Sunday, February 28, 2010

THE Nina Simone -- Pirate Jenny

This from "The Threepenny Opera" -- do you think there might be some folks who are looking forward to scenes like this one?

Horace Silver - Senor Blues

Friday, February 26, 2010

This in the N.Y. Times from Paul Krugman

Dr. Krugman's take on the "Health Care Summit".


Op-Ed Columnist
Afflicting the Afflicted


By PAUL KRUGMAN
Published: February 25, 2010

If we’re lucky, Thursday’s summit will turn out to have been the last act in the great health reform debate, the prologue to passage of an imperfect but nonetheless history-making bill. If so, the debate will have ended as it began: with Democrats offering moderate plans that draw heavily on past Republican ideas, and Republicans responding with slander and misdirection.

Nobody really expected anything different. But what was nonetheless revealing about the meeting was the fact that Republicans — who had weeks to prepare for this particular event, and have been campaigning against reform for a year — didn’t bother making a case that could withstand even minimal fact-checking.

It was obvious how things would go as soon as the first Republican speaker, Senator Lamar Alexander, delivered his remarks. He was presumably chosen because he’s folksy and likable and could make his party’s position sound reasonable. But right off the bat he delivered a whopper, asserting that under the Democratic plan, “for millions of Americans, premiums will go up.”

Wow. I guess you could say that he wasn’t technically lying, since the Congressional Budget Office analysis of the Senate Democrats’ plan does say that average payments for insurance would go up. But it also makes it clear that this would happen only because people would buy more and better coverage. The “price of a given amount of insurance coverage” would fall, not rise — and the actual cost to many Americans would fall sharply thanks to federal aid.

His fib on premiums was quickly followed by a fib on process. Democrats, having already passed a health bill with 60 votes in the Senate, now plan to use a simple majority vote to modify some of the numbers, a process known as reconciliation. Mr. Alexander declared that reconciliation has “never been used for something like this.” Well, I don’t know what “like this” means, but reconciliation has, in fact, been used for previous health reforms — and was used to push through both of the Bush tax cuts at a budget cost of $1.8 trillion, twice the bill for health reform.

What really struck me about the meeting, however, was the inability of Republicans to explain how they propose dealing with the issue that, rightly, is at the emotional center of much health care debate: the plight of Americans who suffer from pre-existing medical conditions. In other advanced countries, everyone gets essential care whatever their medical history. But in America, a bout of cancer, an inherited genetic disorder, or even, in some states, having been a victim of domestic violence can make you uninsurable, and thus make adequate health care unaffordable.

One of the great virtues of the Democratic plan is that it would finally put an end to this unacceptable case of American exceptionalism. But what’s the Republican answer? Mr. Alexander was strangely inarticulate on the matter, saying only that “House Republicans have some ideas about how my friend in Tullahoma can continue to afford insurance for his wife who has had breast cancer.” He offered no clue about what those ideas might be.

In reality, House Republicans don’t have anything to offer to Americans with troubled medical histories. On the contrary, their big idea — allowing unrestricted competition across state lines — would lead to a race to the bottom. The states with the weakest regulations — for example, those that allow insurance companies to deny coverage to victims of domestic violence — would set the standards for the nation as a whole. The result would be to afflict the afflicted, to make the lives of Americans with pre-existing conditions even harder.

Don’t take my word for it. Look at the Congressional Budget Office analysis of the House G.O.P. plan. That analysis is discreetly worded, with the budget office declaring somewhat obscurely that while the number of uninsured Americans wouldn’t change much, “the pool of people without health insurance would end up being less healthy, on average, than under current law.” But here’s the translation: While some people would gain insurance, the people losing insurance would be those who need it most. Under the Republican plan, the American health care system would become even more brutal than it is now.

So what did we learn from the summit? What I took away was the arrogance that the success of things like the death-panel smear has obviously engendered in Republican politicians. At this point they obviously believe that they can blandly make utterly misleading assertions, saying things that can be easily refuted, and pay no price. And they may well be right.

But Democrats can have the last laugh. All they have to do — and they have the power to do it — is finish the job, and enact health reform.

#22

Press Releases
Umpqua Bank, Roseburg, Oregon, Assumes All of the Deposits of Rainier Pacific Bank, Tacoma, Washington

FOR IMMEDIATE RELEASE
February 26, 2010
Media Contact:
LaJuan Williams-Young
Phone: (202) 898-3876
Email: lwilliams-young@fdic.gov

Rainier Pacific Bank, Tacoma, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Umpqua Bank, Roseburg, Oregon, to assume all of the deposits of Rainier Pacific Bank.

The 14 branches of Rainier Pacific Bank will reopen during normal business hours as branches of Umpqua Bank. Depositors of Rainier Pacific Bank will automatically become depositors of Umpqua Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their former Rainier Pacific Bank branch until they receive notice from Umpqua Bank that it has completed systems changes to allow other Umpqua Bank branches to process their accounts as well.

This evening and over the weekend, depositors of Rainier Pacific Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Rainier Pacific Bank had approximately $717.8 million in total assets and $446.2 million in total deposits. Umpqua Bank will pay the FDIC a premium of 1.04 percent to assume all of the deposits of Rainier Pacific Bank. In addition to assuming all of the deposits, Umpqua Bank agreed to purchase approximately $670.1 million of the failed bank's assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Umpqua Bank entered into a loss-share transaction on $578.1 million of Rainier Pacific Bank's assets. Umpqua Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-830-4725. The phone number will be operational this evening until 9:00 p.m., Pacific Standard Time (PST); on Saturday from 9:00 a.m. to 6:00 p.m., PST; on Sunday from noon to 6:00 p.m., PST; and thereafter from 8:00 a.m. to 8:00 p.m., PST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/rainier.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $95.2 million. Umpqua Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Rainier Pacific Bank is the 22nd FDIC-insured institution to fail in the nation this year, and the fourth in Washington. The last FDIC-insured institution closed in the state was American Marine Bank, January 29, 2010

Darn!

I was hoping we could go through a week without any bank failures -- now, we might just need more music later.



Press Releases
Heritage Bank of Nevada, Reno, Nevada, Assumes All of the Deposits of Carson River Community Bank, Carson City, Nevada

FOR IMMEDIATE RELEASE
February 26, 2010
Media Contact:
LaJuan Williams-Young
Phone: (202) 898-3876
Email: lwilliams-young@fdic.gov

Carson River Community Bank, Carson City, Nevada, was closed today by the Nevada Department of Business and Industry, Financial Institutions Division, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Heritage Bank of Nevada, Reno, Nevada, to assume all of the deposits of Carson River Community Bank.

The sole branch of Carson River Community Bank will reopen on Monday as a branch of Heritage Bank of Nevada. Depositors of Carson River Community Bank will automatically become depositors of Heritage Bank of Nevada. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their former Carson River Community Bank branch until they receive notice from Heritage Bank of Nevada that it has completed systems changes to allow other Heritage Bank of Nevada branches to process their accounts as well.

This evening and over the weekend, depositors of Carson River Community Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Carson River Community Bank had approximately $51.1 million in total assets and $50.0 million in total deposits. Heritage Bank of Nevada did not pay the FDIC a premium to assume all of the deposits of Carson River Community Bank. In addition to assuming all of the deposits, Heritage Bank of Nevada agreed to purchase approximately $38.0 million of the failed bank's assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and Heritage Bank of Nevada entered into a loss-share transaction on $28.5 million of Carson River Community Bank's assets. Heritage Bank of Nevada will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-894-6802. The phone number will be operational this evening until 9:00 p.m., Pacific Standard Time (PST); on Saturday from 9:00 a.m. to 6:00 p.m., PST; on Sunday from noon to 6:00 p.m., PST; and thereafter from 8:00 a.m. to 8:00 p.m., PST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/carsonriver.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.9 million. Heritage Bank of Nevada's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Carson River Community Bank is the 21st FDIC-insured institution to fail in the nation this year, and the first in Nevada. The last FDIC-insured institution closed in the state was Community Bank of Nevada, August 14, 2009.

