Daily Digest

Daily Digest - Apr 28

Tuesday, April 28, 2009, 10:23 AM
  • Are the Knives are Coming Out for Geithner?
  • Charlie Rose - Stiglitz, Ackerman:  stress test has any real meaning is simply living in Wonderland (Video)
  • Max Kaiser Latest Appearances...(Video)
  • Eric Rosenfeld on LTCM…(Video)
  • Summers: Expect "sharp declines in employment"
  • No More Dodgeball! (Video)
  • Planet Money - Live (Video, WTF Just Happened to our Economy)
  • Will The Fed Finally Move Interest Rates Below Zero
  • YoY Change in European Exports
  • MERS (Chart)
  • So far behind Flu (Video # 3 WSJ)
  • 2,000 people hospitalized with serious cases of pneumonia 

Economy 

Are the Knives are Coming Out for Geithner?

The clout of the press has decayed enormously over the last 40 years. The fourth estate was feared, resented, and begrudgingly respected in the corridors of power. But rule by beancounters, savvy media spin, and access journalism (journalists who write pointed stories get frozen out) have largely leashed and collared the press. Indeed, a friend who grew up in Eastern Europe when it was Communist said as of roughly 2000 that the news felt controlled.

So to see a front page, and super long story in the New York Times honing in on Geithner's close, as in overly close, relationship with Wall Street executives, is a stunner. In the old days, a report critical of a prominent public official would be a leading indicator that they were at least facing headwinds, perhaps in bona fide trouble. But given the new rules of the game, one has to assume a story of this sort is a lagging indicator, that Geithner is perceived to be sufficiently at risk to be fair game.

Thus what is surprising about tonight's New York Times story, "Member and Overseer of the Finance Club," on Timothy Geithner is not its content, but that it was written at all, and moreover (as of now) is a front page item. It's extraordinarily long for a weekday story. the number of column inches usually reserved for natural, not bureaucratic disasters.

Any reader of any remotely plugged in econoblog, or savvy enough to read between the lines of MSM reports will know that Geithner is a creature of the financial establishment. Probably the most important element in his pedigree is that he is a protege of Larry Summers and Bob Rubin. It also appears that he and Summers are working fist in glove (witness the marginalization of Paul Volcker).

At a minimum, Geithner crony capitalist policies are finally leading to a hard look at his loyalties. There is no reason to think Geithner is personally corrupt (well, there was his little tax problem) but rather that he is as die hard a believer of finance uber alles as Alan Greenspan, albeit without the libertarian zealotry.

Of course, if one were Machiavellian, this move may be Team Obama realizing rather late that they have made the success of Obama's presidency contingent on the Summer/Geithner program, and now they are trying, even more so than before. to pin the policies on Geithner. That may work tactically but in the end, the banking mess is too central a problem for Obama to try to shift blame of policy failures onto his team. He picked the chefs, he has to eat the cooking. If the economy is still a mess in 2012, he will not escape the taint.

And as much as this piece signals that Geithner may be starting to be perceived as a liability, it seems unlikely that he is in serious trouble yet. Sadly, the programs have to flounder first (although with the PPIP, that could happen sooner rather than later.....).

And while the Times piece finally points to the elephant in the room, namely, how bankster friendly the new regime has been, it is far less pointed than it could have been. I suppose one has to treat Treasury secretaries with kid gloves The questionable incidents and relationships are diluted by a lot of narrative. But recall we never saw anything remotely like this treatment (save lots of grumblings) about Hank Paulson. Of course, handouts to the big end of town was standard operation in the Bush administration, so it was hard to work up much outrage about it (at least until the heinous TARP).

From the New York Times:

Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.

Charlie Rose - Stiglitz, Ackerman:  stress test has any real meaning is simply living in Wonderland (Video)

Max Kaiser Latest Appearances...(Video)

Eric Rosenfeld on LTCM…(Video)

Summers: Expect "sharp declines in employment" 

From Bloomberg: Summers Says U.S. Economy to Decline ‘For Some Time’

“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.”
...
Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”
...
Summers said the Obama administration is “on a path toward containment and toward building a path toward expansion,” he said, adding that “even sharp plans take time” to work, perhaps six months or more.
Reuters has more quotes: Summers says no unremitting freefall in US economy
“Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically. Today, the picture is much more mixed,” Summers said.

