People sign petition to "increase inflation to 100%" to purposely cause hyperinflation

Disgusted minds are watching people sign a petition for the Fed to purposely cause hyperinflation.



That shows just how bad our education system is. People graduate from high school, even college, not knowing a thing about interest rates, stocks, bonds, credit cards, Fed policy, or anything else they need to know about money, including what money is and how it is created.

This is by design.
And it needs to change soon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Fed's Unemployment Projections From Mars

In the wake of last Friday's miracle job performance with unemployment dropping by .2% (see Jobs Contract 23rd Straight Month; Unemployment Rate Drop to 10.0%) let's take a look at unemployment scenarios offered by the Fed to see how realistic they are.

Dave Rosenberg mentioned those scenarios in Breakfast with Dave on November 30, 2009.

Range OF Macro Outcomes is Extremely Wide

All you need to do is go to the Federal Open Market Committee (FOMC) minutes and see the wide divergence of views over the macro outlook, and this is coming from 17 of the nation’s top policymakers who also ostensibly keep in touch with each other. The range on 2010 GDP estimates is: 2.0% to 4.0%; for 2010, 2.5% to 4.6% for 2011, and 2.8% to 5.0% for 2012. These two percentage points are huge for a $14 trillion economy — we’re talking about differences that amount to $300 billion! The range on the unemployment rate forecast for 2010 is 8.6% to 10.2%; for 2011 it is 7.2% to 8.7%; and for 2012, the band is 6.1% to 7.6%. These ranges are massive. And, for the inflation rate, the range for 2010 is 1.1% to



So consider that at the Fed, there is one official that sees the potential for a return to full employment by 2012; and another that sees the prospect of deflation. These views are worlds apart and attest to our assertion that the band around any particular forecast in a post-bubble credit collapse is huge.

Fed's 2012 Forecast

Let's start with a look at the Fed's 2012 forecast where the band is 6.1% to 7.6%.

Using Bernanke's estimate that it takes 100,000 jobs a month to keep up with birthrate and demographics, the economy will have to create 260,000 jobs every month in 2010, 2011, and 2012 to hit an unemployment rate of 6.17% by the end of 2012.

To get to 7.6% by the end of 2012, the economy would have to average 200,000 jobs a month for the next three years.

2000-2009 Perspective

• At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
• At the height of the housing bubble in 2005, the economy added 212,000 jobs a month.
• At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 96,000 and 178,000 jobs per month depending on where you mark the peak.
  

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution. If anything, outsourcing of internet jobs to Asia is likely to remain intense.

No Genuine Driver For Jobs.

• The retail sector has massive overcapacity. We do not need more Home Depots, WalMarts, Lowes, Sears, Pizza Huts, Targets, Safeways, etc etc.
• Commercial real estate is flooded with vacant offices and plagued by falling rents.
• Housing inventory is enormous.
• Boomers will be looking to downsize their lifestyles.
• There is not going to be another internet boom.

It is well beyond absurd to expect the economy to average even 200,000 jobs a month, let alone 260,000 jobs a month when neither the housing boom nor the commercial real estate boom could manage those numbers over a sustained period.

In short, the Fed's unemployment projections must be for some other planet or for some other alternate universe somewhere because they do not reflect reality here.

My Baseline Scenario



That is what my baseline scenario looks like (revised today to reflect November job numbers).

Extremely Generous Assumptions

• I am assuming there will be job gains (on average) in 2010 even though history suggests otherwise.
• I have the number of jobs gained per month increasing to 170,000 jobs per month for 2013 even though I think 150,000 is a more realistic maximum target for an entire year.
• I have +150,000 jobs for 4 consecutive years through 2016.
• I have the Labor Pool decreasing dramatically as a result of boomer demographics starting in 2014.This acts to lower the unemployment rate.
• I have the participation rate falling every year, accelerating rapidly starting in 2014 all the way through 2020.

I used a labor pool increase of 120,000 a month rather than Bernanke's 100,000 a month to accommodate re-entry of marginally attached workers into the job force (people start looking for jobs because they think they may be available).

Moreover, I assume there will not be a double dip recession or any recession of any kind for a decade.

Note the first box on the chart contains a one month projections (for December 2009), while all the rest of the numbers are for full years.

Download The Spreadsheet

Click here for a downloadable spreadsheet where you can enter your own assumptions and create a graph for your assumptions.

For details on how to use the spreadsheet and more details on my assumptions please see Mish Unemployment Projections Through 2020.

For John Mauldin's assumptions please see Mapping Unemployment - You Make The Call - Downloadable Spreadsheet

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bernanke Rethinks Bubbles But Still Gets It Wrong; Sign The Petition To Dump Him

Bernanke keeps piling on proof of how inept he really is. After arguing for years that it is best to leave bubbles alone then take care of them after they pop, he now thinks that "maybe" he was wrong. He was then and still is because he does not even know what causes bubbles.

Please consider Fed Debates New Role: Bubble Fighter

Fed officials used to think there was little they could or should do to prevent bubbles from inflating. For one thing, identifying bubbles with any certainty was deemed to be too difficult. And even if they could be accurately pinpointed, pricking them might do more harm than good. Raising interest rates to stop a bubble, for instance, could slow growth in other parts of the economy that were otherwise healthy.

The Fed's main strategy instead was to mop up after a bubble burst with lower interest rates to cushion the blow to the economy and restart growth. That strategy was a key conclusion of Mr. Bernanke's writings on the subject of bubbles when he was a Princeton professor, and again when he first came to the Fed as a governor in 2002. It was an approach embraced by his predecessor Alan Greenspan.

Now, Fed officials admit the stance didn't work. They're groping for alternatives. Of the two methods to prevent bubbles -- using regulations to protect the financial system from excess and changing monetary policy by raising interest rates -- Mr. Bernanke falls on the side of greater regulation, an idea he has advocated in the past.

"The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future," Mr. Bernanke said in answer to a question after a speech in New York last month.

Playing the interest-rate card, in contrast, is considered by many to be a more aggressive and risky move. On Tuesday, Philadelphia Fed President Charles Plosser said interest rates were "a very blunt instrument" to thwart a possible bubble. He said raising rates could "affect all other asset prices at the same time."

Bernanke Amazingly Inept

Bernanke keeps proving over and over again how inept he is. The only source of bubbles is the Fed in conjunction with fractional reserve lending.

Logic would dictate that it is only possible to stop bubbles with regulation if regulation is the source of the bubble. Pray tell exactly what regulation (other than getting rid of the Fed and FRL) would have stopped the dot-com bubble?

I suppose in theory enough regulation might have stopped a housing bubble (I doubt it in practice), but even if it did, the excess credit stemming from too loose monetary policy would simply have found another home and another bubble.

Bernanke is trapped in academic wonderland. He is immune to both logic and real world practical experience and instead relies on beliefs and formulas already proven to have failed at every chance.

The problem then is the same as the problem now: monetary printing and too cheap money. The only regulation that makes any sense as a cure is to get rid of the Fed and its bubble blowing tactics.

