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Subject: US Economy: It's unfolding!
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chinadaily
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US Economy: It's unfolding!
Dangerous cracks appearing in job market
_____ By JEANNINE AVERSA, AP Economics Writer
Dangerous cracks in the nation's job market are deepening. Employers slashed jobs by the largest amount in five years and hundreds of thousands of people dropped out of the labor force ¡ª ominous signs that the country is falling toward a recession or has already toppled into one.
For the second straight month, nervous employers got rid of jobs nationwide. In February, they sliced payrolls by 63,000, even deeper than the 22,000 cut in January, the Labor Department reported Friday.
The grim snapshot of the country's employment climate underscored the heavy toll the housing and credit debacles are taking on companies, jobseekers and the economy as a whole.
"It sounds like the recession bell is ringing for the U.S. economy, although it is still faint," said Stuart Hoffman, chief economist at PNC Financial Services Group.
On Wall Street, stocks tumbled. The Dow Jones lost 146.70 points, a little more than 1 percent to close at 11,893.69. The Dow was down 370 for the last two days of the week.
The worsening situation will prompt the Federal Reserve to cut a key interest rate deeply ¡ª perhaps by as much as three-quarters of a percentage point ¡ª at its next meeting March 18, or possibly sooner, to help brace the teetering economy, analysts predicted.
The shower of pink slips was widespread. Factories, construction companies, mortgage brokers, real-estate firms, retailers, temporary-help firms, child day-care providers, hotels, educational services, accounting firms and computer designers were among those shedding jobs. All those cuts swamped job gains at hospitals and other health care sites, bars and restaurants, legal services and the government.
"Losing a job is painful, and I know Americans are concerned about our economy; so am I," said President Bush. "It's clear our economy has slowed."
The big question: Just how much? The weak employment report pushed an increasing number of private economists into believing the economy is probably shrinking now. Under one rough rule, the economy would have to contract for six months for the country to be considered in a recession.
The unemployment rate actually dipped slightly from 4.9 percent to 4.8 percent, as 450,000 people left the labor force for any number of reasons. Economists thought many people probably gave up looking for work.
"It stands to reason that a large share of the people left because they didn't feel like anything was there for them ¡ª that the market was too weak to be searching for a job at this point," said Mark Zandi, chief economist at Moody's Economy.com.
To relieve persistent credit problems, the Federal Reserve announced Friday that it will increase the amount of loans it plans to make available to banks this month to $100 billion. The Fed already has provided a total of $160 billion in short-term loans to cash-strapped banks since December. The Fed, in another step, said it will make $100 billion available to a broad range of financial players through a series of separate transactions.
Crumbling employment conditions are feeding fears the economy will fall victim to all the stresses. Until recently, the positive forces of job and wage growth have helped to offset the negative forces hitting people from the housing and credit crises. Now people and businesses alike are more cautious, spelling more trouble for the economy.
"The debate should no longer be about whether there is or is not a recession, only about how deep it will be," said Nigel Gault, chief economist at Global Insight.
The elimination of 63,000 jobs in February was the most since March 2003 and marked the second month in a row of job losses. The last time the economy suffered two consecutive months of job losses was in May and June 2003, when the labor market was still struggling to recover from the blows of the 2001 recession.
"Businesses got cold feet, and when that happens the easiest thing to do is to put hiring on hold and wait until the dust clears," said Ken Mayland, economist at ClearView Economics.
Economic growth slowed to a near standstill of just a 0.6 percent pace in the final quarter of last year. Before Friday's employment report, many thought growth would weaken further ¡ª around a 0.4 percent pace. Now, however, a growing number think the economy is contracting.
Bush's top economic adviser, Edward Lazear, acknowledged Friday that the economy may dip into negative territory in the current quarter. Lazear's comment was the most pessimistic assessment heard out of the White House. He would not discuss whether the White House believes the economy will actually fall into a recession.
The Bush administration was hoping the government's speedily enacted economic stimulus package ¡ª including tax rebates for people and tax breaks for businesses ¡ª will help bolster the economy in the second half of this year.
"I know this is a difficult time for our economy, but we recognized the problem early and provided the economy with a booster shot," Bush said. "We will begin to see the impact over the coming months," the president predicted.
Democrats, however, said more relief is needed now.
House Speaker Nancy Pelosi, D-Calif., spoke of charting a "new direction for our economy." Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee, called for action to stem record-high home foreclosures.