Friday Evening Music

Here's a good old good one -- Louis playing West End Blues. This is one of those -- "What's that I hear? --- WOW!" kind of records. I remember the very first time I heard it -- perhaps 55-60 years ago, on the radio, late at night, when I was supposed to be asleep.

Thursday, February 25, 2010

The Believer

How about some info on Greece? - This from Yves Smith - by way of Naked Capitalism

Protests Grow in Greece, Portugal and Spain

The financial press has for the most part looked at the possibility of sovereign debt crises in Greece, Spain, and Portugal through a deal-making window: will Germany and other EU surplus countries back a rescue package, and if so, with what strings attached? There has certainly been ample speculation, particularly since a bailout of Greece would be wildly unpopular in Germany, but some have though various finesseses, such as having various EU members guarantee Greek debt, along with imposing austerity measures (in particularl, raising the retirement age in short order from age 61 to 67) might be workable.

But even if a deal could be brokered, will the citizens accept it? Citizens in Greece could be every bit as big a stumbling block as those in Germany. From the Globe and Mail (hat tip reader John D):

… threatened to turn into a wider social and political emergency this week as general strikes and protests paralyzed Athens and Madrid, and Greek leaders lashed out at their German rescuers amid dark economic projections.

Protesters in Greece battled police using rocks and bottles last night at the end of the second day-long general strike. The walkout closed schools, hospitals and most forms of transportation, shutting down the economy as the government prepared to freeze pay, increase retail taxes and raise the
retirement age to 63 to reduce a huge deficit and attempt to pay off €53-billion ($75-billion) in public debt owed this year.

As European leaders scrambled to find a way to prevent the continent’s troubled southern nations from defaulting and jeopardizing the euro, citizens and some political leaders in those countries fought back, badly fracturing Europe’s cohesion. Greece’s general strike, the second in two weeks, followed a shutdown in debt-crippled Spain on Tuesday, with a countrywide general strike scheduled in Portugal next week….

In a shocking gesture that seemed to transform Europe’s bailout tensions into an outright political crisis, Greece’s deputy prime minister Theodoros Pangalos on Wednesday lashed out at Germany, the only country able to provide the money to rescue the balance sheets of Athens…

Some European officials seemed to lose patience with Greece. Otmar Issing, a former European Central Bank executive, warned the German parliament against using the country’s funds to bail out the Greek economy.

“The crisis is made in Greece,” he told the Bundestag. “It is the result of bad policy, not outside forces like an earthquake.”…

While protesters and union officials demanded that Greece hold back on austerity measures and spend more on stimulus instead, European officials said that Greece is likely to have deeper austerity measures, including an increase in the value-added tax beyond its current 19-per-cent level.

Greece has until March 16 to deliver its austerity measures, or more may be imposed by Brussels…

Greece will need to cut spending – by 10 per cent of GDP over 10 years – while raising revenue and cracking down on its untaxed black-market economy, which counts for as much as a third of all financial activity in the country. This combination could provoke further unrest, and may foretell
similar tensions in Italy and Portugal.

If Greece’s crisis and accompanying political unrest were an isolated case, it might be more manageable, but this week the turmoil seemed to spread across the belly of Europe.

On Tuesday, Spain’s cities were shut down by unionized workers protesting its left-wing government’s plan to raise the retirement age to 67 and cut spending in order to deal with its own serious fiscal situation….

And on Wednesday, Portuguese unions announced that they would hold a general
strike on March 4 to protest similar austerity measures.

Yves here. Other reports claim the majority of the Greek population supports the austerity programs, but that may prove cold cheer if opposition continues to be able to conduct effective general strikes.

Update: Two readers from Spain disagreed with the Globe and Mail’s characterization of the protests, saying they not large scale by Spanish standards and did not “shut down cities.” Back to the original post

These protests may seem barmy to some observers. Did riots in Thailand and Indonesia during the Asian crisis cut any ice with the IMF? Well actually, yes, the initial plan was not only too severe, pushing subject countries into a deflationary spiral, but they used the same template that was devised for Latin American countries, and many elements were inappropriate to Indonesia, Thailand, and South Korea.

Moreover, the assumptions about industrialization, progress, and class differ between the US and Europe. Americans do not identify with the image that many Europeans have of the industrial era: of people who lived in small towns suffering downward mobility in the first half of the 1800s, as home craft workers (particularly in the English countryside) and guilds were displaced by automated manufacture. In addition, in some areas, conditions were made more acute as commons, which were typically shared pastureland, were privatized. The loss of grazing land often pushed self-supporting households into poverty. That in turn led to an influx into the cities. A series of uncoordinated revolutions in 1848 swept the continent, and while only one overthrew the government (in France), those uprisings are now credited with producing significant political shifts in other countries.

By contrast, the popular history of the US in the 1800s is dominated by geographic expansion, conquest and settlement of the heartland, with the role of urban immigrants (who often worked in sweatshops), Chinese labor (critical to building the railroads) and newly freed slaves in taking up many of the most difficult jobs of the US industrial revolution often gets short shrift. Laura Ingalls Wilder is more widely read today than The Jungle.

That is a long winded way of saying those who view the protests as a futile protest against the inevitable may be looking at the wrong metrics for success. While they seem unlikely to achieve their narrow objectives of forestalling budget tightening, they may succeed in making sure that the burden of compliance does not fall unduly on the working man.

And needless to say, the political drama is at a minimum going to make it much harder to craft an economic deal. IMF mandated reforms helped make the world safe for America’s finest investment bankers and multinationals; Germany and the other EU creditors in theory have little upside (although the exposures of their banks to Club Med members does put them at considerable risk, readers tell me that saving financiers is ever bit as unpopular as rescuing Greek wastrels). And the rising tempers on both sides are certainly not helping.

Martin Wolf - Financial Times

This from the Financial Times -- follow link for the original. This is for your information --


Financial Times

COLUMNISTS
Martin Wolf


The world economy has no easy way out of the mire

By Martin Wolf

Published: February 23 2010 21:49 | Last updated: February 23 2010 21:49


Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.

We must start from the reverse side of the stimulus coin: the private sector is now spending far less than its aggregate income. Forecasts in the Organisation for Economic Co-operation and Development’s latest Economic Outlook imply that in six of its members (the Netherlands, Switzerland, Sweden, Japan, the UK and Ireland) the private sector will run a surplus of income over spending greater than 10 per cent of gross domestic product this year. Another 13 will have private surpluses between 5 per cent and 10 per cent of GDP. The latter includes the US, with 7.3 per cent. The eurozone private surplus will be 6.7 per cent of GDP and that of the OECD as a whole 7.4 per cent.

Moreover, the shift in the private sector balance between 2007 and 2010 is forecast to exceed 10 per cent of GDP in no fewer than eight OECD member countries (see chart). It is also forecast to exceed 5 per cent of GDP in another eight. In the US, it is forecast to be 9.6 per cent of GDP. In the eurozone, it is forecast at 5.5 per cent of GDP and in the OECD at 7.3 per cent. Depression threatened.


Note that such huge shifts towards frugality will have occurred, despite the unprecedented monetary loosening. While the latter helped prevent a still-greater collapse in private spending, the huge fiscal deficits, largely the result of automatic stabilisers, have been no less important. If governments had tried to close fiscal deficits, as they attempted to do in the 1930s, we would be in another Great Depression.