The Inept Want More Power

Instead, like all failed regulators, and in strict accord with the Fed Uncertainty Principle the Fed is angling for more power to cleanup the mess it made

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Sign the Petition.

This is unlikely to help, but it sure cannot hurt. Bernie Sanders says We Need a Change at the Federal Reserve

Mr. Bernanke did not prevent the buildup of as massive speculative bubble which dragged this nation, and the world, into the deepest recession since the 1930s. Since Mr. Bernanke took over as Fed chairman in 2006, unemployment has more than doubled and, today, 17.5 percent of the American workforce is either unemployed or underemployed.

Not since the Great Depression has the financial system been as unsafe, unsound, and unstable as it has been during Mr. Bernanke's tenure.

We believe it is time for a new Chair at the Federal Reserve Bank. Mr. Bernanke should not be appointed to another term as Chair.

Please click on the previous link and sign the petition to get rid of Bernanke.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Are You Unemployed?

Here is a cute video to help you assess if you are unemployed or not.



Yes, that is the way it really works, on the off chance you did not know already.

Table A-12

Table A-12 on the Bureau of Labor Statistics (BLS) Employment Report. is where one can find a better approximation of what the unemployment rate really is.



click on chart for sharper image

Grim Statistics

The official unemployment rate is 10.0%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 17.2%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a slower pace than earlier this year.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Japan Ponders Ban On Hiring Temporary Workers

Japan is considering yet another inane policy decision to combat deflation. Please consider Japan May Ban Manufacturers From Hiring Temporary Employees.

Japan may ban manufacturers from hiring temporary workers, Health and Labor Minister Akira Nagatsuma said, as Prime Minister Yukio Hatoyama seeks to fulfill a campaign pledge to shift more employment to full time.

The government is preparing legislation “that will stop manufacturing firms from employing temps and encourage them to hire full-timers,” Nagatsuma said yesterday on a business program broadcast by public network NHK.

Japanese companies have cut jobs to remain profitable in an economy struggling with deflation and as a strengthening currency erodes export earnings. Unemployment rose to a postwar high 5.7 percent in July, while the yen has gained 2.8 percent against the dollar in the past three months.

Deputy Prime Minister Naoto Kan said last month the government will ease conditions under which employers can receive subsidies to keep people on their payrolls. The government has also pledged to create 100,000 jobs by March.

Boosting employment is a priority of the stimulus package Hatoyama is to unveil this week to protect the economy’s rebound from its worst post war recession. Third-quarter profits at manufacturers including auto and electronics makers decreased 69.3 percent from a year earlier while sales fell 21.2 percent, a Finance Ministry survey showed last week.

Younger people aren’t reaping the benefits of the improved labor market. The proportion of college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last month, the steepest drop since the survey started in 1996.

The ruling Democratic Party, which took power in September, criticized the former government’s policy of letting companies hire temporary workers to adjust payroll size in line with production, and during the election campaign pledged to ban it.

Nagatsuma said yesterday a bill to end the practice may be submitted to a regular parliament session that starts in January.

Note that Japan is complaining about "high" unemployment that peaked at 5.7% earlier this year and is now fallen to 5.1%. The rest of the G-7 would be singing praises at that rate.

One of the things making the low rate possible is horrible demographics. Japan's population is both aging and shrinking. Yet profitability is down so making businesses take on needless expenses is hardly a solution to anything. Nor are government subsidies to companies to keep needless employees on the payroll.

Government subsidies have to come from somewhere, either higher taxes or increasing government debt. Japan already has the highest debt-to-GDP ratio of any major industrialized country at 170% of GDP heading soon to 200% of GDP.

I talked about that at length in U.S. Faces Second Lost Decade "Because" of Misguided Stimulus.

Illusions of Stimulus

My friend "HB" has the following thoughts I wish to share.

There is nothing, absolutely nothing, that government intervention can achieve in terms of 'fixing' the economy. The choice was in either abandoning the unsound policy and the unsound investments it produced, or careen toward a complete destruction of the currency system.

Once again, I stand amazed at how people can look at this, and look at Japan, and look at the housing bubble/bust sequence, and still believe that monetary pumping and deficit spending are viable tools of economic policy when a bust occurs. It really boggles the mind, reminding me of Einstein's definition of insanity, 'doing the same thing over and over again and expecting a different result'.

Cause and Effect

Final analysis shows the U.S. Faces Second Lost Decade "Because" of Misguided Stimulus, not as a result of pulling stimulus too early as Koo, Krugman, and Romer suggest.

If that sounds wrong then just take a look at how we got here: Hoping to end the recession of 2001-2002, the Fed slashed interest rates, held them too low, too long, we had the mother of all housing/credit booms and the global economy crashed.

The US has nothing to show for all that stimulus other than a wrecked economy, massive debt that needs to be written off, and extremely wealthy parasite bankers bailed out by consumers after contributing to these problems.

Path of Self-Destruction

Japan remains on a path of self-destruction and all it will take to set off the time-bomb is higher interest rates on long-term government bonds.

Amazingly, the US marches down the same destructive path of misguided Keynesian and Monetarist stimulus efforts. Please see How "Something For Nothing" Ideas Become Policy for why this happens.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Geithner Disses Transaction Tax, Questions Tax Credits For Jobs

It's rare that I agree with Geithner on anything, so one and a half out of 4 is rather good. Please consider Geithner Dismisses Tax on Financial Transactions as Unworkable.

Treasury Secretary Timothy Geithner, throwing cold water on a plan by congressional Democrats to tax financial transactions, said banks and other market participants would find ways to circumvent the expense.

“I have not seen the version of that that I think works,” Geithner said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” that airs throughout the weekend. Firms are “going to move in a heartbeat to get around any tax like that.”

The Treasury chief also predicted a “quite high” chance that the U.S. unemployment rate will be lower than 10 percent in a year, and he called yesterday’s Labor Department report showing the smallest monthly job loss in two years “progress but not good enough.”

The prospect of a so-called Tobin tax, floated last month by U.K. Prime Minister Gordon Brown, is already provoking nervous U.S. financial companies to lobby for its defeat. Democrats, including Oregon Representative Pete DeFazio and Iowa Senator Tom Harkin, this week proposed taxing large transactions in stocks and derivatives. House Speaker Nancy Pelosi said the idea has a “great deal of merit.”

Tobin Tax

In yesterday’s interview, Geithner, echoing some of the banking industry’s reasons for opposing a Tobin tax, said he was concerned it wouldn’t be able to be adopted globally, making it harder to impose. He also noted that the tax may hit less sophisticated investors, instead of the big firms.

“There’s a real risk that retail investors, who’ve got fewer choices, they end up bearing the cost of the tax,” he said.

On another tax issue, Geithner questioned the effectiveness of providing businesses with a $5,000 credit for each new net job they create. Some have predicted the measure could help the economy add as many as 1.5 million new jobs.

“Just to be frank about it, there’s a lot of people in the business community and the academic community who are not confident that that particular proposal would be that powerful,” Geithner said. “But we’re going to keep looking at it.”

TARP Changes

On the TARP, Geithner said the administration was in the process of putting the final touches on a major refinement of the effort.