The Democratic presidential contenders, Sens. Hillary Rodham Clinton of New York and Barack Obama of Illinois, blamed the job losses on what they believe are failed Bush policies. "The news should put to rest any doubts that our economy is in deep trouble," Clinton said. Obama said the employment news meant "more heartache and struggle" for Americans.
On the employment front, workers with jobs saw modest wage gains.
Average hourly earnings for jobholders rose to $17.80 in February, a 0.3 percent increase from the previous month. Over the last 12 months, wages were up 3.7 percent. With lofty energy and food prices, though, workers may feel like their paychecks are shrinking.
Spreading fallout from the housing and credit troubles are the main factors behind the economic slowdown. People and businesses alike are feeling the strains and have turned cautious. Adding to the stresses on pocketbooks, budgets and the economy: skyrocketing energy prices. Oil prices, which have set a string of record highs in recent days, now top $105 a barrel. Gasoline prices have marched higher, too.
All those problems are putting consumers in a gloomy state of mind.
Consumer confidence sank to a new low of 33.1 in early March, according to the RBC Cash Index. That was the worst since the index began in 2002.
To help shore up the economy, Federal Reserve Chairman Ben Bernanke signaled last week that the central bank is prepared to lower interest rates again. Economists are now predicting a deep rate reduction by the Fed on or before its regularly scheduled meeting March 18. The Fed, which has been slicing the rate since September, recently turned more forceful. It slashed the rate by 1.25 percentage points during just eight days in January ¡ª the biggest one-month reduction in a quarter-century.
2008-3-10 09:21 AM
#1
chinadaily
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seems to me (my personal prediction) that it will probably take a long time before a rebound comes.
simply because this round of economic crisis, originated from subprime housing debacle and bank writedowns and losses, would impact lots of industries and services. the core problem is american duo deficits, the spending deficit, esp.
2008-3-10 09:28 AM
#2
interesting
(Steven Schreiber)
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Author is Jeanine Aversa, AP.
Anyway, the Fed action won't do much. The credit markets are much too large for a mere $100 billion to matter.
2008-3-10 09:39 AM
#3
tongluren
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The American Economic System is a Criminal Fraud
Today, America is the high risk place to be as far as financial investments are concerned - at least relative to say a year ago. Instead, FDI flowing into the developing nations is just heating up. Unlike in the last Asian financial crisis, MOST of the nations have now installed tall walls and deep moats, to prevent quick in and outs. So the money flow will continue, but there can be no quick exits.
Expect to see the decoupling, which already has taken place, to accelerate. MORE money will be flowing out of the developed countries, further deepening the liquidity crisis, as flight of capital goes for QUALITY, which today lies in China and a number of other fast developing nations. The world is beginning to see the Western financial world as the fraud that it is.
In the last 3 months alone, where the sovereign funds have been invited to pump in about US$24B into the American system, propping up what is functionally bankrupt American banks, the Feds have actually pumped in over US$200 B during that same period. When you think of it - when the Fed has "liberalized" the collateral of that "overnight" money to include everything that is junk (worthless "security), and extended the repayment period to "whenever" (by extending the "overnight" to 28 days now, with unlimited rollover), that money is really no longer overnight loan, but a partial nationalization of the American banking system. Given that the American banking system is "worth" about $2 Trillion, this covert nationalization, which the Fed did without telling anyone, is over 10% already. By the time they are done in this downcycle, these unprecedented and totally irresponsible steps would likely see a more than 50% nationalization - YES, the Fed will be pumping more than a Trillion printed-from-thin-air "greenbacks" (which are more purple from all that bleeding these days) into the system to prolong the total collapse.
Long pain is worse than short pain. Dumping the U.S. dollars now may cost China a few billion. Sitting by while this fraud is being perpetrated on the rest of the world will cost a lot more in the next few years.
2008-3-10 09:39 AM
#4
interesting
(Steven Schreiber)
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Why not credit Waldman, Tong?
2008-3-10 09:53 AM
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tongluren
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Who is Waldman?
2008-3-10 10:14 AM
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cestmoi
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Job losses
No, the USofA economy is not looking good, and I think we can trace part of the root of the problem back to Greenspan's low interest rate policies along with lax lending practices. Off the top of my head, if this job-shedding develops into a trend, then expect the economy to slide into a recession and once the job losses hit about 200,000 monthly, expect a rebounce of the economy.
At the moment, the country and its leaders are caught up with their pre-election posturing and politicking and Dubya Bush won't be able to handle this mess. No, Mr President, starting another war won't help.
