Newark, N.J., to wealthy Beverly Hills, Calif. -- as well as layoffs, other cost-cutting and scrapping or delaying building projects. More closings and mergers are on the way, industry consultants predict.

"They'll get swallowed up by somebody else, if they need to exist, and if they don't, they'll just close," said Tuck Crocker, vice president of the health care practice at management consultant BearingPoint.

Most endangered are rural hospitals and urban ones in areas with excess hospital beds and a lot of poor, uninsured patients.

Some U.S. Meat Plants Lose Right to Export to Mexico

About 30 U.S. slaughterhouses were refused certification to export meat to Mexico, the U.S. Department of Agriculture said, without giving a reason.

Some of the plants are owned by Tyson Foods Inc., the largest U.S.-based meat producer, and process poultry, pork and beef, a report on the USDA Web site showed. Facilities owned by Smithfield Foods Inc. were also included on the list of plants that can’t ship some meats to Mexico.

The move will probably hurt U.S. export sales, reducing demand for hogs, cattle and poultry and causing prices to fall, said Chris Lehner, the brokerage division manager at CommStock Investments in Royal, Iowa.

“Mexico is one of our better export destinations,” Lehner said. “It’s going to hurt at a time when financial problems are hurting the beef or pork industries.”

U.S. authorities pulled the certification of the plants as part of an accord with Mexico, said Marco Antonio Sifuentes, a spokesman for the Latin American country’s Agriculture Ministry. Any plant that fails on three consecutive occasions to meet sanitary and quality standards automatically loses its right to export, he said by telephone from Mexico City.

“This is a common practice,” Sifuentes said. The plants may be certified for export in the future, he said. Some Mexican plants were barred from exporting to the U.S. following a similar review about three months ago, he said.

This looks like a clear case of Tit for Tat Protectionism

Family finds $10,000 cash in a box of crackers

The box of Annie's Sour Cream and Onion Cheddar Bunny crackers was green – but the Rogoff family had no idea that its contents were green, too.

Sandra Rogoff reached into the cupboard on Oct. 10 and opened a box of crackers, only to find an unmarked white envelope taking up residence next to the bagged crackers. She opened it to discover $10,000 in $100 bills.

Police went to Whole Foods where managers told them an elderly customer came in a few days earlier, hysterical after she realized she had mistakenly returned the box of crackers with her life savings inside. Frightened by the government takeover of several banks, the Lake Forest woman, whose identity was not released, had decided to take her money out of the bank and hide it in her home.

Police told Rogoff that Whole Foods usually sends returned food to a composting facility in the Inland Empire, and store managers told the woman her money was likely gone. An apparent mix-up led the box of crackers to be restocked on the shelves, where an unsuspecting Debra Rogoff purchased them. She guesses that the elderly woman glued the box shut after putting the money in, "because I'm a pretty careful shopper. I would have noticed if the box was open."

The woman was reunited with her money. The Rogoffs never heard from her and didn't receive any sort of reward. But Debra did return to Whole Foods a couple of weeks later.

"I asked them if I could have another box of crackers," she said with a laugh. The store obliged.

A box of Annie's Sour Cream and Onion Cheddar Bunny Crackers is the new safe place to stash cash.

"Shaped like our favorite mascot, Bernie the Bunny, these yummy, crisp crackers are made with organic wheat flour and real cheddar cheese. All of our flavors - Original Cheddar, Sour Cream & Onion, White Cheddar, and Whole Wheat, are flavorful, wholesome, and healthy snacks for kids and Annie's fans of all ages."

Focus on Weatherization Is Shift on Energy Costs

In the forgotten corners of tens of millions of American attics and basements, near the old Trivial Pursuit games and out-of-season clothes, are flaws that waste vast amounts of energy. Buildings often resemble colanders. Leaking ducts bleed heated air into areas outside living space. Cold-air returns suck in dust and mold from attics, or gas and oil fumes from garden equipment stored in basements. Long-neglected air filters clog, forcing furnaces or air-conditioners to work harder.

Correct those flaws, and heating and cooling costs are typically cut by 20 percent to 30 percent, a saving of more than $1,000 annually in some households. In addition, carbon dioxide emissions and the strain on the national electric and gas systems are reduced.

About 140,000 houses will be weatherized with public help this year, a total that President-elect Barack Obama has promised to raise to one million, to reduce energy consumption and cut energy costs for households and taxpayers, who often absorb those costs for the poor. This would represent a historic shift in emphasis for the federal and state governments, reducing poor people’s energy bills instead of helping to pay them.

Weatherizing a million homes annually would also create about 78,000 jobs for a year, according to the federal Energy Department’s weatherization project director, Gil Sperling.

The current 140,000 annual total creates about 8,000 jobs, Mr. Sperling said.

Although that is a tiny fraction of the five million green-collar jobs that Mr. Obama promised in the campaign, “it’s a decent number of jobs per dollar spent,” said Harry J. Holzer, an economist at Georgetown University and at the Urban Institute, a nonprofit group in Washington. “The work is productive, and the jobs are at a mix of skill levels.”

Congress added $250 million to the weatherization budget for the fiscal year that began Oct. 1. Energy experts say that money could be effectively spent in low-income households and in households that have no need of public assistance.

City of Immigrants Fills Jail Cells With Its Own

Few in this threadbare little mill town gave much thought to the Donald W. Wyatt Detention Facility, the maximum-security jail beside the public ball fields at the edge of town. Even when it expanded and added barbed wire, Wyatt was just the backdrop for Little League games, its name stitched on the caps of the team it sponsored.

Then people began to disappear: the leader of a prayer group at St. Matthew’s Roman Catholic Church; the father of a second grader at the public charter school; a woman who mopped floors in a Providence courthouse.

After days of searching, their families found them locked up inside Wyatt — only blocks from home, but in a separate world.

In this mostly Latino city, hardly anyone had realized that in addition to detaining the accused drug dealers and mobsters everyone heard about, the jail held hundreds of people charged with no crime — people caught in the nation’s crackdown on illegal immigration. Fewer still knew that Wyatt was a portal into an expanding network of other jails, bigger and more remote, all propelling detainees toward deportation with little chance to protest.

Wyatt offers a rare look into the fastest-growing, least-examined type of incarceration in America, an industry that detains half a million people a year, up from a few thousand just 15 years ago. The system operates without the rules that protect criminal suspects, and has grown up with little oversight, often in the backyards of communities desperate for any source of money and work.

The above article is long, a full 6 pages. There are many sides to the story. What do you do with a child born in the US who is a legal US citizen, perhaps in grade school, but his father and mother are not US citizens, and one of them is in prison and his family ho idea where?