“We’re going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges,” he said.

He didn’t say whether he will seek to extend the program for another nine months, as the law allows, when it expires on Dec. 31.

Geithner also said he was confident that loopholes concerning derivatives, inserted into legislation Congress is crafting to overhaul financial regulation, would be tightened before a law is passed.

Geithner only mentioned one of the problems with the transaction tax: firms moving elsewhere to avoid it. The other very real risk is that it will reduce liquidity in a plunging market, decidedly not a good thing. Nonetheless I will generously award him a full point.

Tax credits for jobs are a horrible idea. Geithner seems to be against them but not strongly, so I will award him half a point.

Businesses are not going to hire extra workers just to get a credit. They are going to hire who they need to hire, when they need to hire. If anything they may delay hiring hoping to get a tax credit. Finally, tax credits will promote churning of employees as it will give an incentive for employers to fire some workers while replacing them with others for a credit. Given Geithner's statement promise “to keep looking at it” awarding him a half point for his stance is quite generous.

In regards to derivatives, I reserve judgment until we see what passes.

In regards to the economy, the jobs picture presented on Friday was a mirage. One even has to wonder if the BLS is purposely playing games knowing full well a massive revision in the January numbers (coming out in February), will subtract 80,000 jobs a month for a full year.

I doubt the unemployment rate is under 10% a year from now, or even two years from now, unless the BLS numbers show large declines in the labor force (as they did in the November Employment Report on Friday).

Table A



Explaining The Drop In Unemployment Rate

Table A explains the drop in the unemployment rate nicely.

Unemployment dropped by .2% even though 11,000 jobs were lost and it should take at least 100,000 jobs just to keep up with demographics. Instead note the drop in the civilian labor force by 98,000.

Moreover, those "not in the labor force" rose by 291,000 constituting nearly all of the decline in unemployment.

That drop in the labor force is not normal to say the least. It should have risen by 100,000 minimum.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Chicago Cannibalization: Mayor Daley's Budget Eats 75% of a 75 Year rainy Day fund in One Year

A year ago Mayor Daley rammed though a parking meter deal that was supposed to provide a "rainy day" fund for Chicago for the next 75 years.

In September, snags appeared prompting the Chicago Sun Times to write Daley losing confidence in parking meter company.

Mayor Daley demanded today that Chicago’s embattled parking meter operator synchronize the time on its pay-and-display boxes and void parking tickets tied to time discrepancies. “That’s unacceptable. They have to void those tickets,” he said.

Daley said the latest in a string of operational problems that have marred the transition to private control has prompted him to lose confidence in Chicago Parking Meters LLC.

“Slowly but sure, yes,” he said.

But, the mayor said he is not about to cancel the 75-year, $1.15 billion lease tied to a steep schedule of rate hikes that helped plug a gaping hole in the city’s 2009 budget.

“See that home over there? Go over there and ask them if they want their real estate taxes increased,” the mayor said after a ribbon-cutting at the new Jorge Prieto Math & Science Academy, 2231 N. Central.

“We have a rainy day fund. If it wasn’t for that, our financial crisis would be worse. ... That was sold at the highest time. You can’t even sell a public asset today. You can’t sell anything today.”

The Chicago Sun-Times and NBC5 reported this week that pay-and-display boxes touted as the high-tech solution to over-stuffed and improperly calibrated parking meters have a problem of their own: they’re out of synch.

A spot check of about 50 newly-installed boxes found the time they show varies from machine-to-machine — leaving motorists confused about when to return to their vehicles to avoid getting a ticket.

Times displayed by boxes along Lincoln, Fullerton and Armitage didn’t match, even though they’re on the same computer server.

Political fall-out from the parking meter fiasco is at least partly to blame for a precipitous drop in Daley’s approval rating — to 35 percent, the lowest of his 20-year reign, according to a Chicago Tribune poll.

Chicago’s parking deal revisited

In November, Felix Salmon posted an interesting chart showing just how flawed the lease deal is in Chicago’s parking deal revisited

Boiled down, what the city of Chicago did was to rush a bill selling the parking-meter concession through the city legislature without allowing lawmakers to give it a detailed reading. The city claimed it got a good deal, basing that claim on a single valuation from its own advisor. But after the fact, a number of analysts, including the Inspector General, have concluded that actually the deal wasn’t very good at all.

The one claim in the IG’s report that I find the most compelling is that the term of the deal — 75 years — is far too long. Here’s their chart:



In order to get to the final sum of $1.16 billion, they had to assume an 11% discount rate. (Which, yes, is pretty high.) When your discount rate is that high, there’s little point in selling off a 75-year concession: you can cut the life in half and still get 93% of the value.

It’s worth pointing out at this point that another critic of the deal, Scott Waguespack, uses a valuation methodology where the discount rate is 3% and the inflation rate is also 3% — in other words, the value of a real dollar in 75 years’ time is the same as the value of that dollar today. That’s just ludicrous.

But what isn’t ludicrous is that nobody has a clue what the parking-meter industry is going to look like in the 2080s: will there even be cars parking at meters then? If someone bought a franchise in 1934 in just about any industry — even if it was heavily regulated by the government — they’d have no ability to foresee what kind of revenues that franchise might be bringing in today. As far as the purchaser is concerned, the second half of the deal basically has option value: there’s a possibility that it might be hugely lucrative, but there’s also a possibility that it’ll be worth nothing. Looking at the price, it doesn’t seem that the buyers paid anything at all for the option, so it was silly of Chicago to just give it away.

Alderman Duel Over Parking Meters

With that backdrop inquiring minds are reading Aldermen duel over TIFs, parking meters, spending, and the brainwashing powers of the media.

Wed, Dec 2, 2009
As has become customary, aldermen bitched and moaned about Mayor Daley’s $6.1 billion budget before they passed it today. Nobody claimed to like it, though 38 aldermen voted in favor of it. But that number is smaller than it has been for most of Daley's reign. In years past the mayor viewed a single nay vote as an intolerable act of defiance; these days he’s lucky no one else has the clout to wield or goodies to hand out that he does, because his governing style is wearing thinner among an ever larger group of aldermen. As in a dozen.

Still, their arguments are getting more pointed. For evidence, consider the diatribe that 38th Ward alderman Tom Allen delivered to explain why he was casting his first vote against a Daley budget since the mayor appointed him to the City Council in 1993. “I have come to the conclusion that this 2010 budget is one that I have no confidence in,” Allen said.

He offered three reasons. “First and foremost,” he said, “the parking meter spending plan here I consider to be a breach of our fiduciary duties to the taxpayers that we represent.” Allen produced materials that Daley budget aides had distributed to aldermen a year ago when they rammed the 75-year parking meter privatization deal through the council in four days. He said aldermen were promised that the administration would save enough of the proceeds that the interest on them would equal or exceed the $20 million the city was accustomed to collecting from the meters. Instead, Daley’s budget will burn through two-thirds of the replacement fund in a single year.

“We have lost the replacement money,” Allen said. “You cannot break a contract in 12 months that is supposed to last for 75 years. It is unconscionable, irresponsible, and it is disingenuous.”