So how do we exit? To answer the question, we need to agree on how we entered. A big part of the answer is that a series of bubbles helped keep the world economy driving forward over the past three decades. Behind these, however, lay a credit super-bubble, which burst in 2008. This is why private spending imploded and fiscal deficits exploded.

William White, former chief economist of the Bank for International Settlements, is a leading proponent of the view that monetary policy errors, particularly by the Federal Reserve, have driven the world economy. Richard Duncan offers a similar, but more radical, critique in his thought-provoking new book, The Corruption of Capitalism.

At the 75th birthday conference of the Reserve Bank of India this month, Mr White gave a lucid version of his critique. With inflation kept down by supply shocks, inflation-targeting central banks kept interest rates too low too long. The result, he argued, was a series of imbalances, not dissimilar to those in the US in the 1920s and Japan in the 1980s. In particular, with the real interest rate well below the rate of growth of economies, the expansion of credit was effectively unconstrained. Debt duly exploded upwards (see chart).

Mr White pointed to four imbalances: asset price bubbles, notably of stocks in the 1990s and houses in the 2000s; the explosion of the balance sheet of the financial sector and increase in its exposure to risk; what “Austrian school” economists dub “malinvestment” – soaring consumption of durables in high-income countries and booming construction of housing and shopping malls in countries such as the US, and of export-oriented factories in China; and, finally, trade imbalances, with capital pouring into the US and other high-spending countries.

I do not agree that monetary policy mistakes were responsible for all of this. But they played a role. In any case, all this had to end. Now, after the implosion, we witness the extraordinary rescue efforts. So what happens next? We can identify two alternatives: success and failure.

By “success”, I mean reignition of the credit engine in high-income deficit countries. So private sector spending surges anew, fiscal deficits shrink and the economy appears to being going back to normal, at last. By “failure” I mean that the deleveraging continues, private spending fails to pick up with any real vigour and fiscal deficits remain far bigger, for far longer, than almost anybody now dares to imagine. This would be post-bubble Japan on a far wider scale.

Unhappily, the result of what I call success would probably be a still bigger financial crisis in future, while the results of what I call failure would be that the fiscal rope would run out, even though reaching the end might take longer than worrywarts fear. Yet the big point is that either outcome ultimately leads us to a sovereign debt crisis. This, in turn, would surely result in defaults, probably via inflation. In essence, stretched balance sheets threaten mass private sector bankruptcy and a depression, or sovereign bankruptcy and inflation, or some combination of the two.

I can envisage two ways by which the world might grow out of its debt overhangs without such a collapse: a surge in private and public investment in the deficit countries or a surge in demand from the emerging countries. Under the former, higher future income would make today’s borrowing sustainable. Under the latter, the savings generated by the deleveraging private sectors of deficit countries would flow naturally into increased investment in emerging countries.

Yet exploiting such opportunities would involve radical rethinking. In countries like the UK and US, there would be high fiscal deficits over an extended period, but also a matching willingness to promote investment. Meanwhile, high-income countries would have to engage urgently with emerging countries, to discuss reforms to global finance aimed at facilitating a sustained net flow of funds from the former to the latter.

Unfortunately, nobody is seized of such a radical post-crisis agenda. Most people hope, instead, that the world will go back to being the way it was. It will not and should not. The essential ingredient of a successful exit is, instead, to use the huge surpluses of the private sector to fund higher investment, both public and private, across the world. China alone needs higher consumption.

Let us not repeat past errors. Let us not hope that a credit-fuelled consumption binge will save us. Let us invest in the future, instead.

martin.wolf@ft.com

Tuesday, February 23, 2010

290 Bills

This direct from FireDogLake:

"House Has Passed 290 Bills Which Have Stalled In The Senate
By: David Dayen Tuesday February 23, 2010 10:20 am


290. Two hundred and ninety. That’s the number of additional bills which would have passed into law during the Obama era in an alternate universe where America has a unicameral legislature. Student loan reform? Passed. Health care? Done, with a public option. Climate bill? Moving on. Financial reform? Complete, along with a provision to audit the Fed. Etc. Etc. Etc. Not all of these bills are dead-solid perfect policy, but they would be finished and ready for improvements and tweaks during implementation.

It’s gotten to the point where bills that can actually pass the Senate must be so small as to be undetectable under anything less powerful than an electron microscope. Harry Reid’s small-bore “jobs agenda” has an outside chance of gaining momentum, but more likely it’s a political gambit, to prove that Republicans are disinterested in the people’s business, only so we can come back in another year and watch them happily obstruct again. Heck, their representatives for this “bipartisan” health care summit include Tom “I love gridlock” Coburn.

This Congress as currently constructed cannot tackle real problems because obstructionism works in modern American politics. And until that dynamic changes, the minority party has every reason to continue the obstruction.

Democrats have bent over backward to at least try and make it appear as though they are reaching out to Republicans. And, following the script, Republicans have done a good job of obstructing Democrats for the sake of obstructing Democrats.

The problem for Democrats is that their plan resulted in a massive improvement in the Republican electoral situation, rather than improving their own…

Over the last fifteen and a half months, Democrats have lost 4-5% in net partisan self-identification, around 9% in the National House ballot, and around 15% in net party favorability [...] Republicans are paying no political price for their obstruction. Quite to the contrary, they are actually reaping a political reward from it. The Democratic plan of delaying legislation in order to make a big, public show of reaching out to Republicans was a miserable failure.

It has hurt politically and it has hurt in the context of substantive policy. Delaying the health care bill for 75 days so Max Baucus could sit in a kumbaya circle with Chuck Grassley was the biggest mistake of the lost year of 2009, impacting not only health care policy but everything else behind it in the queue. The far better option for Democrats was to use all legislative means at their disposal in the Senate to make up ground on those 290 stalled House bills. They have not done so, and they’re paying a terrible price.

What's wrong with this picture?

Did you read about the fully built NEW city in China that is EMPTY? Homes, Buildings, parks, shopping centers -- all EMPTY.

Supposedly the apartments are mostly sold -- but no one lives there. All bought by investors.

In addition, I read an article about a town that wanted to build a new bridge -- so, they had to destroy the existing, almost new, bridge. It had withstood an earthquake, and they couldn't bring it down with explosives -- but, they had to destroy it because they had the money to build a new bridge.

All this reminds me of some of the "boondoggles" in the USA during the middle of the 19th Century, very early 20th.

Here in the USA, we have an aging infrastructure, bridges, sewers, roads, etc., that need replacing -- but our current group of mental midget leaders cannot conjour up the will to do a DAMN thing. Little piecemeal projects, usually followed by naysayers, all complaining about something or other.

I remember the old Penn Station in N.Y.C., back then we all thought it UGLY. It was an eyesore -- now, some folks act as if we lost a great treasure. It just wasn't.

It's time to replace some of the old with BETTER new -- not just adequate -- but better.

New roads, new water systems, new railroads, NEW SCHOOLS, new bridges, a new electrical grid, high speed internet for all, etc., etc., etc.

Of course we have to hire a ton of people to do this. They will need representation by LABOR UNIONS. They will have to make a living wage.

We will also have to build housing, RAISE TAXES, provide healthcare, educate the children of these workers, etc., etc.

The secret is to RAISE TAXES, especially on those who have gained disproportionate rewards. As incomes increase, we will also have to tax our middle class more. Here's a secret -- people really do not mind paying taxes if they have enough money left to live on. The real burden comes when taxes take the food out of your mouth, the roof over your head.