Here is a link to an interactive map showing the Growing Detention Network in the US.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Treasury Makes Subprime Auto Loans

One day after the treasury (taxpayers) injected $6 billion into the failing auto industry GM, GMAC ease lending rules to entice car buyers.

General Motors Corp and its GMAC funding affiliate launched programs on Tuesday to lure U.S. car and truck buyers back into showrooms as the largest U.S. automaker tries to revive its sagging fortunes.

GM began offering zero-percent financing on some models, and GMAC resumed lending to a wider range of potential customers, after the government said it will inject billions of dollars to help ensure that both survive.

Through January 5, GM will offer zero percent to 4.9 percent financing on loans of up to five years on some 2008 model-year vehicles, and 3.9 to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.

GMAC, meanwhile, will extend loans to retail buyers with credit scores, known as FICO, of 621 or higher. In October, it had restricted loans to borrowers with scores of 700 or higher.

Many analysts consider borrowers with credit scores of 620 or lower to be "subprime." The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.

"The bottom line is much better access to funding," said Mark LaNeve, GM's vice president for North American sales, on a conference call with reporters. He said GMAC may now be able to fund 75 to 80 percent of new vehicle purchases, up from 40 percent since October.

The bottom line is more taxpayer risk. Of course GM will proclaim those are "prime" loans because they are 1 FICO point above the minimum. This is the lipstick on a pig play once again.

Elephant In the Room

I discussed the bailout yesterday in Paulson's $6 Billion Foot In The Door Play. Today the Treasury upped the taxpayer ante by offering subprime auto loans with our money. But only so many cars will be sold, period. And with the massive overcapacity issue, and near-subprime lending, taxpayers are further at risk.

Kevin Depew on Minyanville discusses this situation today in Automakers, Banks Ignore Elephant In the Room.

Ordinarily, when a business/industry fails from poor management and/or (in the case of the banks) overleveraging, what happens?

You know what happens intuitively, even if you've never opened an economics
textbook. It is very simple. Entrepreneurs, seeing the mistakes made by those business/industry operators, rush in to start competing businesses to 1) take advantage of the weakened competition, and 2) operate the business better than the competition having the benefit of seeing their mistakes.

Under normal circumstances, this process happens in every industry. It is the normal cycle of capitalism.

But look at what is happening now. Are there any entrepreneurs setting out to start automotive manufacturing businesses? What about entrepreneurs setting out to charter new banks? You already know the answer to that. The question, then, is why?

First, and most important, it is because the business models within those industries have failed. Second, because the government (taxpayer) has now stepped in to prop up those businesses with their failed business models, it is no longer economically viable for an entrepreneur to try and compete with the government even if the entrepreneur has a better business model. Third, even if it were economically viable, the government is installing roadblocks via the FDIC and other agencies to purposefully make it difficult for entrepreneurs to compete against the failed businesses in those two industries.

Make no mistake, the inevitable outcome will be failure. What is taking place is the extension of that failure to a decade or more. That is what the government is purchasing with the bailout monies; an extension, life support, even though death is inevitable. Why? Why would government do this? Because those who are demanding the monies and the extensions have more political clout than you do.

The more money wasted on stupidity like this, the longer the recession, and the slower the recovery. There is only so much capital, and using that capital to keep failed business models alive is sickening.

Addendum:

In Paulson's $6 Billion Foot In The Door Play I asked the following question: "How much GM and GMAC bonds is First Pacific Advisors sitting on?"

That question was in response to a quote in the Bloomberg article I was referring to.

“This is a good start by the federal government,” said Thomas Atteberry, who helps manage $3.5 billion in fixed-income assets at First Pacific Advisors in Los Angeles. Still unknown, he said, is whether the government cash will “make it palatable for new investors to come in.”

I was cynical because there have been instances by PIMCO and others positioning for a bailout of Fannie and Freddie then asking, almost demanding a bailout.

Tom Atteberry just pinged me with this:

I can understand your cynical comment asking how many GMAC bonds does First Pacific Advisors own. As a partner at the firm, Co Portfolio Manager of the FPA New Income Fund, and Portfolio Manager for the firm's fixed income accounts we do not own any GMAC or GM bonds nor have we owned them in the past. As an aside the reporter for Bloomberg asked me the same question. I assume because my answer is none he felt no need to mention that fact in his article.

Our firm is not a proponent of government bail outs of private industry which in today's society is a minority view. If the government decides to bail out an industry the least it can do is set the situation up where it could attract private capital and thus enable the government to exit the transaction. In the case of GMAC I doubt that will happen. In the case of AIG the government at least asked the CEO to leave. In this case there is no management change request or new board.

In both cases the management and board of GMAC ran the company into the ground. I would submit that the same is true for GM. I am surprised to see little mentioned about a strong need to replace management. Under new management maybe new private capital could be attracted to the company. With the same old management in place that created the problem why would a new investor put a dime into either company. Finally we should be asking the question why was Cerberus allowed to continue to have an equity stake. At a minimum the taxpayer or a new equity owner should be put in place and the Cerberus position reduced to "0".

Thanks Tom.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Growing Unrest In Russia Amidst Economic Crisis

Falling oil prices, a collapsing Ruble, and a souring economy have Russia in the worst crisis in over a decade. The Financial Times is talking about this in Russian economy: The Putin defence.

When a top economic adviser to Vladimir Putin approached his boss in September to argue that the rapid fall in the oil price meant he would have to devalue the rouble, the answer was a firm nyet. “He said he would not be the prime minister of devaluation,” one insider said.

But even before the oil price failed to recover on output cuts by the Opec producers’ cartel earlier this month, Mr Putin’s room for manoeuvre was running out. As crude has fallen from $147 a barrel this summer to less than $40, Russia’s oil-fuelled economic boom has come abruptly to an end. A country that was growing at a rate of 7 per cent only six months ago now faces a looming recession – and Mr Putin, almost exactly nine years since Boris Yeltsin handed him the presidency on New Year’s Eve, is stalked by the same prospect of economic failure as his ill-fated predecessor.

He must also contend with growing unrest. This month has seen thousands of Russians protest against the government’s handling of the crisis in a series of demonstrations across the country. With some 400,000 losing their jobs in November alone and around 2 per cent of those in work facing wage arrears, tensions are likely to rise further.

As well as suffering from a marked drop in demand for commodities, Russia’s economy is also being choked by Mr Putin’s rouble policy. His decision to stave off a sharp devaluation is starting to look to some economists as ill-advised as Yeltsin’s similar attempt in 1998. The central bank has already lost more than a quarter of its foreign currency reserves as a result of its efforts to stem the rouble exodus that began in August, when foreign investors fled Russia in the wake of the war with neighbouring Georgia.