Allen predicted that some of his colleagues would counter-attack him, and he was right. A few minutes after he spoke the venerable 50th Ward alderman Berny Stone, a frequent Daley administration defender, responded point by point, in reverse order. ...
Stone isn’t worried about replenishing the meter funds at a date to be named later. He noted that the city owns all kinds of vacant land that it can sell when the markets are better.

“We’ll recover our money in no time!” Stone proclaimed. “This is a great city, a great body, and we will recover!”

Chicago "The City That Works"

To replace the rainy day fund, 75% used up in a year (supposedly to prevent tax hikes), Alderman Stone proposes selling city land, further cannibalizing Chicago's assets.

As for those tax hikes...

On July,1 2008 CBS News reported Taxes In Chicago Now 10.25 Percent, Highest In Nation.

To deal with budget shortfalls, property taxes went up by 4.2% in October of 2009. Please see Chicago Metro Area Sales-Tax Receipts Plunge, Property Taxes Rise for details.

Daley Calls Closed Door Meeting On Trade Show Exodus

Problems are coming at Chicago faster than Mayor Daley can stick his fingers in the dike.

Major conventions are ditching Chicago over outrageous costs for McCormick Place electricians as noted in Conventions Say Good Riddance to Chicago Over Costs and Union Work Rules.

Trade show cancellations prompted an Emergency meeting on convention show exodus.

Mayor Richard Daley called labor leaders and McCormick Place officials into his office for a closed-door meeting today to talk about stopping the exodus of high profile trade shows to other cities by lowering costs at the convention center.

The recent defections of a plastics industry trade show to Orlando, Fla., and the Healthcare Information and Management Systems Society to Las Vegas were heavy blows, Daley said.

"Sometimes you have to hit someone with a hammer," for them to realize there's a serious problem, the mayor said at an event earlier in the day.

But Dennis Gannon, president of the Chicago Federation of Labor, insisted officials need to look beyond union wages and work rules to bring costs at McCormick Place in line with those in other cities.

Union workers at McCormick Place have agreed to three changes to work rules in the past 15 years, Gannon said, arguing labor costs there are now comparable to those at convention centers around the country.

Three Rule Changes In 15 Years

The union agreed to three rule changes in 15 years. Wow. Were those impressive results achieved with or without the hammer? More importantly, does Daley even have a union card authorizing him to use that hammer?

There are some interesting comments along those lines.

Paula writes "Like all industries, jobs go where the unions aren't. Simple as that. Want to drive the local economy into the ground? Vote pro-union. Just ask Michigan.

Bill Writes: "The work rules and fees are out of sight, but so are the taxes for event goers. Look at all the greedy pile-on taxes that Chicago burdens travelers with. Chicago deserves to lose every single bit of business, including the auto show. I too am celebrating this implosion and hope it continues until there’s nothing left to tax or pillage."

That is the sad state of affairs in Chicago. Unfortunately, Chicago is likely to respond the way it always does - raise taxes to make up for the lost revenue that stems from the city raising taxes.

Some will suggest this argues against privatization, but the reality is that it argues against a no-bid process rammed through by one person. It also argues against using very long-term funding for short-term needs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Small Business Owner Confidence Plunges

Although the Fed and most economic forecasters are all looking ahead to the recovery, small business owners do not seem convinced. Please consider Economic Confidence Plunges; Low Expectations for the Holidays.

Economic confidence among America's small business owners plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse. The Discover Small Business Watch index fell 12 points in November to 76.5 from 88.5 in October.

November Highlights:

• The mood of small business owners generally has soured in November for three straight years, as economic confidence dropped from October to November in 2007 and 2008. The November 2008 index of 67.5 is the low point for the Watch since it started in August 2006.
• 52 percent of owners say they have experienced cash flow issues in the past 90 days, up from 44 percent in October. Forty-one percent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 percent said they weren't sure.
• 53 percent of small business owners see conditions getting worse in the next six months, up from 43 percent in October; while 19 percent report that conditions are improving, a sharp decline from 29 percent in October; 23 percent see conditions as the same, and 5 percent weren't sure.
• 62 percent of small business owners rate the economy as poor, an increase from 55 percent in October; 30 percent rate it as fair, and 8 percent say it is good or excellent.
• 53 percent of small business owners think the overall economy is getting worse, up from 44 percent in October but still significantly lower than the 69 percent of owners who felt that way in February 2009, the last time the Watch index was this low. For November; 28 percent say the economy is getting better, down from 35 percent in October; 16 percent see it staying the same, and 3 percent are not sure.

A majority of small business owners think the economy is getting worse, not better. And if small businesses are not confident, then they are not hiring.

Odds are increasing that Congress will need to pass yet another stimulus package but if so, it will have even less effect than previous ones.

Every stimulus effort shifts demand forward. After enough shifting forward, demand drops to zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jobs Contract 23rd Straight Month; Unemployment Rate Drop to 10.0%

This morning, the Bureau of Labor Statistics (BLS) released the November Employment Report.

The unemployment rate edged down to 10.0 percent in November, and nonfarm payroll employment was essentially unchanged (-11,000), the U.S. Bureau of Labor Statistics reported today. In the prior 3 months, payroll job losses had averaged 135,000 a month. In November, employment fell in construction, manufacturing, and information, while temporary help services and health care added jobs..




Establishment Data



click on chart for sharper image

Highlights

• 11,000 jobs were lost in total vs. 190,000 jobs last month.
• 27,000 construction jobs were lost vs. 62,000 last month.
• 41,000 manufacturing jobs were lost vs. 61,000 last month.
• 58,000 service providing jobs were added vs. 61,000 lost last month.
• 15,000 retail trade jobs were lost vs. 40,000 last month.
• 86,000 professional and business services jobs were added vs. 18,000 added last month.
• 40,000 education and health services jobs were added vs. 45,000 added last month.
• 11,000 leisure and hospitality jobs were lost vs. 37,000 last month.
• 07,000 government jobs were added vs. 0 added last month.

A total of 69,000 goods producing jobs were lost (higher paying jobs). Retail and professional services contributed massively to to the plus side.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Index of Aggregate Weekly Hours

Work hours were +.2 to 33.2. Short work weeks contribute to household problems. Moreover, before hiring begins at many places, work weeks will increase.

Birth Death Model Revisions 2008



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Birth Death Model Revisions 2009



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Birth/Death Model Revisions

After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers remain in deep outer space.

At this point in the cycle birth death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession in a complete display of incompetence.

Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

• The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
• Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
• The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Household Data

In November, both the number of unemployed persons, at 15.4 million, and the unemployment rate, at 10.0 percent, edged down. At the start of the recession in December 2007, the number of unemployed persons was 7.5 million, and the jobless rate was 4.9 percent.

Among the major worker groups, unemployment rates for adult men (10.5 percent), adult women (7.9 percent), teenagers (26.7 percent), whites (9.3 percent), blacks (15.6 percent), and Hispanics (12.7 percent) showed little change in November. The unemployment rate for Asians was 7.3 percent, not seasonally adjusted.