We really have to reframe the argument. We all have a stake in society. Unless you are FILTHY RICH, it's impossible to be the self-reliant "loner", the "island" floating in the middle of the world. Even "off the grid" requires some contact with "the outside world" -- unless you wantto slowly revert to the stone age.

The time for fantasy is over -- it's time to look at reality, see how we are all interconnected, and deal with it.

Monday, February 22, 2010

Thoughts on China from Bloomberg

China New Village Makes Chanos See Dubai 1,000 Times


By William Mellor

Feb. 22 (Bloomberg) -- The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades.

Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) -- almost four times the national average -- allows Huaxi to claim it’s China’s richest village.

Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue.

Marc Faber, publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.”

Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai.

Dubai Times a Thousand

Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.”

China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off.

Risk for Commodities

Last month, banks lent a further 1.39 trillion yuan -- almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. Retail sales during last week’s Lunar New Year holiday rose 17.2 percent from the same period in 2009, according to the Ministry of Commerce.

While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets.

In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009.

Bidding Up Prices

“If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd.

The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history.

Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data.

Bridge of Strength

Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin, a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd., the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International.

Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview.

Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported.

Real Estate or Soybeans?

Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia, 25 kilometers (15 miles) outside the existing municipality of 1.5 million people.

Mark Mobius, meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.”

Chris Ruffle, who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.”

Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans.

To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net

This From Prof. Krugman

The Oil Bubble Controversy, Revisited

One of the curious things about economic debate in the later Bush years was the conviction among many on the right that there wasn’t a bubble in housing, but that there was one in oil.

We now know the truth about housing. But what about oil?

Oil prices did spike to triple-digit levels in early 2008, then drop sharply. But think about the fact that right now, with the world economy still seriously depressed, oil is at $80 a barrel. This suggests to me that high oil prices are largely caused by fundamentals.

And it also suggests that resource constraints will be an issue if and when we do get a full recovery.

I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the economy.

President's Speech

Presentation to the Burnham-Moores Center for Real Estate
School of Business Administration, University of San Diego
San Diego, CA
By Janet L. Yellen, President and CEO, Federal Reserve Bank of
San Francisco
For Delivery on February 22, 2010, 8 AM Pacific time, 11:00 AM Eastern
Download PDF Version (79KB)

The Outlook for the Economy and Monetary Policy1

Thank you, William. It’s very nice to see a familiar face and to receive such a gracious introduction. And it’s a pleasure to be here with you in beautiful San Diego. This morning, I will try to cover a lot of ground. I’ll survey the economic landscape, and give you my reading of the outlook for the national economy. I’ll also discuss the situation in San Diego and finish with some comments about monetary policy. In particular, I want to go over a matter that’s on the minds of many people right now: the Federal Reserve’s strategy for winding down the extraordinary measures taken during the financial and economic crisis of the past few years. My comments reflect my own views, and not necessarily those of my Federal Reserve colleagues.

Given the dismal economic news we faced for so long, it’s a great relief for me to report that the tide appears to have turned. We are seeing convincing evidence that an economic recovery is well under way. Still, as I’ll explain in greater detail in a few minutes, the fact that the economy is growing again doesn’t mean we’re where we ought to be. Far from it. In particular, the unemployment rate is unacceptably high, creating real hardship for millions of Americans. But, at least we’re heading in the right direction.

Let me start with the good news. Real gross domestic product, or GDP, the broadest measure of a country’s total output, has turned around impressively. It rose at a robust 5.7 percent annual rate in the fourth quarter of 2009. That’s a very welcome change from the huge declines we saw during the recession. In fact, it’s the best gain in GDP we’ve seen in six years. If we were able to sustain growth like this, we would experience a vibrant V-shaped upswing like those that occurred following past severe recessions.

Unfortunately, I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the economy. Much of it was due to a slowdown in the pace at which businesses were drawing down inventory stocks compared with earlier in the year. Less than half of the fourth-quarter growth reflected higher sales to customers. Those sales did grow, but at a lackluster 2.2 percent. It appears that businesses are getting their inventories closer in line with sales, which is a good thing. But such inventory adjustments can be a potent source of growth only for a few quarters. I’d feel much more confident about the prospect for a sustained robust recovery if I saw evidence of more vigorous growth in actual sales.

On that front, the most recent data show consumers releasing somewhat their tight grips on their wallets. But that doesn’t mean that people have thrown caution to the wind and returned to their spendthrift ways. Indeed, my business contacts tell me the consumer mindset is still in a fragile state. Clearly, the big weight hanging over everyone’s heads is jobs. The current high level of unemployment is severely restraining income and undermining confidence as people worry whether they will have a paycheck in the months ahead. Even those with secure jobs may worry about their finances since debt burdens were near historic highs at the onset of the financial crisis and, since then, equity and house prices have declined sharply. At this point, households are actually paying down debt, a development that partly reflects the reluctance of banks to lend to households with battered balance sheets.

The housing sector appears to have stabilized, but here too I don’t see any signs of a sharp turnaround. New home sales and construction finally stopped falling last year and have been reasonably stable, albeit at very low levels, for several months. Existing home sales surged late last year in response to the homebuyer tax credit. But, the credit expires this spring, so this source of support won’t be around much longer. The housing sector has also been benefiting from the Fed’s policy of buying mortgage-backed securities. These purchases appear to have helped keep home finance rates low. But, the Fed is now in the process of tapering off these purchases and plans to stop them at the end of March. As support from Federal Reserve and other government programs phases out, there is a risk that the housing market could weaken again.

If the consumer and housing sectors aren’t up to the task of delivering a V-shaped recovery, can business investment spending do it? It’s true that, in past recoveries, business investment typically grew rapidly once the economy turned the corner. And, in the current recession, businesses sharply curtailed capital expenditures, so they will eventually need to rebuild capacity and replace old equipment. In fact, we have already seen a rebound in business spending on equipment and software, and recent indicators for this type of spending point to solid growth.

Arguing against too much optimism, however, is that businesses remain very nervous and exceedingly cost conscious. One of my contacts referred to a “scarring effect” in the wake of the recession that has left businesses focused on survival and leery of investing. Many businesspeople say they are concentrating instead on process improvements, keeping supply chains lean, waiting for purchase orders before they produce, and meeting increases in demand with higher productivity from their existing workforces. True, they are beginning to plan with greater confidence. But the watchword remains caution.

Even for those businesses ready to expand—especially smaller ones—financing remains an impediment. Credit is becoming more available, but terms such as collateral requirements can be onerous. What’s more, the crisis made businesses keenly aware that they can’t count on being able to get credit. Some of my contacts say they plan to keep more cash on hand, rather than investing it, as protection against a renewed credit crunch.

Meanwhile, commercial real estate remains a bleak spot and investment in nonresidential structures is likely to stay depressed for some time. The recession drove up vacancy rates for office, retail, warehouse, and other income-producing properties, severely reducing demand for new buildings. In addition, credit is tight. Lenders and investors are demanding extra compensation for risk, driving up commercial real estate financing rates compared with pre-recession levels. And the market for commercial mortgage-backed securities remains distressed, despite support from the Fed’s Term Asset-Backed Securities Loan Facility, or TALF. So, I just don’t see this sector contributing to growth for quite some time.2

Put it all together and you have a recipe for a moderate rate of economic growth, well below the spritely pace set in the fourth quarter. The current quarter appears on course to post growth of around 3 percent. I see the economy gradually picking up steam over the remainder of this year as households and businesses regain confidence, financial conditions improve, and banks increase the supply of credit. I expect growth of about 3½ percent for the year as a whole, picking up to about 4½ percent next year, with private demand coming on line to pick up the slack as government stimulus programs fade away.