As far as China is concerned, with our USD-denominated holdings and the fact that USofA is our single biggest customer, we should think of our relationship in strategic terms, try to look at it in terms of vendor-side financing. Pointless and self-defeating to talk about "dumping" the American dollar. In this much I agree with CD. The USD will devalue vis other major currencies such as the Euros. What will happen to the RMB:USD exchange rate remains to be seen but I think it is almost self-evident.
By the way, Tong, the banks are sitting on the money and not lending because of the sub-prime crisis. They are not insolvent, none of the big banks have breached their Capital Adequatecy Ratio (CAR)... yet. Readers might like to review RaymondUSA's thread on sub-prime crisis.
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Last edited by cestmoi at 2008-3-10 10:26 AM
]
2008-3-10 10:24 AM
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tongluren
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One And The Same
Well, if the Fed is resorting to covert nationalization, it is true that these American banks will never be "insolvent", as there is an unlimited amount of that fiat currency available as further capital to prop them up.
It is also a fraud.
Unless America cuts off the link to the rest of the world, there will be no end to this "adjustment." There is no justification that particular service providers (service is now 83% of the American economy) is "worth" 5 or 10 times the "price" of similarly skilled workers (e.g. doctors) in the real world outside the U.S. Globalization is a powerful equalizer.
2008-3-10 10:38 AM
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interesting
(Steven Schreiber)
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Tong,
The guy you lifted your analysis from.
Interfluidity:
http://interfluidity.powerblogs.com/posts/1204920896.shtml
First hit for the phrase "covert nationalization" and he discusses precisely the same idea. So you got it from Waldman or one of the bloggers who picked up Waldman, which I listed.
2008-3-10 10:38 AM
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chinadaily
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quote from raymoundusa:
This growth engine really comes down to something very basic. When you have saving and liquidity, you have more room to grow your economy by increasing domestic consumption, and investments. When you have huge debts, you have fewer options to grow your economy.
2008-3-10 11:33 AM
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doberman
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QUOTE:
Originally posted by
chinadaily
at 2008-3-10 11:33
This growth engine really comes down to something very basic. When you have saving and liquidity, you have more room to grow your economy by increasing domestic consumption, and investments. Wh ...
This is very true. I am not any economist , but what Raymond wrote I know from my private life.
So I stay happy wit ZERO credits to pay back. I was only once forced to borrow, and this was for the health isue in my family.
What I found out, the joy from something bought on credit is incomparably smaller to to the burden/stress of paying it back when the life/job gets downturn.
2008-3-10 12:53 PM
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interesting
(Steven Schreiber)
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Growth in China is primarily about decent institutions, the depth of the labor market and the low productivity base. In the US, for example, shifts from savings would simply increase inflation because increased demand for goods would not be offset much by the shift in capital towards their production. When the Chinese pull money out of savings, there are lots of people waiting in the wings to provide that service and there is a large amount of technology available to increase production (low productivity base). Moreover, China partially buffers other countries against inflation by providing a labor pool, thus gaining the effects of shifts into consumption from elsewhere while absorbing some of the inflation (e.g., increases in US consumption are dampened by increases in Chinese production but those same increases raise the price of capital goods and labor).
As most Chinese have seen, this doesn't hold across all sectors: rampant inflation in real estate prices is brought on by the fact that there is not much to be done to increase the supply of available space. You can build taller buildings and drain swamps, but you cannot achieve the same scale of productivity increases you see with everything from financial planners to jetliners.
Absent these factors, industries grow slower because their rate of growth (institutional questions aside) depends entirely on technological advances (including improvements in management) which allow them to add productivity.
2008-3-10 04:50 PM
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chinadaily
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"productivity" american style, cannot sell on the market. Say: GM can hardly run at a profit, because numerous of its brands cannot compete with cars made by Japan, Germany, Korea, ( and China soon), even on the amrican self turf.
when one has little to sell, or anything sellable, it is useless to tout that " I have technological advances".
2008-3-10 05:20 PM
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interesting
(Steven Schreiber)
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CD,
That's odd.
The US is still the world's number one economy, still a major exporter of goods and services and still produces a startling array of goods on a vast scale. You mention GM but I could mention different companies: Apple, Microsoft, Cisco, Google, ExxonMobile, Halliburton, ConocoPhillips, AMD, Intel, Dell, Wal-Mart, all of Hollywood, Starbucks, McDonald's, Proctor and Gamble, Pfizer, General Electric, Boeing, Lockheed Martin, JetBlue, Southwest Airlines, 3M, Motorola, Xerox, SanDisk, Western Digital, Sprint, Verizon, Seagate and so on with the biggies. In addition, the US is home to a vast array of small and mid-sized corporations few have heard of but which drive much of the economy and provide everything from advanced technologies to Chinese food.