The civilian labor force participation rate was little changed over the month at 65.1 percent. The employment-population ratio continued to decline in October, falling to 58.5 percent.

The number of people working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in November at 9.2 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

Persons Not in the Labor Force

About 2.3 million persons were marginally attached to the labor force in November, an increase of 376,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 808,000 discouraged workers in October, up from 484,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.6 million persons marginally attached to the labor force in October had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Table A-5 Part Time Status



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The chart shows there are 9.28 million people are working part time but want a full time job. A year ago the number was 7.3 million.

Note the trend in part-time work. In a recovery it should be headed down quickly. The reason is employers increase the hours of part-time workers before they start hiring full-time workers.

The key take-away from this series are the millions of workers whose hours will rise before companies start hiring more workers.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look



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Grim Statistics

The official unemployment rate is 10.0%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 17.2%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a slower pace than earlier this year.

Looking ahead, there is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is likely to continue rising until sometime in 2011.

Table A



Explaining The Drop In Unemployment Rate

Table A explains the drop in the unemployment rate nicely.

Unemployment dropped by .2% even though 11,000 jobs were lost and it should take at least 100,000 jobs just to keep up with demographics. Instead note the drop in the civilian labor force by 98,000.

Moreover, those "not in the labor force dropped rose by 291,000 constituting nearly all of the decline in unemployment.

Finally, in a typical recovery, the participation rate should go up not down. The reason is people hear there is a recovery, hear things are getting better, hear the talk about "green shoots" and think there might be a job if they go looking.

Nonetheless it's the reaction to the data this is important and at least initially we see something new happening today: The stock market is up along with the dollar while treasuries, gold, and silver are all down.

It remains to be seen if this is another one-day-wonder of if this is a reversal of any major trends.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Senator Bunning to Bernanke "You are the definition of a moral hazard. Your Fed has become the Creature From Jekyll Island"

Inquiring minds are listening to Senator Jim Bunning grill Ben Bernanke over the Fed's miserable performance under Bernanke.



Here is a partial transcript but I recommend playing the 13 minute video in entirety.

Alan Greenspan refused to look for bubbles or to do anything other than create them. Likewise it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Under your watch every one of the major banks failed or would have failed had you not bailed them out.

After taking over the Fed you did not seen any need for more substantial regulation of derivatives until it was clear that they were headed into the financial meltdown thanks in part to those products.

The Greenspan policy on transparency was to talk a lot, use plenty of numbers, but say nothing. You promised congress more transparency when you came to the job. You promised more transparency when you came begging for TARP. To be fair you have published more information than before but those efforts are inadequate and you still refuse to provide details on the Fed's bailout last year on all the toxic waste you have bought.

Chairman Greenspan sold the Fed's independence to Wall Street on the so called "Greenspan PUT". Whenever Wall Street needed a boost, Alan was there. But you went even farther than that when you bowed to the political pressure of the Bush and Obama Administrations, and turned the Fed into an arm of the Treasury.

Under your watch the "Bernanke PUT" became a bailout for all large financial institutions, including many foreign banks.

And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street.

In short, you are the definition of a moral hazard.

You are repeating the same mistakes as Japan in the 1990's on a much larger scale while sowing the seeds for the next bubble.

The AIG bailout alone is reason enough to send you back to Princeton.

I will do everything I can to stop your nomination and drag out this process as long as I can. We must put an end to your and the Fed's failure and there is no better time than now.

Your Fed has become the creature from Jekyll Island.

It is hard to add to that. Senator Bunning states the facts as they are.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Service Sector ISM Back In Contraction; Stimulus Fades Already

Inquiring minds are reading the November 2009 Non-Manufacturing ISM Report

Economic activity in the non-manufacturing sector contracted in November after two consecutive months of expansion, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

What Respondents Are Saying ...

• "Capital markets remain very tight; lenders are not releasing funds for development projects, limiting expansion." (Accommodation & Food Services)
• "Fourth quarter still looking grim, but potential upturn for Q1 2010." (Professional, Scientific & Technical Services)
• "No one trusts that the recovery is real. Seems everything and everyone is in a holding pattern." (Public Administration)
• "Business is still flat." (Wholesale Trade)
• "U.S. business remains better than 2007 levels, although it's been through personnel and cost reductions that we are now profitable. Business continues to be about 8 percent below 2008 levels." (Real Estate, Rental & Leasing)

Non-Manufacturing ISM History

Is This A Recovery?

Take good look at the chart immediately above. After sloshing around $trillions in bailouts and stimulus packages the NMI could barely get above break-even and topped in September.

New orders are up, but much of that is front-loaded government stimulus efforts. With government spending and reflation efforts by central bankers worldwide, it should not be surprising to see prices rising. Yet, employment is not confirming the pickup in business activity.

Double Dip Recession Warning

Paul Krugman is waking up to a possibility that I think is nearly a given. Please consider Double Dip Warning.

I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.

The chances of a relapse into recession seem to be rising.

Stimulus Fades

Krugman mentioned a couple of articles that show the fading effects of fiscal stimulus. Please consider Job Cuts Loom as Stimulus Fades

Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation's weak employment picture.

Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty. In the past two years, his work force has shrunk nearly 40% to 260 from 420.

"Having something to bid on is the lifeblood of the industry, and it's running out," said Mr. Word. He isn't sure what will happen next year without new projects. "There's no pavement fairy that's going to help."

No Economic Fairies

Not only are there no pavement fairies, there are no fairies of any kind. The idea that Keynesian work projects can stimulate the economy back to a lasting recovery is loony. Japan proved that for two decades, but Keynesian clowns still insist it's just a matter of throwing more money around until something good happens.

Nothing good happened in Japan from Quantitative Easing or Keynesian stimulus efforts and nothing good will happen in the US from them either. The problem is debt and the cure is paying off that debt, not going deeper into it.

In the meantime prepare for the double-dip or an economic flatline at best because that is how the signs are pointing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Distortions, Lies, and Muggings by the Fed, Bank of England

The first priority of Central Bankers in any crisis is to buy time by any method available. By now, it should be perfectly clear that Central Bankers are willing to unconstitutionally usurp authority in an effort to buy that time.

I talked about that idea most recently in Hussman Accuses the Fed and Treasury of "Unconstitutional Abuse of Power"

Hussman: "The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.

Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve."

Fed Uncertainty Principle

Long before that, and even before such blatant abuses occurred, I predicted such happenings in the Fed Uncertainty Principle, written April 3, 2008.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

Ironically, after being lied to for years by the likes of Bernanke and the BOE, the Central Bankers act shocked at proposals like "Audit The Fed".

With that backdrop, let's now look at shenanigans, lies, and manipulations by the Bank of England.

Bank of England Props Up RBS, HBOS at Height of Crisis

Inquiring minds are reading Bank of England propped up RBS, HBOS with £61.6bn in emergency loans at height of crisis.

Mervyn King, the Bank’s governor, said the central bank stepped in as a lender of last resort to provide a bridging loan before the Government rescued the two institutions.

The banks put up collateral worth more than £100bn in return for the loans as the financial system was rocked by the failure of Lehman Brothers, the Wall Street bank.