In addition to some of the weak spots I already mentioned, a number of other factors are holding back recovery. First, even though the banking and financial systems are gaining strength, they still bear wounds from the financial crisis, and these will take a long time to fully heal. Second, losses on mortgages, commercial real estate credits, and other loans continue to mount, and the full weight of foreclosures and bank failures on the economy has yet to be felt. Finally, the Fed, as well as central banks in other countries, has faced limits in the amount of monetary stimulus we have been able to generate. That’s because we can’t push interest rates below the near-zero level where they’ve been for more than a year. To be sure, we’ve developed many innovative programs to make credit cheaper and more readily available. But, all in all, monetary policy can’t give the same kick to the economy that it delivered in past recoveries.

Earlier I noted that, even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years. Economists think in terms of what we call the “output gap,” which measures the difference between the actual level of GDP and the level where GDP would be if the economy were operating at full employment. The output gap was around negative 6 percent in the fourth quarter of 2009, based on Congressional Budget Office estimates. That’s a very big number and it means the U.S. economy was producing 6 percent less than it could have had we been at full employment. That’s equivalent to more than $900 billion of lost output per year, or roughly $3,000 per person.

I’m afraid that the economy will continue to operate well below its potential throughout this year and next. Let me do a little math for you. The San Francisco Fed estimates that the potential level of output is increasing roughly 2½ percent a year due to growth in the labor force and increases in productivity. Hence, over the next two years, potential output will increase by about 5 percent. My forecast is that real GDP will increase about 8 percent during that period, or 3 percentage points more than potential output. This implies that the output gap will shrink from its current level of negative 6 percent to around negative 3 percent by the end of 2011. In fact, I don’t expect the output gap to completely vanish until sometime in 2013.

This brings us to a subject that is of paramount concern to all of us—the job situation. This recession has been very severe, indeed. The U.S. economy has shed 8.4 million jobs since December 2007. That’s more than a 6 percent drop in payrolls, the largest percentage point decline since the demobilization following World War II. The unemployment rate, which was 5 percent at the start of the recession, rose to around 10 percent in late 2009. The rates of job openings and hiring are also stuck at very low levels. These statistics represent a tragedy for our country, our communities, and each of the families and individuals who have had to cope with a loss of livelihood.

There is a glimmer of good news on the employment front. The pace of job losses has slowed dramatically and some indicators, such as gains in temporary jobs, suggest that we may be close to a turnaround in the labor market. I was encouraged to see the unemployment rate drop from 10 percent to 9.7 percent in January. Nonetheless, given my forecast of moderate growth and a shrinking, but still sizable, output gap, I expect unemployment to remain painfully high for years. The rate should edge down from its current level to about 9¼ percent by the end of this year and still be about 8 percent by the end of 2011, a far cry from full employment.

I should warn that there is a great deal of uncertainty surrounding this forecast. In the past, a given level of economic growth produced a more-or-less predictable change in the unemployment rate. Historically, a pattern emerged in which unemployment declined by half as much as the difference in the growth rates of actual and potential GDP. This is commonly referred to as “Okun’s law” after the economist Arthur Okun, who first described this relationship back in the 1960s.

Let me sketch out how this should work. In my forecast, GDP growth exceeds the growth rate of potential GDP by 1 percentage point this year and 2 percentage points next year. According to Okun’s law, the unemployment rate should fall by about one-half percentage point by the end of this year and a full percentage point during 2011. These figures are in line with my unemployment forecast.

However, Okun’s law let us down big-time in 2009. Given that GDP was stagnant last year, the unemployment rate should have gone up by about 1¼ percentage points, according to Okun’s law. In fact, it shot up 3 percentage points. Understanding what happened last year has important implications for what unemployment does in the future.

Economists have come up with a number of possible explanations for why the unemployment rate rose so much last year. The first explanation for the failure of Okun’s law is that special factors not directly related to output growth may be pushing up the unemployment rate. One possibility is that the severe recession is fundamentally altering the labor market, shifting jobs away from such sectors as manufacturing, real estate, and finance to other sectors. This reallocation takes time. Until it is complete, we will see higher levels of unemployment. A second possibility is that extended unemployment benefits are artificially boosting reported unemployment rates because workers who collect unemployment checks may be saying they are looking for work even if they have given up. In the past, such people might not have said they were searching for jobs and would no longer have been considered part of the labor force and counted in the official unemployment statistics.

Still, there is little evidence that structural shifts in the labor market or extended unemployment benefits have had large effects on the unemployment rate. Take the unemployment benefits explanation. If true, we would expect to see a large increase in the labor force participation rate, that is, the percentage of people who are working or saying they are looking for work. In fact, currently, the labor force participation rate does not appear to be unusually high.

A second possible explanation is that last year’s enormous decline in employment was somehow an aberration. GDP was basically unchanged over the four quarters of 2009. But payroll employment fell by 4 percent over the same period. In other words, the economy produced roughly the same quantity of goods and services with 4 percent fewer workers, which translates into a 4 percent increase in output per worker. That’s a huge rate of productivity growth, well above estimates of the long-term trend in productivity gains that stem from such factors as improved technology. So, if we ask where Okun’s law went astray, we can see the fingerprints of this unusual pattern of employment and productivity last year. But that’s not the end of the mystery. What would cause employment to dive and productivity to soar during such a severe recession? And is it a temporary or permanent phenomenon?

Those who believe it’s temporary point to the unusual nature of this terrible financial crisis and recession. Its severity made employers believe that it would be a long time, if ever, before they would need as many workers as they previously had. The credit crunch may also have caused some to fear that they wouldn’t be able to borrow in order to meet their payrolls. These factors prompted employers to break from the normal cyclical pattern in which workers are laid off relatively slowly and some are kept in reserve in case demand picks up. In this scenario, workforces have been cut to the bone and perhaps beyond. Businesses were able to continue to produce the same level of output despite big cuts in their workforces by working their employees harder. But that can only go so far. If demand continues to increase and businesses become more confident, they will eventually begin hiring again. If so, productivity growth will slow and the unemployment rate will fall faster than usual, reversing its unusual rise last year.

There is an alternative explanation regarding the events of last year though that bodes poorly for rapid employment gains going forward. According to this view, last year’s large increase in productivity is here to stay. In that case, we won’t see a quick drop in unemployment and may be in for a jobless recovery akin to those in the early 1990s and early 2000s. This is closer to my view and broadly consistent with my forecast.

According to this perspective, the recession has forced businesses to reexamine just about everything they do with an eye toward restraining costs and boosting efficiency. Strapped by tight credit and plummeting sales, businesses have overhauled the way they manage supply chains, inventory, production practices, and staffing. Stores don’t order merchandise unless they think they can sell it right away. Manufacturers and builders don’t produce unless they have buyers lined up. My business contacts describe this as a paradigm shift and they believe it’s permanent. This process of implementing new efficiency gains may have only begun and we may be in store for further efficiency improvements and high productivity growth for some time. If so, the rate of job creation will be frustratingly slow.

I’d like to bring this discussion home now by talking a little about San Diego. Obviously, the area economy was hit hard during the recession, but it does seem to have weathered the storm better than many areas of California. And, significantly, the San Diego area has shown signs of a job market turnaround in recent months. Employment grew notably in October and the gains were largely maintained in November and December. To be sure, San Diego still has far to go. The unemployment rate was significantly above the national average in December, the most recent data we have.