I could also list not-for-profit operations like the Mozilla Foundation which create open-source software, but I think my point is clear: you can always find a few sick men in a large and diverse economy. To GM's credit, it has been slowly changing and garnering successes again (change is always slow for such large institutions).
2008-3-10 11:29 PM
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(Steven Schreiber)
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And just because I hate this sort of rhetoric: the US represents 27% of the Forbes Global 2000, 28% of its Global 100 and 70% of the top ten.
2008-3-10 11:46 PM
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tongluren
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American Predatory Practices
American majors are "successful" mostly because of their criminal predatory practices.has already been found to be guilty of antitrust in multiple countries. , and fined billions. Intel is going down the same path. Any supplier to Walmart will attest that dealing with it is literally dealing with the devil. No different from colonial days.
It is time to finally shed the yoke of American imperialism, and cast these behemoths of colonial power into the historical trash heap.
2008-3-11 12:22 AM
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interesting
(Steven Schreiber)
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Tong,
Seeing as though antitrust law is actually quite subjective in its interpretation, that doesn't surprise at all. American companies are successful for the same reason that all companies are successful: they can efficiently provide their goods and services. It's sad that this sort of libel is the best you can come up with.
2008-3-11 12:29 AM
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tradervic
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Hm...
I hear the Dear Doctor - but I do not see the Dear Doctor.
As for the GM references interesting - seems like DD is in cut and paste mode.
Regardless, thanks for the brief rundown on companies.
2008-3-11 01:04 AM
#18
tongluren
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Huh??
Antitrust laws are subjective??
Microsoft (and now Intel) hired $1,000 per hour lawyers and fought tooth and nail for over a decade, and was still found to be a law breaker, a monopolizer, in multiple countries.
It is a shame that China has such weak antitrust laws. There is ABSOLUTELY NO JUSTIFICATION that a law breaking organization (found guilty in multiple countries) like Microsoft still can hide behind that all high and mighty Intellectual Property and get 98% gross margin on its "products," while snuffing out the indigenous software industry of many developing nations, including China.
No law is absolute. To the extent Microsoft, or Intel, or anybody else has an illegal monopoly, enforcement of their IP should and must be suspended, to even the playing field.
Even in the U.S. intellectual property is not absolute. Where it is found to conflict with whatever higher goals or needs of the market, patents are done away with routinely.
" Lawmakers Move to Grant Banks Immunity Against Patent Lawsuit
By Jeffrey H. Birnbaum
Washington Post Staff Writer
Thursday, February 14, 2008; A22
Sen. Jeff Sessions (R-Ala.) has sponsored legislation at the urging of the nation's banks granting them immunity against an active patent lawsuit, potentially saving them billions of dollars.
Adopted with little fanfare, the amendment would prevent a small Texas company called DataTreasury from collecting damages from banks for infringing on its patented method for digitally scanning, sending and archiving checks. The patents were upheld last summer by the U.S. Patent and Trademark Office after they were challenged.
The provision, passed without dissent by the Senate Judiciary Committee in July and inserted into legislation scheduled for a vote by the full Senate this month, is a rare attempt by Congress to intervene in ongoing litigation, congressional experts say.
Although the amendment would not invalidate DataTreasury's patents, it would spare the banks from paying for infringing them should courts decide that's warranted. If DataTreasury collected a royalty of just a couple pennies per check, the cost would run into billions of dollars.
The federal government would have to pay $1 billion to DataTreasury over 10 years as compensation for taking its property under the amendment, according to estimates by the Congressional Budget Office.
Banks process more than 40 billion checks each year. At one time, those checks had to be delivered physically to be drawn upon. But five years ago -- in the wake of the grounding of aircraft laden with billions of dollars in checks after the Sept. 11, 2001, attacks -- federal law was changed to allow electronic transfers as well.
Some major financial institutions, notably Merrill Lynch and J.P. Morgan Chase, have licensed DataTreasury's technology for the purpose. Lawsuits alleging infringement are pending against others, including Bank of America, Wells Fargo, Wachovia and Citigroup.
When the Judiciary Committee began to draft landmark legislation overhauling the country's patent laws last year, lobbyists for these banks jumped into action.
The Financial Services Roundtable, a lobby group that represents the nation's largest financial institutions, and the banks approached Sessions about sponsoring an amendment to protect them. They said they chose to work with Sessions because of his long-standing antipathy toward plaintiff's attorneys and his previous interest in the electronic check system.