Mr King, appearing at a Treasury Select Committee hearing on the Bank’s November Inflation report, said the loans were granted because “this was a dire emergency".

"It was very effective in buying time,” he said.

Details of the Emergency Liquidity Assistance (ELA) for the banks were revealed in a Submission to the Treasury Select Committee.

Mr King repeated his argument that no bank should be deemed “too big to fail.”

Preposterous Statements by Mervyn King

If no bank is "too big to fail" then the BOE would not have done what it did. The amazing thing is how King can make such a preposterous statement in light of what he did. Yet he acts as if he expects to be believed.

Discerning Truth From Fiction

What makes it hard to discern truth from fiction is sometimes Mervyn King actually tells the truth about important issues. Please consider Bank of England's Mervyn King testifies on growth, inflation and the deficit.

Mr King on the world's global imbalances:

"I think the point that really does trouble me is the speed at which the imbalances in the world economy are likely to adjust. As the level of output in the world starts to grow again, my concern is that the imbalances will start to emerge again.

"I have no doubt that as those imbalances become large again, that will create pressure for protectionism to build up."

"It behooves the Treasury and the Bank to do a contingency plan for what kind of private sector assets you would buy, and how."

Honesty Amongst Thieves

Those last three paragraphs above are 100% believable. Moreover, you will never see the Fed make statements like that for fear of upsetting the markets.

However, clever readers will note the implied problem in the third paragraph, highlighted in red.

The BOE virtually guaranteed it will buy whatever it wants, whenever it wants, and however it wants. It is a promise that the BOE will hide, distort, and manipulate to its heart's content to buy whatever time it thinks it needs, just as it has done before.

At least the BOE has the honesty to admit it is crooked. One cannot say the same thing about the Fed.

Secret Loans Disclosed

Please consider Bank of England tells of secret £62bn loan to save RBS and HBOS

In a shock announcement, the Bank disclosed that it had been forced to use its lender of last resort facility last October to "buy time" for RBS and HBOS, which were "effectively... bust". It managed to keep the loans - the equivalent of almost £3,000 for every household in the UK - a complete secret to all but a handful in the City for well over a year.

Most remarkable, however, was the fact that the Bank managed to lend such a sum without it being detected by market participants or by the media - although rumours did abound at the time.

The loan facilities, of £36.6bn for RBS and £25.4bn for HBOS, were in addition to the hundreds of billions provided to the banking system in the form of guarantees, liquidity support and recapitalisation funds. Through them, the Bank was also quietly injecting cash into the economy some six months before it started quantitative easing.

Shadow Chancellor George Osborne said: "The scale of these loans raises the question of how Labour's tripartite regulatory structure allowed these banks to come so close to collapse in the first place, and underlines the need for fundamental reform to put the Bank of England back in charge."

Pray Tell, What Is The Fed Hiding?

Once again note how the BOE is willing to admit what it did, while the Fed is still hiding in the closet, getting help from Barney Frank. What is on the Fed's balance sheet that it is so concerned about?

An Admitted Mugging

Inquiring minds noting how Lloyds investors ‘mugged’ over HBOS deal.

Lloyds TSB shareholders were “mugged” when the bank agreed to buy HBOS last year without knowing that the stricken lender was being propped up by a secret £25bn loan, it was claimed on Wednesday.

Alistair Darling, the chancellor, was forced on to the defensive as he gave a Commons statement explaining the decision to keep secret the combined £61.6bn of emergency funds given to HBOS and RBS last year.

Although Lloyds shareholders were told that HBOS would have to “substantially rely for the forseeable future” on Bank of England liquidity support, they only found out on Tuesday the true extent of the stricken bank’s problems.

Lloyds bought HBOS at the height of the banking crisis in a deal facilitated by Gordon Brown, who waived competition rules to allow the merger to take place.

Eric Daniels, Lloyds chief executive, later admitted that his bank could have escaped being part-nationalised in October 2008 had it not been for the liabilities it assumed when it bought HBOS.

“It is plain that the workers and shareholders of Lloyds were mugged,” said Jim Cousins, a Labour MP.

But Mr Darling disowned any responsibility for the fact that Lloyds shareholders were kept in the dark about the emergency loans at the time of the HBOS merger, saying it was “fairly and squarely” a matter for the Lloyds board.

My Dear Darling ...

My Dear Darling don't you have enough decency to openly admit you are a crook? If Mervyn King can allude to it, why can't you?

I have the just the spot for Alistair Darling should he happen to lose his job as chancellor. He would have to change his citizenship of course, but otherwise he is clearly suited for the Fed.

Place No Trust in Central Bankers

Why anyone would believe anything the Fed or any other Central banker says (other than the blatantly obvious truth) is beyond me. Others agree as noted in Marc Faber Sees War Against an Invented Enemy and a Big Financial Bust.

Faber: “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

Mish: No decent citizen should trust any central bank anywhere. The problems go far beyond the Fed and in the long run all fiat currencies are worthless. Fiat currencies do not float, instead they all sink at varying rates.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Arizona Maxes Out Line Of Credit In Two Weeks Flat

Here is a good story courtesy of the Arizona Republic: Cash-short Ariz. maxes out new line of credit.

The state's cash-flow problems are so dire that it took less than two weeks for government to tap the entire $700 million loan it had borrowed to help with short-term needs.

State Treasurer Dean Martin on Wednesday said that means the state will have to revert to some internal borrowing to keep money flowing in the state's checking account.

The shortage developed when the Treasurer's Office had to make a Dec. 1 payment of $389 million to the state's schools, which exceeded the cash on hand. To make up the difference, Martin borrowed $73 million from internal state accounts.

Those amounts will be replenished as tax collections roll in.

On Nov. 19, the state finalized a loan agreement with Bank of America for $700 million, the first time since the Depression that Arizona has needed to turn to an outside borrower.

Internal Borrowing vs. Check Kiting

Internal Borrowing Example: Assume the state has a $30 million expense due in a month with sufficient cash on hand. It has another expense for $30 million due now that it does not have. It borrows money from the first account to pay the bills of the second, hoping to collect enough tax revenue in the interim to pay back the first account before the money is due.

While not exactly the same, the setup has a lot in common with check kiting.

1. A piece of negotiable paper representing a fictitious financial transaction and used temporarily to sustain credit or raise money.
2. A bank check drawn on insufficient funds to take advantage of the time interval required for collection.

Arizona is betting the "amounts will be replenished as tax collections roll in". I am betting they won't, at least without more internal borrowing.

Eventually, this scheme will blow sky high. In this case I am betting on sooner, rather than later.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bears In Hibernation

Inquiring minds are looking at a chart of Investors Intelligence courtesy of Bernie Schaeffer.



Bearish sentiment is the lowest in two years and I am also told at lows seen only 3 times in the last 25 years.

The Street Authority offers an explanation of the Investor's Intelligence Survey.

Each week Investor's Intelligence surveys approximately 150 market newsletter writers. They take this survey on Friday and release the results to the media the following Wednesday. These results can then be charted.