Russia’s reserves of some $451bn (€321bn, £309bn) may still be the third largest in the world, but the sharp drop in the oil price is limiting its ability to replenish them. Propping up the rouble is currently costing the government $6bn to $10bn a week; if this continues, Mr Putin may be unable to assuage popular unrest as he did in 2003, when he defused a row over social benefits by spending freely.

Also at risk is the country’s ability to refinance the foreign debt held by Russian companies. With international credit markets closed, the government has so far pledged $50bn for this purpose. But with up to $170bn due next year, analysts say, the reserves could be quickly exhausted.

“The situation is starting to look like 1998 when, in anticipation of devaluation, the credit market is frozen and there is an enormous contraction of the economy,” says Anton Strouchenevsky, an economist at Troika Dialog, the Moscow investment bank.

There is much more in the article including detailed discussion of the Baltic states.

Ruble Falls to Record Low Versus Euro

Bloomberg is reporting Ruble Falls to Record Low Versus Euro as Russia Weakens Defense.

The ruble fell to a record low against the euro as Russia devalued the currency for the 12th time in seven weeks after the government forecast its first budget deficit in a decade.

The managed currency weakened 2.6 percent to 41.7245 per euro, the lowest since the European currency started trading in 1999. It fell 0.7 percent to 29.1797 versus the dollar, a four- year low. Bank Rossii allowed the ruble to fall 1.7 percent against its basket of 55 percent dollars and 45 percent euros, the most since the measure was introduced in February 2005, according to a central bank official who declined to be identified, citing bank policy.

The ruble may need to fall another one-fifth against the basket if oil prices don’t rise and Bank Rossii doesn’t change its policy, said Evgeny Gavrilenkov, chief economist at Troika Dialog in Moscow. Gavrilenkov called in October for a one-time depreciation of as much as 20 percent, when oil prices were above $60 a barrel.

Looking For Someone To Blame

Minyanville professor Vitaliy Katsenelson is writing Mother Russia Looks For Someone To Blame.

Russia's economy is deteriorating at a very fast pace. The Stabilization Fund of the Russian Federation -- a giant $450 billion savings account -- has been depleted by a quarter since September as Russia has tried to defend its currency. But in spite of these attempts, the ruble still declined.

Russian companies are facing $170 billion in debt rollover next year. Since the rest of the world isn't willing to finance companies in a stable political regime, getting financing for Russian companies will present a problem. President Dmitry Medvedev and his boss, Vladimir Putin, will have to spend another quarter of the reserve to fund Russian corporations.

These whispers will magnify as things get worse. But what concerns me is the inevitable response. I visited Russia in September for the first time since I left in 1991, and even though at the time the country was prospering (the economic crisis was still weeks away), I felt this broad anti-American attitude.

Now that things are getting worse by the minute, Putin will likely attempt to shift the blame to -- you guessed it -- the US. America will be made a scapegoat for the global crisis, for manipulating oil markets and for anything else that goes wrong in Russia.

The relationship between the countries is liable to get a lot worse.

The New York Times is reporting Gazprom, Once Mighty, Is Reeling

A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric.

Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company’s shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world’s largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom’s big private sector competitors in the West is looking for one.

That Russia’s largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state’s rapid economic decline.

During the boom times, Gazprom and the other Russian state energy company, Rosneft, became vehicles for carrying out creeping renationalization.

As oil prices rose, so did their stocks. But rather than investing sufficiently in drilling and exploration, Russia’s president at the time, Vladimir V. Putin, used them to pursue his agenda of regaining public control over the oil fields, and much of private industry beyond.

As a result, by the time the downturn came, they entered the credit crisis deeply in debt and with a backlog of capital investment needs. (Under Mr. Putin, now the prime minister, Gazprom and Rosneft are so tightly controlled by the Kremlin that the companies are not run by mere government appointees, but directly by government ministers who sit on their boards.)

Mr. Medvedev [the Gazprom executive] said the share price “does not reflect the company’s value” and blamed the financial crisis that began on Wall Street for the company’s woes.

Putin nationalized Gazprom, swallowed up everything in the industry (stealing from the rightful owners at then favorable prices to the state), and now blames Wall Street.

“I can describe the Russian economy as water in a sieve,” Yulia L. Latynina, a commentator on Echo of Moscow radio, said of the chronic waste in Russian industry.

Substitute "world economy" for "Russian economy" and Yulia has it right. Chronic waste is everywhere, it's only a question of degree.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Paulson's $6 Billion Foot In The Door Play

The US Treasury continues to throw $billions around like peanut shells. Bloomberg is reporting Treasury to Buy $5 Billion GMAC Stake, Expand GM Loan.

The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., the latest step in the government’s widening effort to keep the largest U.S. automaker out of bankruptcy.

Treasury said it will purchase a $5 billion stake in GMAC, and lend $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender’s reorganization as a bank holding company. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

“This is a good start by the federal government,” said Thomas Atteberry, who helps manage $3.5 billion in fixed-income assets at First Pacific Advisors in Los Angeles. Still unknown, he said, is whether the government cash will “make it palatable for new investors to come in.”

My Question: How much GM and GMAC bonds is First Pacific Advisors sitting on?

A Treasury official said there is no cap or deadline for aid to automakers under the TARP. Congress “will need to release” the second half of the $700 billion TARP under Treasury’s rescue plan, the official said on condition of anonymity during a conference call with reporters.

Separately, GMAC said it has accepted all bonds tendered in a debt swap designed to reduce its debt load.

“Once the offers are settled, which we expect to do promptly, results will be disclosed,” said spokeswoman Gina Proia in an e-mail.

GMAC joins more than 190 regional banks, commercial lenders, insurers and credit-card issuers seeking funds from the Treasury’s bailout program for financial firms. American Express Co., the biggest U.S. card company by sales, and CIT Group Inc., the biggest independent commercial lender last year, won capital infusions last week after converting into banks.

The Fed has since granted approval before the swap was finished.

GMAC, which had 26,700 employees as of Dec. 31, 2007, had about $161 billion of unsecured and secured debt as of Sept. 30, according to a filing last month. The proposal asked holders of $38 billion of debt to swap for as little as 55 cents on the dollar in cash or a combination of new notes and preferred stock. Individual owners of about $15 billion of debt were excluded from the exchange.

Foot In The Door Play

With hundreds of $billions handed out so far, another $6 billion seems like peanut shells. However, by agreeing to waste $6 billion on GMAC, the Treasury now needs to tap the second $350 billion because it has already squandered every bit of the first $350 billion.