San Diego is among the nation’s leading biotechnology centers and this industry has been a bright spot. Biotech accounts for about two-and-a-half times as great a share of employment and income here as it does nationwide. Biotech wasn’t entirely immune—if I may use that word—to the recession. But demand for medical services continued to expand and that supported the industry. It appears that local biotech employment has largely held up during the past two years. Makers of pharmaceuticals, medical equipment manufacturers, and providers of research and development services even registered significant employment gains. Moreover, growth should continue. After bottoming out in early 2009, venture capital spending has risen substantially, with an important share going to biotech.

The local housing market appears to be improving as well. Fortunately, San Diego never saw as big a subprime mortgage boom as Nevada, Arizona, and some other places in California. Nevertheless, home foreclosures have surged in the San Diego area, rising from under 1 percent in the fall of 2007 to slightly over 3 percent of existing mortgages in December of last year. The trend, though, may be heading in the right direction. Foreclosures declined slightly in San Diego in December, even as they continued to rise nationwide.

Overall, the San Diego economy will likely recover along with the national economy. At the same time, I would not be too surprised to see the recovery take hold here with a bit more vigor than in the nation as a whole for the reasons I mentioned a moment ago.

Let me move on to the outlook for inflation nationwide. You can get into quite a debate on this topic. Some people worry that sustained federal budget deficits and the huge increase in the Federal Reserve’s lending and stimulus programs could eventually lead to high inflation. Others take the opposite view, arguing that economic slack and downward pressure on wages and prices are pushing inflation down. I would put myself squarely in the second camp.

I’m no fan of persistently large budget deficits. I’ve warned against them throughout my career. But the real danger I see from them is not inflation. Rather, they may be harmful once the economy recovers because they are apt to boost interest rates and absorb private savings that would otherwise finance productive investments. This is potentially a serious problem in the long term that could reduce investment and lower living standards, although, in the short run, federal deficits have cushioned the blow from the financial crisis and recession. As far as inflation is concerned, there’s no evidence that big government deficits cause high inflation in advanced economies with independent central banks, such as the Fed. Japan is a case in point. Japan has run enormous fiscal deficits for many years and its government debt has risen to very high levels. Yet is has suffered from persistent deflation, not inflation.

I believe that the more worrisome challenge for price stability over the next few years stems primarily from the sizable amount of slack in the economy. Whether measured by the output gap, the unemployment rate, the manufacturing capacity utilization rate, or whichever measure you like, the economy is running well below its potential. As a result, inflation is already very low and trending downward. Over the past 12 months, the personal consumption price index, excluding volatile food and energy prices, rose a modest 1.5 percent. This increase in core inflation was below the 2 percent rate that I and most of my fellow Fed policymakers on the Federal Open Market Committee (FOMC) consider an appropriate long-term price stability objective. And, with slack likely to persist for years and wages barely rising, it seems quite possible that core inflation will move even lower this year and next.

So where does all this leave Federal Reserve policy? Traditionally, the main tool of Fed monetary policy is the federal funds rate, which is what banks charge each other for overnight loans. The Fed controls that rate by varying the amount of reserves it supplies to the banking system and we have pushed that rate to zero for all practical purposes. This is as low as it can go. Such accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. I believe this is not the time to be removing monetary stimulus. Consistent with that view, the FOMC has repeatedly stated that it expects low interest rates to continue for an extended period.

Of course, in response to financial and economic emergency, the Fed has done a lot more than simply lower the federal funds rate. It has provided secured loans to banks and other financial institutions to make sure key credit markets were functioning. It is also in the last stages of purchasing $1.25 trillion dollars of mortgage-backed securities guaranteed by agencies such as Fannie Mae and Freddie Mac, and $175 billion of the direct debt of these agencies. These programs were vital in preventing a complete financial breakdown, which would have done immeasurable damage to our society.

As financial and economic conditions improve, the need for such extraordinary support diminishes. Accordingly, the Fed has begun to phase out its emergency lending programs. Special lending programs for primary dealers in the Treasury securities market, for money market mutual funds, and for corporate short-term debt have already been ended. So too have we shut down special arrangements to make dollars available to foreign central banks. The Term Auction Facility (TAF) and the TALF, which respectively supported financial institutions and credit markets, will be largely closed next month.3 Finally, the Federal Reserve has readjusted the terms of its loans to banks and thrifts—so-called discount window lending. During the financial crisis, we encouraged depository institutions to borrow from us when they needed cash to meet essential obligations. Now that financial markets are functioning more normally, banks can meet their usual funding needs by tapping private markets.

As we carried out our emergency lending programs and eased monetary policy in response to the recession, our balance sheet swelled from roughly $800 billion to its current level of over $2.2 trillion. Despite the reduction in our lending programs, our balance sheet remains, for want of a better word, enormous, owing to our holdings of mortgage-backed securities and agency debt. Now I just said this is not the time to be tightening monetary policy. But eventually the economy will gain enough momentum and won’t need today’s extraordinarily low interest rates. When that time comes, we will begin to tighten policy and remove monetary stimulus. And when we start doing so, we will face some technical issues due to the size of the balance sheet, as Chairman Bernanke noted in recent Congressional testimony.4 Let me briefly outline our strategy.

In normal times, the Fed raises interest rates by reducing the size of its balance sheet, say by selling Treasury securities to the public. This draws in cash from the economy, or, as we say, reduces the supply of bank reserves, which in turn causes the price of those reserves, that is, the federal funds rate, to go up. Since the fed funds rate is the benchmark for banks’ cost of money, other short-term market interest rates tend to follow suit. Higher interest rates in turn help slow the economy and reduce inflationary pressures.

But these aren’t normal times. Our securities purchases have caused the quantity of reserves in the banking system to swell to something like $1 trillion—far above the pre-crisis level of around $50 billion. If we were to follow our standard approach of selling securities to raise interest rates, we would have to sell off many hundreds of billions of dollars of securities to reduce the supply of reserves enough to have any chance of pushing rates higher.

The problem with doing that is that such massive sales of mortgage-related and Treasury securities could be disruptive to markets and cause mortgage interest rates and other long-term rates to shoot up when we are still in the early stages of the recovery and the financial system, although improving, is still not at full health.

There is an alternative. To push up short-term interest rates without selling off our securities holdings, we can instead raise the interest rate that we pay on reserves held at the Fed. Because banks would have the opportunity to collect a higher reward for keeping funds on deposit at the Fed, they would demand commensurately higher returns on the overnight loans that they make in the federal funds market. So an increase in the interest rate paid on reserves would raise the fed funds rate and tighten financial conditions more generally. The ability to pay interest on the excess reserves that banks deposit with the Fed is an important new tool that Congress gave us just over a year ago. It will play a lead role when the time ultimately comes to tighten monetary policy. And, to make sure this works smoothly, we have developed some technical tools that can help keep the federal funds rate near our preferred target.5 Eventually, after economic conditions have improved and a policy tightening has begun, we may then start a gradual process of selling securities in order to help return the Fed’s balance sheet to its pre-crisis levels.

The bottom line is that we are already unwinding the emergency programs we set up during the financial crisis. When the day comes to start raising rates again, we have tools at the ready. But, for the time being, the economy still needs the support of extraordinarily low rates. Thank you very much

Saturday, February 20, 2010

A little Count Basie for early Saturday

#20

Press Releases
OneWest Bank, FSB, Pasadena, California, Assumes All of the Deposits of La Jolla Bank, FSB, La Jolla, California

FOR IMMEDIATE RELEASE
February 19, 2010
Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

La Jolla Bank, FSB, La Jolla, California, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with OneWest Bank, FSB, Pasadena, California, to assume all of the deposits of La Jolla Bank, FSB.