Like other sentiment indicators, the Investor's Intelligence figure is thought of as a contrary indicator. This is because the majority of investment advisors tend to trade with the prevailing trend. As the market becomes more bullish, their newsletter outlook and picks come increasingly from the long side. As the market declines, they will increasingly advocate a bearish position. Most of the time these investment advisors are correct. However, at major market turning points they can lag the market. It is in these scenarios that the Investor's Intelligence survey can provide traders with a contrary indicator.

The manner in which the survey is calculated is pretty straightforward -- bullish and bearish advisors are tabulated and the numbers in each camp are totaled together. The end result of this process is a percentage value -- the % of advisors who are bullish on the market's near-term prospects.

Bear in mind these surveys do not make good timing indicators.

However, they do offer a look at how crowded trades are. On the long side, the trade is extremely crowded. The trade can get more crowded of course, but on average it does not pay to be long with fundamentals as poor as they are, with sentiment as lopsided as it is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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24 States Borrow Money To Pay Unemployment Benefits

15 states have collectively borrowed more than $15 billion and another 9 states are in the red over unemployment benefits. Please consider Jobless claims put state in debt.

North Carolina's high unemployment rate has stuck the state with $1.4 billion in debt - money that officials don't know how they'll pay back.

It gets worse. The debt is still rising. The problem is that with about 500,000 people out of work, the state has more unemployment claims than it can pay. So it has been borrowing from the federal government since February, sometimes as much as $20 million a day.

The tally will rise to at least $2billion by the end of the year, said David Clegg, deputy chairman and chief operating officer of the N.C. Employment Security Commission. Next year, depending on the economy, could add another $2 billion to the tab, he said.

For purposes of comparison, the state budget for the current fiscal year is $19 billion.

Let's do the math. The state budget is $19 billion. Potentially $4 billion will be borrowed to pay unemployment benefits. In other words the state is borrowing an amount equal to 21% of its total budget just to pay unemployment benefits. Wow.

Only five states have borrowed more than North Carolina. Altogether, seven states have borrowed more than $1 billion each - more than $15 billion collectively - to shore up their unemployment insurance systems, according to the U.S. Department of Labor. A total of 24 states plus the Virgin Islands have borrowed money from the federal government.

Many states "are in pretty dire straits right now," said Ingrid Evans, unemployment insurance director at the National Association of State Workforce Agencies.

The best hope for North Carolina, said Clegg, is for Congress to forgive a portion of the debt, if not all of it.

Another solution would be to raise the tax on employers that funds jobless benefits. Indiana, which owes about as much as North Carolina, recently took that move, but North Carolina officials worry it would increase financial pressure on businesses when they can least afford it.

"I would love to hear some U.S. Department of Labor official explain how they expect the states to pay billions of dollars from an employee base which is, at best, 20 percent smaller than it was before the recession started," Clegg said.

I guess Clegg did not hear Obama's plan to create or save 3.5 million jobs. Then again, the economy has lost about 9 million jobs. Of course the economy needs 100,000 jobs per month just to keep up with demographics (birth rate and immigration).

Moreover the jobs Obama claims to create comes at a very steep price. Please see Obama creates 640,329 jobs at a cost of $323,739.83 per job for details.

Finally, it is beyond preposterous to take credit for "jobs saved" when there is no way to measure it, or to take credit for jobs created when many of them were temporary (like all the road projects everywhere).

No definite plan

The National Association of State Workforce Agencies, which represents state departments such as the ESC, has made sure that members of Congress on both sides of the aisle are aware of the states' plight, Evans said. But with the states not due to make any debt payments for more than a year, no proposals for dealing with the issue have surfaced. Indeed, the association itself hasn't yet formulated its position.

Right now North Carolina doesn't have a definite plan for paying off the debt. What's most important today, state officials say, is that the state is continuing to pay unemployment benefits.

The only source of money for the unemployment insurance fund now - other than loans from the federal government - is the unemployment insurance tax that employers pay. Companies typically pay the tax on a quarterly basis, and the rate depends on how many workers the companies have laid off and how much those workers received in unemployment benefits.

The tax is capped at 5.7 percent of taxable payroll; the average rate currently paid by companies is 1.6 percent.

Increasing the tax rate on employers would be up to the General Assembly. But it would take a sizable increase to make a difference, and any attempt to do so likely would be resisted by the business sector.

No Escape

I sense a huge tax increase coming. Add that tax increase to concerns over cap-and-trade, rising taxes on the wealthy (many are small business owners), concerns over health care costs, etc, and small businesses have lots of reasons not to hire.

Increased taxes aside, business have little reason to expand given rampant overcapacity in retail stores, restaurants, strip malls, office space, etc. Neither housing, commercial real estate, nor autos will provide the same boost as coming out of the last recession.

Couple that with over 9 million people working part-time whose hours will be lengthened before new hiring begins and you can see what a mess this is.

Table A-5 Part Time Status



click on chart for sharper image

The chart shows there are 9.28 million people are working part time but want a full time job. A year ago the number was 6.8 million.

Note the trend in part-time work. It is inching up. In a recovery it should be headed down quickly. The reason is employers increase the hours of part-time workers before they start hiring full-time workers.

The key take-away from this series are the millions of workers whose hours will rise before companies start hiring more workers.

Unemployment will be structurally high for a decade.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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President Obama's Trust Deficit

Tonight as I listened to President Obama's Speech On Afghanistan and why we need to commit more troops, I found myself asking "Where's the trust? Where's the credibility?"

His pledge to send another 30,000 troops to Afghanistan while simultaneously declaring troop withdrawal in 18 months is bound to please no one.

Obama said "I have determined that it is in our vital national interest to send an additional 30,000 U.S. troops to Afghanistan. After 18 months, our troops will begin to come home. ... If I did not think that the security of the United States and the safety of the American people were at stake in Afghanistan, I would gladly order every single one of our troops home tomorrow."

Excuse me, but if the mission is vital to our national interest how can it possibly be correct to give a precise deadline to bring the troops home in 18 months?

Not that I am arguing for an unlimited commitment (because if it was up to me I would declare the war was won and leave), but let's face it, if something is of "vital national interest", then deadlines are senseless.

Apparently Afghanistan is vital to our interests for the next 18 months, after which "who cares?"

Does that make any sense? The only way it can possibly make any sense is if he has no intention of leaving after 18 months unless the war is won. Given there is no mission statement, no measure of victory, and nothing but nebulous goals, there is absolutely no reason to believe the war will be won in 18 months.

Moreover, one cannot help but wonder if Obama simply does not want the rising unemployment that would undoubtedly accompany the return of all the troops in Afghanistan and Iraq. If that is a possibility, then he is willing to commit troops in harm's way, just to keep them employed.

Obama goes on to say "We are in Afghanistan to prevent a cancer from once again spreading through that country. But this same cancer has also taken root in the border region of Pakistan. That is why we need a strategy that works on both sides of the border."

Sadly, that sounds much like the totally discredited "Domino Theory" that had us in a Vietnam quagmire for a decade. The Vietnam war exacted a huge human cost in terms of fatalities, including 3 to 4 million Vietnamese from both sides, 1.5 to 2 million Laotians and Cambodians, and 58,159 U.S. soldiers. For what?