In total, the Treasury has now committed to squander $700 billion and that is before Obama squanders anywhere from $750 billion to $1 trillion trying to prop up a dying consumer-based economy that really can't be propped up.

Addendum:

I am very cynical of statements regarding bailouts because there have been many instances by PIMCO and others positioning for bailouts then asking, almost demanding them, promising Armageddon if the bailouts are not granted. The automakers used the same ploy.

With that in mind, I asked: "How much GM and GMAC bonds is First Pacific Advisors sitting on?" (see context above).

Tom Atteberry at First Pacific Advisors just pinged me with this:

I can understand your cynical comment asking how many GMAC bonds does First Pacific Advisors own. As a partner at the firm, Co Portfolio Manager of the FPA New Income Fund, and Portfolio Manager for the firm's fixed income accounts we do not own any GMAC or GM bonds nor have we owned them in the past. As an aside the reporter for Bloomberg asked me the same question. I assume because my answer is none he felt no need to mention that fact in his article.

Our firm is not a proponent of government bail outs of private industry which in today's society is a minority view. If the government decides to bail out an industry the least it can do is set the situation up where it could attract private capital and thus enable the government to exit the transaction. In the case of GMAC I doubt that will happen. In the case of AIG the government at least asked the CEO to leave. In this case there is no management change request or new board.

In both cases the management and board of GMAC ran the company into the ground. I would submit that the same is true for GM. I am surprised to see little mentioned about a strong need to replace management. Under new management maybe new private capital could be attracted to the company. With the same old management in place that created the problem why would a new investor put a dime into either company. Finally we should be asking the question why was Cerberus allowed to continue to have an equity stake. At a minimum the taxpayer or a new equity owner should be put in place and the Cerberus position reduced to "0".

Thanks Tom.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Yellow Brick Road Economic Theory

There was an interesting buzz on Minyanville today by professor Fil Zucchi about a mass exodus of Chinese workers back to the farms. Let's take a look.

I had a chance to chat at length with a Chinese-American businessman whose company owns manufacturing operations in China. He suggested that the Chinese government has pretty much given up on the notion of being able to transform its export economy to a domestic, consumer-based one.

There's an ongoing mass exodus of workers back to the countryside and many many manufacturers of export products are either closing or beginning their wind down process. His sense is that the government will be very active with the regional governments in trying to smooth the transition of workers back to rural area, and that's where most of the "stimulus" package touted by the Chinese government will be focused on.

In my humble opinion, China's appetite for U.S. debt was simply a gigantic vendor-financing scheme, where they lent us money so that we could buy stuff from them. After removing the "buy from them" part, I hope Boom Boom [Bernanke] and company are not counting on the Chinese to fund our current Keynsian binge.

Thanks Fil!

Recession Opens U.S.- China Rift

Bloomberg is reporting the Global Recession Has Opened U.S.- China Rift

Dec. 29 (Bloomberg) -- The global recession is re-exposing fissures in U.S.-China relations that Treasury Secretary Henry Paulson spent more than two years smoothing over.

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

“The American economic slump is running into the Chinese economic slump,” says Derek Scissors, a research fellow at the Washington-based Heritage Foundation. “It's creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship.”

Paulson refrained from labeling China a currency manipulator and hailed an end to tax rebates on Chinese exports as a sign of improving trade relations. Congressional leaders, though dissatisfied with the pace of progress, shelved sanctions legislation.

China's exports declined in November for the first time in seven years, and economic growth may slow by more than half to as little as 5 percent in 2009, according to Royal Bank of Scotland Plc. That has prompted China's leaders to increase tax rebates on thousands of exported products.

In the U.S., business and labor groups, along with lawmakers, are pushing the new Obama administration to take a harder line with China than President George W. Bush did.

Senate Finance Committee Chairman Max Baucus, a Democrat from Montana, plans legislation that would raise tariffs on dumped imports from China and other nations. And newly elected Democratic congressmen such as Larry Kissell of North Carolina and Dan Maffei of New York have pledged actions to stop jobs from being shipped to China.

Lawyers representing companies such as Nucor Corp., the second-largest U.S. steelmaker, NewPage Corp., a maker of coated paper, and smaller textile and steel pipe makers say they are considering new trade complaints against China.

Officials in Beijing will push back, says James McGregor, chairman of Beijing-based research firm JL McGregor & Co. and author of the book “One Billion Customers,” about doing business in China. Chinese leaders “will do whatever they need to protect their interests and to say to the U.S., 'Do not mess with us on this one,'” he says.

“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” says Brad Setser, a fellow at the Council on Foreign Relations in Washington. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40 percent of GDP.”

Most of the so called savings glut in China is pure nonsense. See Global Savings Glut Exposed and Bernanke Blames Saving Glut For Housing Bubble for a rebuttal to some truly twisted thinking about savings coming from the lips of Bernanke.

Furthermore (assuming one does believe China is saving on a massive scale) the idea that saving causes economic problems is patently absurd. Savings are not idle; savings provides money for investment and for others to consume.

No, it is lack of saving that causes economic problems. And people like Bernanke, Krugman (please see Krugman Still Wrong After All These Years) and now Sester are promoting more spending as the way to save the world.

Goodbye Yellow Brick Road

The "Yellow Brick Road" theory of the global economy was based on three foolish ideas.

1. The US consumer could consume beyond his means for perpetuity.
2. China could decouple from the global economy and grow its GDP forever at an 11% clip by taking workers from the farms and moving them to cities.
3. It is possible for a county to spend its way to prosperity.

Goodbye Yellow Brick Road

When are you gonna come down
When are you going to land
I should have stayed on the farm
I should have listened to my old man

You know you can't hold me forever
I didn't sign up with you
I'm not a present for your friends to open
This boy's too young to be singing the blues

So goodbye yellow brick road
Where the dogs of society howl
You can't plant me in your penthouse
I'm going back to my plough

Back to the howling old owl in the woods
Hunting the horny back toad
Oh I've finally decided my future lies
Beyond the yellow brick road

Maybe you'll get a replacement
There's plenty like me to be found
Mongrels who ain't got a penny
Sniffing for tidbits like you on the ground

The Yellow Brick Road Theory is rapidly flying apart. US consumers aren't consuming, protectionist tensions are rising, and Chinese workers are leaving the cities, headed back to the plough. Yet in spite of massive logic and evidence to the contrary, Keynesians are still sticking with the belief it's possible to spend one's way to prosperity.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Krugman Still Wrong After All These Years

Krugman seems particularly proud of a piece he wrote a decade ago. His new remake, Hangover Theorists, is as wrong now as it was then. Let's take a look.

The hangover theory, which I wrote about a decade ago, is still out there.