“There are some negative indicators, to be sure. There are also some positive indicators. And no one knows what the next turn will be,” he said. “But I think that sense of unremitting freefall that we had a month or two ago is not present today. And that’s something we can take some encouragement from.”

The "unremitting freefall" might be ending, but what will be the source of growth? Usually residential investment (RI) and personal consumption lead the economy out of a recession - and both remain severely impaired this time. There is too much excess inventory for any meaningful recovery in RI, and the process of repairing household balance sheets has just begun (I expect the savings rate to continue to rise for some time).

Krugman spoke about this in Cincinnati:

"I'm in the camp that really worries about the L-shaped recession. We level off but we don't get the recovery. We hope it isn't, but it has all the markings of it. This looks like the kind of slump that has all the markings of where normal recovery forces are very, very weak.

It's hard to see where recovery comes from."

No More Dodgeball! (Video, Teaching kids not to take a loss?)

Planet Money - Live (Video, WTF Just Happened to our Economy)

Will The Fed Finally Move Interest Rates Below Zero 

Over the last year, there has been speculation that the Fed would drop interest rates below zero, paying its borrowers to take money. Analysts believe that credit is so tight that even with interest rates at zero, the gridlock will not clear up. 

Perhaps one of the reasons that the Fed has avoided making this move is that it is unprecedented and would add to the costs being taken on by the government to end the recession.

But, there are people inside the Fed making a case for dropping rates below where they are now.

According to the FT, “The ideal interest rate for the US economy in current conditions would be minus 5 percent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.” The major factors taken into account in the analysis are unemployment and inflation.

Since there is no clear indication that the Fed’s current policies have done much if anything to spur the economy, the central bank may find itself cutting rates again next month, especially if the GDP numbers for the first quarter are much worse than expected and unemployment continues to move higher. The Fed and the Treasury have said that they will do what is necessary to pull the US out of its current financial and economic crisis. Keeping rates where they are means that the Fed is allowing current policy to keep it from fulfilling that promise.

The numbers for the American economy could actually deteriorate over the next several months, although government officials are saying otherwise. Job losses and housing price troubles are getting worse. Businesses and consumers still have little or no access to credit.

And, the Fed has not pulled out all of the stops.

YoY Change in European Exports

MERS (Chart)

So far behind Flu (Video # 3 WSJ)

2,000 people hospitalized with serious cases of pneumonia 

In Mexico, the outbreak's center, soldiers handed out six million face masks to help stop the spread of the virus. Nearly 2,000 people in Mexico have been hospitalized with serious cases of pneumonia since the first case of swine flu was reported two weeks ago.

18 Comments

Davos's picture
Davos
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Re: Daily Digest - Apr 28

Today we went and got our cow from the butcher. @1.80 hoof weight we figured we yielded about 400#'s at about 2.89 per pound, and no Monsato hormones. Cheaper than what we can usually get hamburger meat for in the store.

The butcher is 77, born in 1932 - during the last depression. Said he will be around for this one. He knew all about fiat money. All the common sense in the world, knew that too much debt was the problem and more debt wouldn't fix anything, only make it worse.

The part that interested me was his taxes. Real estate went up in our county. The butcher's farm would not be sellable to another farmer becuase the taxes and sale price would preclude them making any profit by farming. Developer sale or no sale.

So, as we left it felt great to have done business locally. I'm sure the butcher made more than the butcher at WalMart, as did the farmer who sold us the steer for probably more than she would have gotten at the market. Us, well we saved a lot, had 2 t-bone steaks for dinner and will sleep like a baby knowing we are stocked for 1 ++ years.

As for the flu: My take. The WSJ video sounds reminicent of Bush II and Katrina. As they say in flying, these guys are way behind the plane. Listenting to this sounds like an accident looking for a place to happen. Hopefully the flu will be no worse than SARS, but 2,000 cases of pneumonia makes me think otherwise. If I recall from "The Great Influenza" pneumonia was the cause of death.