The ten branches of La Jolla Bank, FSB will reopen on Monday as branches of OneWest Bank, FSB. Depositors of La Jolla Bank, FSB will automatically become depositors of OneWest Bank, FSB. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from OneWest Bank, FSB that it has completed systems changes to allow other OneWest Bank, FSB branches to process their accounts as well.

This evening and over the weekend, depositors of La Jolla Bank, FSB can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, La Jolla Bank, FSB had approximately $3.6 billion in total assets and $2.8 billion in total deposits. OneWest Bank, FSB did not pay the FDIC a premium for the deposits of La Jolla Bank, FSB. In addition to assuming all of the deposits of the failed bank, OneWest Bank, FSB agreed to purchase essentially all of the assets.

The FDIC and OneWest Bank, FSB entered into a loss-share transaction on $3.31 billion of La Jolla Bank, FSB's assets. OneWest Bank, FSB will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-894-2927. The phone number will be operational this evening until 9:00 p.m., Pacific Standard Time (PST); on Saturday from 9:00 a.m. to 6:00 p.m., PST; on Sunday from noon to 6:00 p.m., PST; and thereafter from 8:00 a.m. to 8:00 p.m., PST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/lajolla.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $882.3 million. OneWest Bank, FSB's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. La Jolla Bank, FSB is the 20th FDIC-insured institution to fail in the nation this year, and the second in California. The last FDIC-insured institution closed in the state was First Regional Bank, Los Angeles, on January 29, 2010.

#19

Press Releases
FirstMerit Bank, National Association, Akron, Ohio, Assumes All of the Deposits of George Washington Savings Bank, Orland Park, Illinois

FOR IMMEDIATE RELEASE
February 19, 2010
Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

George Washington Savings Bank, Orland Park, Illinois, was closed today by the Illinois Department of Financial Professional Regulation – Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with FirstMerit Bank, National Association, Akron, Ohio, to assume all of the deposits of George Washington Savings Bank.

The four branches of George Washington Savings Bank will reopen on Saturday as branches of FirstMerit Bank, N.A. Depositors of George Washington Savings Bank will automatically become depositors of FirstMerit Bank, N.A. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from FirstMerit Bank, N.A. that it has completed systems changes to allow other FirstMerit Bank, N.A. branches to process their accounts as well.

This evening and over the weekend, depositors of George Washington Savings Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, George Washington Savings Bank had approximately $412.8 million in total assets and $397.0 million in total deposits. FirstMerit Bank, N.A. will pay the FDIC a premium of 0.31 percent to assume all of the deposits of George Washington Savings Bank. In addition to assuming all of the deposits of the failed bank, FirstMerit Bank, N.A. agreed to purchase essentially all of the assets.

The FDIC and FirstMerit Bank, N.A. entered into a loss-share transaction on $324.2 million of George Washington Savings Bank's assets. FirstMerit Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-837-0215. The phone number will be operational this evening until 9:00 p.m., Central Standard Time (CST); on Saturday from 9:00 a.m. to 6:00 p.m., CST; on Sunday from noon to 6:00 p.m., CST; and thereafter from 8:00 a.m. to 8:00 p.m., CST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/georgewashington.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $141.4 million. FirstMerit Bank, N.A.'s acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. George Washington Savings Bank is the 19th FDIC-insured institution to fail in the nation this year, and the second in Illinois. The last FDIC-insured institution closed in the state was Town Community Bank and Trust, Antioch, on January 15, 2010.

#18

Press Releases
Community National Bank, Hondo, Texas, Assumes All of the Deposits of the La Coste National Bank, La Coste, Texas

FOR IMMEDIATE RELEASE
February 19, 2010
Media Contact:
Greg Hernandez
(202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

En Español

The La Coste National Bank, La Coste, Texas, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community National Bank, Hondo, Texas, to assume all of the deposits of The La Coste National Bank.

The sole branch of The La Coste National Bank will reopen on Monday as a branch of Community National Bank. Depositors of The La Coste National Bank will automatically become depositors of Community National Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from Community National Bank that it has completed systems changes to allow other Community National Bank branches to process their accounts as well.

This evening and over the weekend, depositors of The La Coste National Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, The La Coste National Bank had approximately $53.9 million in total assets and $49.3 million in total deposits. Community National Bank will pay the FDIC a premium of 0.51 percent to assume all of the deposits of The La Coste National Bank. In addition to assuming all of the deposits of the failed bank, Community National Bank agreed to purchase essentially all of the assets.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-830-3256. The phone number will be operational this evening until 9:00 p.m., Central Standard Time (CST); on Saturday from 9:00 a.m. to 6:00 p.m., CST; on Sunday from noon to 6:00 p.m., CST; and thereafter from 8:00 a.m. to 8:00 p.m., CST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/lacoste.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $3.7 million. Community National Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. The La Coste National Bank is the 18th FDIC-insured institution to fail in the nation this year, and the first in Texas. The last FDIC-insured institution closed in the state was Madisonville State Bank, Madisonville, on October 30, 2009.

#17

Press Releases
Mutual of Omaha Bank, Omaha, Nebraska, Assumes All of the Deposits of Marco Community Bank, Marco Island, Florida

FOR IMMEDIATE RELEASE
February 19, 2010
Media Contact:
Greg Hernandez
(202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

Marco Community Bank, Marco Island, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Mutual of Omaha Bank, Omaha, Nebraska, to assume all of the deposits of Marco Community Bank.

The sole branch of Marco Community Bank will reopen on Saturday as a branch of Mutual of Omaha Bank. Depositors of Marco Community Bank will automatically become depositors of Mutual of Omaha Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use their existing branch until they receive notice from Mutual of Omaha Bank that it has completed systems changes to allow other Mutual of Omaha Bank branches to process their accounts as well.

This evening and over the weekend, depositors of Marco Community Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Marco Community Bank had approximately $119.6 million in total assets and $117.1 million in total deposits. Mutual of Omaha Bank will pay the FDIC a premium of 1.5 percent to assume all of the deposits of Marco Community Bank. In addition to assuming all of the deposits of the failed bank, Mutual of Omaha Bank agreed to purchase essentially all of the assets.

The FDIC and Mutual of Omaha Bank entered into a loss-share transaction on $104.8 million of Marco Community Bank's assets. Mutual of Omaha Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-822-9247. The phone number will be operational this evening until 9:00 p.m., Eastern Standard Time (EST); on Saturday from 9:00 a.m. to 6:00 p.m., EST; on Sunday from noon to 6:00 p.m., EST; and thereafter from 8:00 a.m. to 8:00 p.m., EST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/marco.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $38.1 million. Mutual of Omaha Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Marco Community Bank is the 17th FDIC-insured institution to fail in the nation this year, and the third in Florida. The last FDIC-insured institution closed in the state was Florida Community Bank, Immokalee, on January 29, 2010.

# # #

Thursday, February 18, 2010

More on "Gods Love"

This just brought to my attention by Pharyngula. Isn't the "love" bestowed by "christians" wonderful?



DA links fundamentalist "training" to Paradise girl's death
By TERRY VAU DELL - Staff Writer
Posted: 02/12/2010 12:50:43 AM PST

OROVILLE -- A fundamentalist religious philosophy that espouses corporal punishment to "train" children to be more obedient to their parents and God is now being investigated in connection with the death of a young Paradise girl and serious injuries to her sister.

Butte County District Attorney Mike Ramsey confirmed Thursday that other children in the home who have been interviewed told investigators "this philosophy was espoused by their parents."

Ramsey said he is also exploring a possible connection to a Web site that endorses "biblical discipline" using the same rubber or plastic tube alleged to have been used to whip the two young ridge girls by their adoptive parents.