The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of “adapting the structure of production.” We have to get those people who were pounding nails in Nevada into other places and occupation, which is why unemployment has to be high in the housing bubble states for a while.

The trouble with this theory, as I pointed out way back when, is twofold:

1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking — why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?

2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.

One striking fact, which I’ve already written about, is that the current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble. Here’s a convenient table from the BLS, ranking states by the rise in unemployment over the past year. Unemployment is up everywhere. And while the centers of the bubble, Florida and California, are high in the rankings, so are Georgia, Alabama, and the Carolinas.

So the liquidationists are still with us.

Let's answer Krugman's two points in reverse order starting with number 2:

"2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble."

The answer should be obvious, but obviously it's not. Let's take this in 10 steps, using the housing bubble as our guide.

2.A.1. What Goes Into The House

When a house is built a certain number of things go into that house: a refrigerator, stove, microwave, lighting fixtures, carpeting, fireplaces, kitchen cabinets. The house is made of brick or lumber or a combination. Someone has to make the refrigerator, stove, microwave, lighting fixtures, carpeting, fireplaces, kitchen cabinets, etc. Someone has to make the frames and trusses for the house.

The frames and trusses are more likely than not made in the US, not necessarily where the housing bubbles were. It takes workers to do that. And it takes port workers to unload the a refrigerators, stoves, microwaves, lighting fixtures, carpeting, fireplaces, kitchen cabinets etc that was no doubt made in China. Limestone, sand and gravel typically comes from nearby quarries to reduce shipping costs.

2.A.2 Shipping and Trucking

Truckers trucked all that stuff across the country. Those truckers filled up with diesel delivering the load and returning. And those truckers ate at "Joe's Diner" in the town of Wherever, USA. And the same applies to stuff sent by rail rather than truck, except that someone had to be paid to unload the rail cars.

In addition, subcontractors purchased small pickup trucks and SUVs to haul lighter freight and materials such as limestone, sand, gravel, bricks, and landscape materials.

2.A.3 Landscaping and Maintenance Items

Homeowners needed landscaping and maintenance items. They seeded their grass and bought trees and shrubs at the local nursery, and fertilizer and tools at Home Depot (HD), Lowes (LOW), Wal-Mart (WMT), or Sears (SHLD).

2.A.4 Cash Out Refis

Home prices were rising everywhere as a result of the loose money that was flowing around. Even those not buying a new home were upgrading appliances, kitchens, landscaping, etc. That stuff had to be shipped and more importantly money was readily available to anyone who wanted to "put their cash to work". And many did, buying boats (which had to be built, shipped or trucked). Others, flush with perceived wealth, took vacations. Vacations means plane tickets, car rentals, hotel bill, and lots of sight seeing and dining out. Still others used cash out refis to buy autos.

2.A.5 Commercial Real Estate

Commercial real estate follows residential with a lag. Even after it was clear housing was headed into a slump, strip malls were being built following the buildup residential. Those stores had to be stocked. More goods needed to be shipped to fill those stores.

More importantly those stores hired massive numbers of people. This was an artificial and unsustainable boom that lingered on well after residential housing popped. Indeed unemployment hit an amazingly low 4.4% early in 2007, 18 months after the housing bubble popped in the summer of 2005. I called the real estate top, in real time right here on this blog.

For an update showing where we are now and a timeline history of calls, please see Housing Update - How Far To The Bottom?



Corporations flush with cash, started building stores in Podunk USA thinking the housing boom would spread everywhere. Thus, even Podunk USA participated in the boom, even if there was no flurry of housing activity.

2.A.6 Financial Engineering

Wall Street figured out how to package mortgage loans into CDOs, CDOs squared (CDOs of CDOs), CLOs, MBS, and all sorts of other financial wizardry names. Rather than hold the debt, it became a case of hot potato to see how quickly debt could be unloaded on foreign investors, pension plans, hedge funds, and others who thought that housing prices could only go up.

That debt was sliced and diced into tranches and no one could even figure out exactly who owned what portion of any mortgage. Banks and brokerages were greedy to the end keeping the best of the debt for themselves. Eventually even the best proved to be toxic, but as long as prices were going up, profits (imaginary profits) on Wall Street soared.

2.A.7 The Stock Market Boom

The boom was exciting for stockholders. $8 trillion or so "wealth" was added to the values of IRAs, 401Ks, pension plans, and common shareholders over the course of a few years. The wealth effect supported consumption and a consumption mentality. No one needed to save for retirement, housing and the stock market would make everyone set for life. The savings rate plunged.

2.A.8 Property Taxes and Sales Taxes Soar

As a result of rising property taxes and sales tax collections, the former until the housing bubble popped, the latter kept going on for years to come as consumers continued to spend whatever equity they had left, cities and states went on equally ridiculous spending sprees. Money was wasted on all kinds of pet projects.

2.A.9 The Stock Market Bust

Residential housing imploded in 2005, commercial real estate peaked in late 2007, and at nearly the same time the stock market started imploding in what most thought would be a quick correction.

We are now on the backside of the bubble bust. That backside is called Peak Credit. Its related twin is Peak Earnings. A secular, once in a lifetime credit boom is now imploding.

2.A.10 The Shopping Center Economic Model Dies

On April 18th I wrote the Shopping Center Economic Model Is History. The boom had bust big time and unemployment started to soar as shown in the chart above. The slowdown in spending affected sales tax receipts and numerous states, especially California have to make huge budget cuts which will add to unemployement woes.

2A Summary

The reality is this was not a housing boom but a credit boom that permeated the entire global economy.

While Krugman is asking "why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble" a more realistic question is "What segments of the economy were not impacted by the housing (credit) bubble?"

Nonetheless let's try it Krugman's way looking at what industries were directly impacted by the bubble.

Direct Impact of Housing Slowdown

• Manufacturing
• Retail
• Shipping
• Finance
• Construction
• Travel
• Leisure
• Restaurants
• Energy
• Commodities
• Trucks and SUVs
• City, State, Local Government Spending
  

Little Impact of Housing Slowdown

• Health care
• Education

Point Number 1 Rebuttal

Now let's address "It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking"

Hopefully the answer is now crystal clear as explained by 2.A.1 through 2.A.8 above. Any eighth grader in the country should be able to understand those points.

As for "why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?" once again the answer should be clear.

In Austrian economic terms which Krugman being a Nobel Prize winning economist should understand but doesn't (which is a sad commentary on the state of affairs in and of itself), is that rising unemployment is a payback for an artificial boom that preceded it. Had there not been an artificial boom, and in the absence of government intervention, the free market by itself would achieve stable employment.