PS That Planet Money video I am finding quite good, I'm about 22 minutes into it...

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ccpetersmd
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Re: Daily Digest - Apr 28

Thanks for the Planet Money video, I'll watch it when I get home. It'll be interesting to put faces to the voices from the podcasts I follow regularly.

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noodlydoo
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Re: Daily Digest - Apr 28

Never could quite figure out the sheeple. Sold my home in 2005, everyone thought I was nuts. Removed myself from the market in 2008, everyone thought I was nuts. About to by a home and take on debt, everyone thinks I'm nuts.

During periods of inflation, creditors transfer wealth to debtors.

fujisan's picture
fujisan
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Re: Daily Digest - Apr 28

 "Will The Fed Finally Move Interest Rates Below Zero"

Minus 5% That's crazy! Free money for every bank.

BTW Do not tell the Fed, but in the past, the Swiss Central Bank did actually moved interest rates below zero.

 

Broadspectrum's picture
Broadspectrum
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Re: Daily Digest - Apr 28

Hi All,

Check this article out for a discussion on negative interest rates.

The Nuttiness of Negative Interest Rates  http://mises.org/story/3432

The FED answers to someone/something too...and it ain't us, the people.  It's the financial elite and another central bank.  The central banks are coming to get us.  It's The BIS.  And that's no BS.

THE TOWER OF BASEL:
DO WE REALLY WANT THE BANK FOR INTERNATIONAL SETTLEMENTS ISSUING OUR GLOBAL CURRENCY?

http://www.webofdebt.com/articles/basel.php

pumpkinfutures's picture
pumpkinfutures
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Re: Daily Digest - Apr 28

Davos,

A steer is not a "she" but a "he" that was castrated while a calf.

 

Jim

Davos's picture
Davos
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Re: Daily Digest - Apr 28

 Thanks PumkinFutures, the she I referred to was the farmer Susie. Take care

maveri's picture
maveri
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Re: Daily Digest - Apr 28
Broadspectrum wrote:

Hi All,

Check this article out for a discussion on negative interest rates.

The Nuttiness of Negative Interest Rates  http://mises.org/story/3432

...

I was reading this one last night and thought to myself, this is what happens when you get economists with no real world experience - their whole theories are derived from within a vacuum void of day to day exposure of the real marketplace and people.

I'm not sure where Greg Mankiw has attained any real world knowledge, as reading the Wiki on him it just refers to his academic career. It seems that his real world experience is rather thin.

This type of intellectualism is what I have seen permeating the workplaces over the last 10 years. People with good sound knowledge and years of experience displaced by people with no grass roots experience and lots of qualifications.

Desperate times require desperate measures is what governments will say - therefore no crazy idea will be off limits and they attempt to force their square peg thinking into round hold reality and the people will be the ultimate sufferers.

Hotrod's picture
Hotrod
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Re: Daily Digest - Apr 28

Davos,

Thanks for the daily insight, and also thanks for supporting the local economy by purchasing direct from the farmer and using a small time butcher.  Cut out the corporate criminals!

Davos's picture
Davos
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Re: Daily Digest - Apr 28

 Hello Hotrod: 

It is a pleasure to contribute what I read each day to this fine community and site that Chris built, as always I learn more from the comments then from the other great blogs I scour each day. Today, for example, I got word from another farmer that my meat will be freezer burned in 12 months and I should go for a 6 month supply next time.

It was also a pleasure to buy local. What really shocked me is how everyone won. Susie the farmer, Mr. H the butcher and Marsh and I.

Take care

crazyhorse's picture
crazyhorse
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Re: Daily Digest - Apr 28
Davos wrote:

 Hello Hotrod: 

It is a pleasure to contribute what I read each day to this fine community and site that Chris built, as always I learn more from the comments then from the other great blogs I scour each day. Today, for example, I got word from another farmer that my meat will be freezer burned in 12 months and I should go for a 6 month supply next time.

It was also a pleasure to buy local. What really shocked me is how everyone won. Susie the farmer, Mr. H the butcher and Marsh and I.