In court Thursday, a judge granted a two-week postponement before the children's parents, Kevin Schatz, 46, and Elizabeth Schatz, 42, enter a plea to murder and torture charges that could carry two life terms in prison.

The delay will allow the mother to retain legal counsel as her husband did earlier.

The father's attorney, Michael Harvey, declined to comment regarding the specific allegations against the couple until he has a chance to review the evidence.

"All I can say is the family is shocked; they are grieving the loss of their daughter and (ask) that people of faith will pray for everybody involved," the defense attorney stated outside of court Thursday.

The Schatzes were arrested Saturday morning after their adopted daughter, Lydia, age 7, stopped breathing. She was subsequently pronounced dead.

Her 11-year-old sister, Zariah Schatz, remains in critical condition at a Sacramento children's hospital, though she is showing some signs of recovery. The two were adopted at the same time with an infant girl, now 3, from the same African orphanage about three years ago,

Prosecutors allege the two victims were subjected to "hours" of corporal punishment by their parents on successive days last Thursday and Friday with a quarter-inch-wide length of rubber or plastic tubing, which police reportedly recovered from the parents' bedroom.

Police allege that the younger girl was being disciplined for mis-pronouncing a word during a home-school reading lesson the day before she died.

The two young girls reportedly sustained deep bruising and multiple "whip-like" marks on their back, buttocks and legs, which authorities believe resulted in significant muscle tissue breakdown that impaired their kidneys and possibly other vital organs, said Ramsey.

He said investigators are researching a possible connection to an Internet Web site set up by "fundamentalist Christian people" that recommends use of the same whip-like implement "as an appropriate tool for biblical chastisement ... to train a child from infancy to make them a happier child and more obedient to God because they are obedient to the will of their parents," said Ramsey.

The district attorney said some of the Schatzes' six biological children, who were removed from the family home for their protection following the parents' arrest, have made statements suggesting the ridge couple shared this philosophy.

The other children in the home said the same rubber or plastic tube was used on all of them "as a standard method of discipline, but certainly not to the extent of these two girls," Ramsey added.

He said it's not clear at this point whether the Schatzes ever visited the Web site in question, which Ramsey stressed "does not endorse hurting or beating a child," nor is connected to any specific church.

From the research he has done, the district attorney pointed out that "even within the fundamentalist Christian community," parental use of corporal punishment "is subject to a great deal of debate."

The ridge couple remain held on $2 million bail pending entry of plea in two weeks to the murder and torture charges.

Municipal Bonds

Long considered very low risk, Municipal Bonds are now being seen as questionable investments.

It seems more and more municipalities are beginning to consider Chapter 9 Bankruptcies.

"A fine kettle of fish you've gotten us into Ollie!".

When will the Republicans begin to understand it's to no ones benefit to turn the USA into a true third world country.

When will the Tea Party folks begin to understand they have the wrong people and institutions in their sights. Once we go down the road of ignorance, bigotry, mean spirited "frugality" -- once we allow children to starve (no matter who is at "fault" -- it's still wrong.), once we allow the homeless to die on the streets, or the working poor to die from neglect ---- we will never return to the place we once held.

We will be a nation of a few rich, some folks who uphold the "law" dictated by those rich, and a huge mass of lumpen prols. Does that sound like it would lead to a wonderful outcome? Can you see a new "Shining City On A Hill" rising from that?

Can you see it lasting more than a few years before the "deluge".

It really seems those who block all movement, all attempts to return to a more equitable society, really want the apocalypse -- doesn't it?

Matt Taibbi

Please follow the link to Rolling Stone. Matt Taibbi has a new article titled "Wall Street's Bailout Hustle"

Well worth reading.

Tuesday, February 16, 2010

Why all the fuss about DADT?

The drumbeat against Don't Ask, Don't Tell is gaining. DADT is being called the last form of "active discrimination" against gay and lesbian folks.

It seems folks forget about things like hospital visitation, marriage, inheritance, etc. They seem to think getting beaten up on the way home from a night out isn't "active".

Granted, there is a hate crimes law - national - but THE POLICE, who have been abusing gay and lesbian folks for years and years, will have to ENFORCE that law (and others).

So, we have folks working to repeal a law to make it possible for LGBT folks to take part in wars of aggression - openly.

We have further reinforcement of our macho culture. We make it a goal to have even LGBT kids fall into line with the coarseness of our current society.

at the same time, I don't think gay officers will come out because it just might end any chance for advancement.

Is this really that important?

Is this where the LGBT groups want to put their energy?

Why?

Oh yeah -- by the way -- the very same folks who want to end DADT are also among the folks who scoff when it's suggested that LGBT folks learn how to protect themselves, safely own a gun, learn to safely shoot.

Monday, February 15, 2010

unemployment running out -- again

NEW NATIONAL & STATE-BY-STATE ANALYSIS:
WITHOUT CONGRESSIONAL ACTION, NEARLY 5
MILLION JOBLESS WORKERS WILL LOSE BENEFITS
BY JUNE


Studies say (Doesn't that sound great? You can say ANY CRAP if preceded by those two words) five million workers will lose unemployment benefits by June if no further extensions.

In other words, these folks are GETTING WELFARE -- only, it has to be voted on by Congress every couple of months.

GOD FORBID we actually call it WELFARE -- that's a dirty word for a lot of these folks. after all, they are the HARD WORKERS, the BACKBONE of American society -- blah, blah, balh, etc. THEY are NOT the "kind of people" who get WELFARE.

We have turned so much of what was once a part of the safety net into evil buzz words that we can't carry on a rational conversation about what is really needed.

Self delusion, the fantasy of radical individualism, the privatization of public functions, demonization of government, have led us to a place where real answers that might insult someone, or attack their ideology cannot be considered.

In the words of Paul Krugman --- "We're doomed."

Labor Underutilization Rate Based On Household Income

http://3.bp.blogspot.com/_pMscxxELHEg/S3mTM53crII/AAAAAAAAHgE/p4N49XE2HK0/s1600/LaborUnderutilizationIncome.jpg

(Click on link for chart)

Please go to Huffington Post For article. Follow link.

No wonder Republican's and Beltway sorts are a bit slow when it comes to the job situation -- it does not affect them or any in their circle.

It's the huge disconnect between Washington, Wall Street, Upper Middle Class folks and the rest of us that's to blame.

They do not know us, do not care about us, and neither have, or want to have, any first hand knowledge of the trials "ordinary people" go through.

Even the total hypocrisy, the cavalier attitude, so many of our "leaders" take toward health care, shows the disconnect.

Once again, I feel like I'm drawn toward writing about the huge gap between reality and what is presented by our "news organizations". Not only is dissent discouraged -- it's just not covered unless there's "direct action" involved. Even then, the coverage tends to be VERY onesided.

People are unhappy, stressed, worried sick -- yet think they are alone.

Our culture, the one that tells you you're a "pussy" if you consider collective action, if you support class consciousness, makes it so YOU have to solve "your problems" all alone. That makes it very difficult to see it's NOT "your problem" -- it's endemic, it's a part of the way society is structured.

The game is rigged ----- just ask all those folks who followed the "rules", were "loyal employees", "good citizens", did it the "right way" - then got shafted by their employers when the time came, when they were to reap the deferred "rewards" --- no job, no pension (any more), no health care.

Just another discarded "part".

Unfortunately, in most cases, the old light bulb comes on when it's too late to do anything ----- and the young folks think, "I'm different. That won't happen to me. These useless old fools deserve what they get."

Generation after generation they never realize thet too will become "useless old fools"
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'No Labor Market Recession For America's Affluent,' Low-Wage Workers Hit Hardest: STUDY





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