The artificial credit boom created huge malinvestments (overcapacity) in shopping centers, residential housing (inventory and falling prices are the tells), restaurants, strip malls, commercial real estate, trucking, autos, etc, etc. The liquidation of those malinvestments is bound to create rising unemployment. Again, any eighth grader should be able to understand this construct.

Free Lunch Theory

Keynesian economists, for which Krugman is the high priest, believe that it is possible to spend one's way out of a recession even though it was excessive spending that caused the boom and the subsequent bust.

We tried it Krugman's way once already, and the result was a housing (credit) bubble of epic proportion. Not having learned a damn thing, the typical Keynesian response is to attempt to create an even bigger bubble.

If the ideas expressed above did not convince you of the absurdity of Keynesian economics, perhaps this video will.

Fred Thompson On The Economy



Click Here To Play Video

Fred explains exactly how Krugman's theory works. It's a hilarious must see video that explains Keynesian economics in a nutshell.

Ideas So Simple, Only Academic Wonks Cannot Understand

The above ideas are so simple and so logical that they are beyond the comprehension of academic wonks. Instead, wonks hide behind formulas such as this one:

dY/dD = (1-m)/[1 - (1-t)(1-m)c - t(1-m)]

Krugman used that formula to explain why Germany should be applying more fiscal stimulus. I took the other side of the argument in a pair of articles.

• Fiscal Insanity Virus Rapidly Spreading The Globe (Part 1)
  
  
• Fiscal Insanity Virus Rapidly Spreading The Globe (Part 2)

Sadly, the free lunch theory of economics is what is being taught in universities throughout the world. The Fiscal Inanity Virus, FIV, is on a rampage.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

State Budget Gimmicks Can't Solve Crisis

Citing ethical concerns, as if Illinois had any, a Coveted Casino License went to lowest bidder who plans to build in the city of Des Plaines.

Illinois gambling regulators on Monday chose the lowest bidder among three finalists for the state's only unused casino license, saying the company that plans to build in Des Plaines didn't raise the ethical concerns posed by finalists for Waukegan and Rosemont.

Midwest Gaming and Entertainment LLC beat out its competitors on a 3-1 vote of the five-member Illinois Gaming Board. Panel member Eugene Winkler refused to vote because he said he was not convinced that any of the finalists deserved permission to operate slot machines and betting tables.

"We have become accustomed to the stench of gambling and its effects in Illinois," said Winkler, a Methodist minister. "That's the problem we have grown used to. Corruption in government, pay-to-play, headline grabbers and behind-the-scenes operators, but real moral and ethical issues are at stake."

The recent corruption arrest of Gov. Rod Blagojevich cast a new pall over a selection process that has been mired in controversy for more than a decade, when the license was last used. Questions about ties between the Waukegan bidder and Blagojevich fundraisers helped sink that plan, and investors in Rosemont could not overcome concerns about mob influence in the village that helped derail two previous attempts to open there.

Once viewed as a cash cow that could fetch more than half a billion dollars, the license will tentatively go to a company that offered a total of $125 million once the doors open and an additional $300 million to be paid over the course of 30 years.

While Trilliant Gaming partnered with Rosemont to offer a high bid of $435 million for the license, Jaffe and other board members said they could not ignore the village's past problems.

Jaffe and other board members also questioned the background of some investors in Waukegan Gaming LLC, who touted their proposal as a way to revitalize the struggling lakefront community. The company offered $225 million upfront for the license and received the backing of one board member.

Jaffe would not elaborate, but the board previously questioned the company's dealings with Springfield power broker William Cellini, who held an ownership stake in the company that later became Waukegan Gaming.

Although Cellini sold off his interest more than 18 months ago, he and others with Blagojevich ties have connections to the businessman he sold it to: Michael Pizzuto, a Hinsdale real estate developer who was once director of finance for Cellini's New Frontier Development.

Cellini was indicted this year on charges that he extorted campaign contributions to Blagojevich from a Hollywood producer whose investment firm was seeking state business.

Blagojevich appointed Pizzuto to the State Universities Retirement System in 2004, and a "clout list" released in the trial of convicted Blagojevich fundraiser Antoin "Tony" Rezko suggested that he was sponsored by fellow fundraiser Chris Kelly.

Des Plaines is excited to get a casino even though a casino did not save East Dubuque in Jo Daviess County where the Silver Eagle Casino on the Mississippi River went under.

Riverboat Empty Promises

Flashback October 15, 2000 The casino gamble: Jo Daviess leader says riverboat dealt empty promises

When the Silver Eagle riverboat casino landed in Jo Daviess County, Ill., in 1992, county officials thought it was the goose that laid the golden egg. With the promise of more tourists and 5 percent of casino revenues, officials agreed to spend more than $3 million on infrastructure to bring a gambling boat to their side of the Mississippi River.

But a few years later, the boat was gone - its owners searching for higher profits elsewhere. And local officials were left with higher bankruptcies and other social problems. "We had 400-some jobs. Now we have none," said Darrell Barkow, president of East Dubuque Savings Bank.

"I was pretty gung-ho" about the casino in the beginning, said Bill McFadden, the county board chairman. "We got $8.2 million over a 4- to 4 1/2-year period."

But now, McFadden's had second thoughts.

"How much is it worth to see X number of families go down the tubes?" he said. "The more available (gambling) is, the more compulsive gambling you're going to have. It is addicting. It is compulsive. Some can handle it. Some can't."

"They littered our landscape with addiction, bankruptcy, crime and corruption and then sailed away leaving a wake of broken promises," said the Rev. Tom Grey, a Methodist minister who fought the riverboat casino in Jo Daviess County. "So much for economic development and a painless revenue stream."

During the period the casino was open, the county saw "a rise in the number of bankruptcies and the number of cases our social workers treated as far as compulsive gambling," McFadden said. "They had reasonable food, which hurt some of our restaurants. They complained their business has gone down."

Gambling is just another form of entertainment. People who go to the casino will be spending less on movies and less on eating out elsewhere. There will not be a single net new Illinois job created as a result of this casino license being awarded, and most likely no benefit even to DesPlaines in isolation.

Cash-strapped states weigh selling roads, parks

Many states are economically in trouble. California is at the top of the list as noted in California Implodes In Multiple Ways and Massive Surge In Municipal Bankruptcies Coming.

Minnesota, New York, Massachusetts and Illinois are also in trouble. Inquiring minds are noting Cash-strapped states weigh selling roads, parks.

Minnesota is deep in the hole financially, but the state still owns a premier golf resort, a sprawling amateur sports complex, a big airport, a major zoo and land holdings the size of the Central American country of Belize.