So tonight I am asking president Obama the same question "For what?"

"Exactly what is our vital interest, and how can anyone possibly know that our interest will be satisfied in precisely 18 months?" I would also like to know how we pay for the effort. Of course I am not expecting any answers.

Remember how everyone though Vietnam was vital? It wasn't so vital was it?

Obama says "It must be clear that Afghans will have to take responsibility for their security, and that America has no interest in fighting an endless war in Afghanistan."

I wholeheartedly agree. Not only do we not have any interest in "fighting an endless war in Afghanistan" we should have no interest in fighting a war now, or for the next 18 months, or more likely until political expediency forces an end to the war, just as happened in Vietnam.

I have a hint for Obama. Nation building by brute force never works. The money and the will to fight stupid wars always run out first.

Obama's Approval Rating Freefall

Heading into tonight's speech, Obama's ratings have been in a freefall.

Please consider Obama Approval on Afghanistan, at 35%, Trails Other Issues.

"The decline in Obama's approval rating on Afghanistan is evident among all party groups, with double-digit decreases since September among Republicans (17 points), independents (16 points), and Democrats (10 points)."

Obama's Afghanistan Approval



Obama's Approval On Other Issues

By attempting to appease both the hawks and the doves, Obama looks like a wishy-washy fool, hoping our vital interest in Afghanistan will be solved in 18 months.

That's quite a gamble with lots of soldier's lives at stake, so it should not be surprising to find a "trust deficit" creeping up, even among Democrats.

The sooner we realize we can no longer afford to be the world's policeman with troops stationed in 150 countries, the better of the US and the rest of the world will be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Wells Fargo Closing Experience - Reader Mailbag

Here is an interesting email from a reader about a Wells Fargo Closing Experience. "WFCE" writes:

Hi Mish,

I spoke with you a little over a month ago. Here is a note about what it took to sell our house with the closing at Wells Fargo.

We got to the morning of our original closing date, we had moved out of our house, the buyers had changed over the utilities to their name, and there was no closing! Wells Fargo, who had already approved the buyers' mortgage and guaranteed the closing date, suddenly was not handing over the money.

After much turmoil and many phone calls, they requested of the buyers an additional $10,000 down, which the buyers agreed to. Still no money! After many more phone calls they asked for an additional $17,000 downpayment. Our buyers, who are financially secure and own another home outright got the original amount within a week.

Our house finally closed yesterday, one month after the original closing date.

We are still working on buying another property by short sale, the bank has agreed to our offer. The holdup is that the owner had a $10,000 credit card lien against the property and now has to negotiate with the credit card company and get the lien removed.

WFCE

Anyone else experience anything like that, with a bank coming in twice and asking for additional down payment money after the loan was already approved?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Gold and Silver Soar as Bank of Japan Commits 10 Trillion Yen ($115 Billion) to Combat Deflation

Commodities are soaring today, especially gold and silver, in the wake of news that the BOJ will Provide 10 Trillion Yen in Emergency Credit.

The Bank of Japan said it’s ready to pump more money into the financial system after unveiling a 10 trillion yen ($115 billion) program to help an economy battered by falling prices and the yen’s surge to a 14-year high.

“If there is a shortage of liquidity we are prepared to provide more funds,” Governor Masaaki Shirakawa said after an emergency board meeting in Tokyo today that decided to offer three-month loans at 0.1 percent to commercial banks.

Bond yields fell the most in 13 months, lowering borrowing costs for companies whose profits are being threatened by deflation and the yen’s advance. Today’s action constitutes “quantitative easing in the broad sense” said Shirakawa, who earlier today faced demands from government ministers to complement a stimulus package that Prime Minister Yukio Hatoyama will release this week.

“The BOJ was facing a lot of pressure from the markets and the government, so it wanted to show that it was being proactive,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The BOJ’s understanding is that deflation risks have increased.”

Unlike the unlimited lending facility, which required private-sector debt as collateral, the bank will accept a wider range of assets including government bonds as well as debt issued by local governments. The program has no time limit.

The measure will “further spread the strong effect of monetary easing and encourage a further decline in longer-term interest rates in the money market,” the central bank said.

Prime Minister Hatoyama welcomed the decision.

“I’m very happy that the BOJ and government share the same view” on the economy, said Hatoyama, who is scheduled to meet with Shirakawa tomorrow. “I applaud their efforts to show their resolve to stop deflation and spur the economy.”

BOJ Spawns Speculation and Carry Trades

While correlation is not the same as causation, I would suggest that a new round of “quantitative easing" by the BOJ would likely fuel further speculation in commodities and various carry trades.

One thing that QE is not going to do is help Japan out of its mess.

Japan's Public Debt Nightmare

Japan' public debt is 170 percent of GDP, the highest in the G20. Increased debt is all that has been accomplished by Keynesian silliness and Monetarist nonsense.

Over 10 years ago, the advice from Greenspan and the Fed to Japan was to write off the debts so that a recovery could begin. Japan did not do so and now has a dramatically escalating government debt to GDP problem, virtually guaranteed to blow sky high.

I talked about that at length in U.S. Faces Second Lost Decade "Because" of Misguided Stimulus.

Illusions of Stimulus

My friend "HB" has the following thoughts I wish to share.

There is nothing, absolutely nothing, that government intervention can achieve in terms of 'fixing' the economy. The choice was in either abandoning the unsound policy and the unsound investments it produced, or careen toward a complete destruction of the currency system.

Once again, I stand amazed at how people can look at this, and look at Japan, and look at the housing bubble/bust sequence, and still believe that monetary pumping and deficit spending are viable tools of economic policy when a bust occurs. It really boggles the mind, reminding me of Einstein's definition of insanity, 'doing the same thing over and over again and expecting a different result'.

Cause and Effect

Final analysis shows the U.S. Faces Second Lost Decade "Because" of Misguided Stimulus, not as a result of pulling stimulus too early as Koo, Krugman, and Romer suggest.

If that sounds wrong then just take a look at how we got here: Hoping to end the recession of 2001-2002, the Fed slashed interest rates, held them too low, too long, we had the mother of all housing/credit booms and the global economy crashed.

The US has nothing to show for all that stimulus other than a wrecked economy, massive debt that needs to be written off, and extremely wealthy parasite bankers bailed out by consumers after contributing to these problems.

Japan has an aging xenophobic demographic problem in which retirees need to draw down on their savings in retirement.

The BOJ responds by slashing interest rates to zero and the politicians run up budget deficits thinking it will spur demand. It can't, so it won't. All Japan has accomplished by its QE efforts (a Monetarist mistake), and its fiscal stimulus spending (a Keynesian mistake), is to spawn various carry trades while running up the national debt.

Interest on that nation debt will have to be paid back, and at the same time retirees need to draw down on their savings. Mathematically that simply does not work. And when long term interest rates rise in Japan (they will) Japan is going to blow sky high, more than likely before the US in my estimation. The only thing unknown is when, as global imbalances continue to grow.

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