Lobbyists for the Roundtable and the banks, including prominent free-lance lobbying firms Smith-Free Group, Bryan Cave Strategies and Quadripoint Strategies, conducted rush visits with Judiciary Committee members and their aides to advocate the measure. Sessions's staff produced a three-page description of the amendment and its background with the help of the Roundtable and distributed it to the committee.
Commercial banks are considered a potent force on Capitol Hill, in part because of their heavy contributions to lawmakers. They are the 10th-largest donor to federal candidates among the industry groups followed by the Center for Responsive Politics. They also spend millions of dollars a year on lobbying.
Political action committees of financial institutions were the largest single category of industry donors to Sessions, with $52,300 in the current election cycle, the center said. That represented nearly a quarter of PAC contributions he received as of midyear 2007.
Sessions said the banks' support for him was not a factor in his decision to sponsor the amendment. Stephen Boyd, a spokesman for Sessions, said the provision "is designed to protect banking institutions complying with post-9/11 security requirements from the abusive practices of patent trolling trial lawyers seeking personal enrichment, which ultimately will be paid for by checking account customers across America."
In addition, bank lobbyists say they are working with senators to alter the amendment so that it would not cost the government money.
The provision introduced by Sessions did not name DataTreasury but was carefully tailored to apply to that company and its "check collection" system.
The amendment was approved by the committee in minutes and without opposition. The measure received little news media attention outside the banking trade press.
Even Claudio Ballard, the founder of DataTreasury, which holds the patents, said he did not hear of the amendment until days afterward. He said he had been unaware that the Judiciary Committee was considering it and engaged lobbyists to help him only after it had passed. Ballard did not know whom to turn to for help, so he relied on his law firm, Nix, Patterson & Roach, which recommended two prominent Washington lobbyists: John D. Raffaelli and Ben Barnes.
"I've always put my full faith in the courts and the patent office; that's all I thought I needed to do," Ballard said. "But we were blindsided" by the Senate committee.
"We had no notice, no opportunity to respond, to give our side of the case, nothing," he said.
The banks allege that DataTreasury bought up patents for the system that underlies electronic transfers and is trying to shake down companies for licensing fees. But DataTreasury asserts that Ballard is the inventor of the system and built a company to sell it before being squashed by banks that stole his idea. Court battles have raged between the two sides for six years.
The banks are emphatic about the need for the protection. "This is a glaring example of the abuse of the system," said former congressman Steve Bartlett (R-Tex.), president of the Financial Services Roundtable. "It's an example of what's wrong with patent law."
He called the Sessions amendment a priority for the banking industry.
The Commerce Department has objected to the amendment, including in a letter last week to Sen. Patrick J. Leahy (D-Vt.), the Judiciary Committee chairman. "Limiting patent holders' rights and remedies in this instance could reduce innovation in this technology area," wrote Assistant Secretary Nathaniel F. Wienecke. "The Administration does not support exceptions to patent protection based on a particular technology."
DataTreasury's patents were upheld by the patent office after a challenge by First Data, a provider of merchant processing services. The patent office concluded Ballard's patents were not predated by other patents and documents, as First Data had alleged.
Ballard asserts that he developed the basic architecture for the system in the mid-1990s, and applied for patents in 1997 and '98. He said he realized at the time that paper would one day be obsolete for financial transactions but that paper and electronic images would have to coexist for a while. His system helped make that possible, he said.
Ballard has a long history of working with databases. He was an early reseller of Oracle database products in the 1980s and later developed a method of adapting Oracle's software to complex computer applications for government and large corporations.
He said he talked to some bank officials at an early stage of the check system's development and, despite having signed nondisclosure agreements with them, soon lost control over his invention.
"We've struggled mightily," Ballard said. "We almost went bankrupt at the end of 2001." He said he brought in investors to remain afloat and, as a result, now owns 2 percent of the firm he founded. The company, located in the technology corridor near Plano, Tex., once had 100 employees, he said. It now has two."
2008-3-11 02:18 AM
#19
tongluren
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Stripped of their Fraudulant Monopoly Positions
Stripped of their fraudulent monopoly positions, American companies simply are not competitive at all.
How can they be competitive? Their CEOs get paid 1,000 times higher than Chinese CEOs each year. Their engineers 10 times more. Their plant and technology is actually on average OLDER than that of Chinese companies, because the Chinese companies built their plants more recently.
On American agricultural exports - NONE could be exported without the huge farm subsidies - paid for by borrowing from foreign nations (like China).
2008-3-11 02:21 AM
#20
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