Like families pawning the silver to get through a tight spot, states such as Minnesota, New York, Massachusetts and Illinois are thinking of selling or leasing toll roads, parks, lotteries and other assets to raise desperately needed cash.

Minnesota Gov. Tim Pawlenty has hinted that his January budget proposal will include proposals to privatize some of what the state owns or does. The Republican is looking for cash to help close a $5.27 billion deficit without raising taxes.

GOP lawmakers are pushing to privatize the Minneapolis-St. Paul International Airport and the state lottery. Both steps require a higher authority — federal legislation in the case of the airport, a voter-approved constitutional amendment for the lottery. But one lawmaker estimated an airport deal could bring in at least $2.5 billion, and the lottery $500 million.

Massachusetts lawmakers are considering putting the Massachusetts Turnpike in private hands. That could bring in upfront money to help with a $1.4 billion deficit, while also saving on highway operating costs.

In New York, Democratic Gov. David Paterson appointed a commission to look into leasing state assets, including the Tappan Zee Bridge north of New York City, the lottery, golf courses, toll roads, parks and beaches. Recommendations are expected next month.

Onetime Shots Can't Work

Many states are in trouble over pension promises, salaries, and out of control spending in general. Selling bridges and parks can only be done once for obvious reasons. Entire branches of government need to be eliminated. What's left needs to be privatized and where privatization is not possible, salaries need to be reduced.

Selling off assets is a onetime shot while lotteries and casinos tend to prey on the poor and net-net create no real economic benefit. The only long term viable solution to this mess is to dramatically cut public sector employment, benefits, and pensions. Until that happens, private sector workers are going to be squeezed by rising taxes, rising fees, falling wages, falling benefits, and shrinking pension plans, envious and resentful of public sector workers who make out like bandits.

A massive taxpayer revolt is up and coming over this issue. I would like to see California kick things off with "Proposition Mish" to eliminate many state funded programs, privatize the prison system, release prisoners in for minor drug violations, and slash salaries of every state legislator, the governor, and others.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Massive Surge In Municipal Bankruptcies Coming

John Moorlach, the accountant who predicted the 1994 Orange County bankruptcy sees Up to 10 Municipal Bankruptcies in Coming Year

The accountant who predicted the nation’s largest municipal bankruptcy says as many as 10 insolvencies will roil the $2.7 trillion U.S. market for state, county and city debt next year as public finances worsen amid calls for federal aid to state and local governments.

John Moorlach said in 1994 that Orange County, California’s leveraged investing strategy could wreck its finances. The county went bankrupt about six months later after losing $1.6 billion.

As many as four cities in the Golden State and six others nationwide may seek court protection from creditors next year under Chapter 9 of the bankruptcy code, the section devoted to municipal governments, Moorlach said in an interview.

Two California cities, Rio Vista, with a population of 8,000, and Isleton, a 10th as large, have said budget gaps and debt loads may force them into insolvency. Likewise, Jefferson County, Alabama, which is trying to restructure $3.2 billion in sewer debt, has considered what would be the largest U.S. municipal bankruptcy.

There may be 36 bankruptcies over the next two years, said Richard Ciccarone, chief research officer of McDonnell Investment Management LLC of Oak Brook, Illinois.

Ciccarone predicts a dozen defaults in 2009 “and at least double that number in 2010.” He didn’t identify cities or counties and said his forecast is based on studying how municipalities respond to economic crises.

Those cities in California and Jefferson County Alabama should just succumb to the inevitable and declare bankruptcy now. Dragging things out just wastes more taxpayer money. For more on the fiscal crisis in California, please see California Implodes In Multiple Ways.

Municipal Bankruptcy Laws

Interestingly, Municipal Bankruptcy Law has its origin in the great depression. Here are a few facts from the link.

Federal municipal bankruptcy laws were first introduced in 1934 during the depths of the Great Depression as municipalities across the country struggled to provide necessary services while facing a dramatic drop in tax revenues. The enactment of federal bankruptcy laws allowing municipalities to impair debt was necessary because of the inadequacy of traditional state remedies.

Prior to the establishment of federal bankruptcy laws, the principal state remedy for creditors was an action for mandamus to compel increased taxes. [1] However, imposing new taxes was often counterproductive because of the inability or unwillingness of the citizenry to pay, the rush of individual creditors filing separate mandamus suits, and the "hold-out" problem among creditors. [2] Rather than enter a voluntary comprehensive agreement with the city and creditors, minority creditors often derailed efforts to reach voluntary agreements by "holding-out" to use the mandamus remedy to get a tax levy for full payment. [3]

At the same time, state law could not force an unwilling creditor to compromise his claim without violating the constitutional prohibition against state impairment of contracts. [4] Thus, without a federal bankruptcy law which permitted municipalities to scale down their indebtedness and bind all creditors, both creditors and debtors were "at an impasse to neither's advantage"

Federal Bankruptcy Law Requires that the State Specifically Authorize a Municipality to File for Chapter 9.

Federal law permits municipalities to seek protection from their creditors by filing for bankruptcy under chapter 9, but only if the state specifically authorizes its municipalities to file. The state may attach various requirements subject to granting authorization such as approval by a state body prior to filing, state appointment of a trustee, and state control over the municipal debt readjustment plan. Once the state has granted authorization to file, courts have construed such consent as state policy favoring the pre-emption of federal bankruptcy law over state policies which undercut the efficacy of chapter 9.

The Vallejo Warning Shot

Earlier this year Vallejo, California filed bankruptcy. The problem with Vallejo was simple: It promised more in salary and pension benefits to city union workers than it could possibly afford to pay.

Governing.Com discusses the implications of the Vallejo bankruptcy in Vallejo’s Fiscal Freefall.

Vallejo, a city of 120,000 about 35 miles northeast of San Francisco, flat-out went broke this year through a combination of generous public-safety salaries, declining property values and fiscal mismanagement. The city is estimating a $17 million deficit for the current fiscal year.

"Vallejo was sort of the canary in the coal mine — the sickest patient goes first," says Dean Gloster, an attorney representing Vallejo's unions. "Even better-run cities are going to be facing similar issues as health care costs rise and the baby boomer generation reaches retirement age."

Reasonable people can — and do — disagree about how Vallejo found itself in bankruptcy. But the largest share of the blame in Vallejo has centered on public-safety salaries and benefits, which make up about 75 percent of the city's general fund budget. Base pay for firefighters is more than $80,000 per year and employees can retire at age 50 with a pension equal to 90 percent of their salary, the result of a retroactive pension increase several years ago.

With the downturn in the housing market hammering revenues, Vallejo is asking the bankruptcy judge to void the collective-bargaining agreements that led to those salary and benefit arrangements. And the possibility of hard-fought union contracts going up in smoke has struck fear in the heart of labor groups.

Not all troubled jurisdictions can declare bankruptcy. Municipal bankruptcies are illegal in one state, Georgia; untested in several, such as Iowa and Maryland; and unlikely in others, such as New York and Pennsylvania, that have their own procedures on the books for rescuing distressed localities.

I am thankful the union did not negotiate a settlement. The next step is to hope a judge voids those collective-bargaining agreements.

Threat of bankruptcy is the only way to bring government wages in line with wages and benefits in the private sector. Retiring at age 50 with 90% of salary is simply obscene. It is also not affordable.

How does Chapter 9 work?

Please consider Vallejo Bankruptcy Filing Garners Attention in Municipal Finance Circles. The article features an interview by MuniNet with Jim Spiotto, a partner with the Chicago-based law firm of Chapman and Cutler LLP which specializes in the law of finance: banking, corporate finance, securities and public finance.

MuniNet: How does Chapter 9 work?

Spiotto: Chapter 9 of the United States Bankruptcy Code, the Adjustments of Debt of a Municipality, is philosophically designed to give municipal entities a fresh start. In order to file for bankruptcy, a municipality has to establish to the satisfaction of the Bankruptcy Court that, among other things, the municipality has become insolvent.

While insolvency is a balance sheet test for corporate bankruptcy purposes, for Chapter 9 purposes, insolvency is a question of whether the Debtor is able to pay its obligations. Municipal bankruptcy effects debt adjustment, not debt elimination.

A Chapter 9 Plan of Debt Adjustment must be based upon an analysis of the municipality’s cash flow, including taxes and other revenues, and a determination of the validity and amount of claims.

MuniNet: Can all state and local government entities file for Chapter 9?

Spiotto: Only local governments - those entities created as instrumentalities by the state - can file for Chapter 9; states cannot file. Moreover, one of the requirements of the Bankruptcy Code is that the municipality be specifically authorized by state law to file a Chapter 9 petition.

Different states have different rules about who can file. Georgia, for example, prohibits municipalities from filing for bankruptcy. Nineteen states have specific authorization procedures in place for municipal bankruptcy.

MuniNet: Is filing for Chapter 9 the only solution for a municipal facing a serious financial crisis?

Spiotto: Unlike individuals and corporations, where utilizing bankruptcy is more acceptable as a restructuring tool, filing for bankruptcy is really a last resort for a municipality. The stigma of bankruptcy has the potential to seriously impact a municipality’s ability to borrow funds that might be needed to build roads, bridges, sewers, a new city hall or to execute other public improvement projects.

MuniNet: What implications will the outcome of the Vallejo bankruptcy filing have for other local government entities?

Spiotto: Vallejo will be an interesting case to watch ... If it succeeds in navigating these waters, reducing its obligations to its public workers, writing new employment contracts and adopting a pay-as-you-go method to fund its pension and other post-employment benefits (OPEB) systems, others may well follow its lead.

Consider this staggering comparison: State and local public employees comprise approximately 12 percent of the U.S. workforce and have an estimated $800 billion or more of unfunded pension liabilities (not counting other post-employment benefits). By comparison, employees in the private or corporate sector make up about 78 percent of the U.S. workforce with an estimated $450 billion of unfunded liabilities.

California Municipal Bond Yields Rise

California Bond Yields Rise to Four-Year High on Budget Impasse

California’s fiscal crisis pushed yields on tax-backed debt to a four-year high as the state struggles with a $42 billion budget deficit. Bonds due in 10 years yield about 53 basis points, or 0.53 percentage point, more than general obligation bonds rated A+, the most since early 2004, according Bloomberg municipal bond yield indexes. California has approval to sell $53 billion of bonds for public works projects.

The nation’s most-populous state will run out of money to pay bills as soon as February unless lawmakers end an impasse over how to close the funding gap. California has the second- lowest credit ratings in the country because of perennial fiscal shortfalls and legislative gridlock.

“The spreads have widened and investors are getting much more compensation for California bonds,” said Paul Brennan, who oversees about $12 billion in municipal-bond funds for Nuveen Asset Management in Chicago.

Double Dipping In Florida

The St. Petersburg Times is reporting Double dipping rises despite outrage.

This year some of Florida's public officials are giving a whole new meaning to the phrase "home for the holidays.''

It's a new crop of double dippers, taking advantage of a loophole in state law that allows them to "retire'' by taking 30 days off and return to work in their old jobs with a salary and a pension. Many also collect a lump-sum "retirement'' payment that can reach hundreds of thousands of dollars.

At least 25 of those spending December at home were re-elected in November — sheriffs, property appraisers, court clerks and tax collectors, six circuit judges and one state attorney.

None announced their "retirement'' plans before voters cast their ballots, and most have not made any public announcement of the resignation letters they have written to Gov. Charlie Crist.

Baker County Sheriff Joey Dobson is getting $311,173 in a lump sum payment and will collect an annual salary of $128,000 and a monthly pension of $5,699. He said he searched for alternatives to taking December off and returning in January, but he said state retirement officials told him it was his only option.

"I have worked for 35 years, but I'm not a wealthy man,'' Dobson said. "I sure didn't want to do it, I hate to be out of the office.''

Miami Dade Community College president Eduardo Padron collected $893,286 in a lump-sum retirement benefit in 2006 and began collecting $14,631 a month in retirement pay in addition to his annual salary of $441,538.

Other double-dipping college presidents include Edwin R. Massey at Indian River State College in Fort Pierce and James R. Richburg at Northwest Florida State College.

Massey collected more than $585,000 in a lump sum last June and now collects a monthly pension of $9,823 plus his annual salary of $286,470.

Richburg, who has been in the news for his controversial dealings with House Speaker Ray Sansom, got a lump sum of $553,228 in 2007 and started collecting a monthly pension of $8,803 in addition to his $228,000 annual salary.

I do not even live in Florida and I am outraged by this. How can any community college president be worth $441,538, a pension benefit of $14,631 a month, on top of a lump sum benefit of $893,286? No wonder education costs are so outrageous.

Given that Florida is ground zero for the housing bust and Florida has no restrictions on filing Chapter 9, I confidently predict several cities or counties in Florida declare bankruptcy.

Ohio and Michigan are also basket cases and add a sprinkling of a few more including Jefferson County Alabama, and it's easy to come up with a total of 20 municipal bankruptcies for 2009. That is double what John Moorlach predicts.

Once the ball gets rolling and the stigma wears off, 20 can easily be wrong to the low side. These bankruptcies, should they happen, will be a good thing. Wages and benefits in the public sector need to come down, and this will be one way to see that it happens.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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