Take care

Davos,

You could prolong your meat life by using vacuum bags (I have read this works, but mine have only been in there a few months - so no verification).  Also you could try pressure canning some.  Just talked to the FIL about this and he said it tastes quite good.  Also don't have to worry if you loose power for an extended period (we lost the whole freezer last fall during an outage).  Or you could eat like a king every night!  ;-)  Best of luck.

Woodman's picture
Woodman
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Re: Daily Digest - Apr 28

Glad to hear your steer worked out Davos.  I have no illusions about surviving alone off my little plot of land, but get similar satisfaction from things like the spinach, carrots, onions, and radishes I just pulled out of the cold frames just outside.  Better tasting and way cheaper than Hannaford; no pesticides either.   Bought blueberry plants locally yesterday, a big box of seed potatos showed up today, and baby chicks should arrive anytime.  Went to a fruit tree class tonight.    Hoping to share extra veggies this summer with neighbors in return for their help on other things.  So much to do...but I'd rather be busy than bored!     

Davos's picture
Davos
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Re: Daily Digest - Apr 28

 Hello CrazyHorse, thanks I will try this, I have a lot of freezer bags from when we did the venison this fall.

Hello Woodman, wow, you sound busy. I hope you enjoy the chics as much as we do and I know what you mean about the garden, I can't wait to get "ours" (Marsh calls it hers on Facebook) finished. If rocks were food we'd be set. I do have a generator, I either need to convert it to propane (we have 500 gallons in ground) or I need to build solar panels, I have read up on this and it is likely the route we will pursue. 

Take care!

maveri's picture
maveri
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Re: Daily Digest - Apr 28 WHO flu swine death toll

Seems WHO is disputing the 150 death toll - they say it's only 7

http://www.news.com.au/story/0,27574,25403429-29277,00.html

Having a quick search around it seems this story is sourced from the link above which leaves me a little suspicious actually - surely such a statement would come from WHO itself and be referenced from there?

grl's picture
grl
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Re: Daily Digest - Apr 28
Davos wrote:

 It was also a pleasure to buy local. What really shocked me is how everyone won. Susie the farmer, Mr. H the butcher and Marsh and I.

Take care

Well yeah, every"one" but the steer. Just a reminder to all of you out there - we humans can survive and thrive without meat. I have done it for over 30 years and suffice it to say, the only thing I fear is the current outbreak of Swine Flu since apparently it attacks people with healthy immune systems. Wonder if you have your freezer set up on an alternative energy source Davos, 'cause otherwise, if the shtf you are gonna be having a big ol' fashioned bbq party.

Damnthematrix's picture
Damnthematrix
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9 months left?

Video of Gerald Celente predicting that the US will see financial
collapse within 9 months:  Enough time to give birth to a new system....?!

http://www.abc6.com/news/41131932.html

tx_floods's picture
tx_floods
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Posts: 155
Re: Daily Digest - Apr 28

I found this on an article on Financial Sense: 

http://www.financialsense.com/editorials/mckillop/2009/0427.html

Rigorous and systematic reality denial will ensure the worst possible sequels to what appeared only to be a stock market crash, in 2007-2008, before it mutated and struck, or 'fed back' into the real economy. G-20 leaderships, the Davos conclave, financial and business media, TV talking heads - all stoically deny there could be any resource, environment or climate limits, let alone geopolitical limits to growth, when this elusive Graal is found and restored. This flies in the face of basic facts. All effort, and possibly 4 000 Bn dollars of printed and borrowed public money is directed to the quest of restoring global economic growth, as soon as possible, as much as possible. Perhaps one of the most acute weaknesses and defects of the rigorous public optimism that surrounds this quest is a somber but traditional time quirk : Tomorrow doesn’t exist. Because of this, interest rates and inflation will not and cannot increase, even if they are sure to increase in 2010. Forward time available for achieving the hypothetical rebound, by the same quirk, is imagined to be unlimited – that is the rebound can come in 2011 if not 2010, or in 2012 if not 2011. Two or three years ahead therefore sets the forward limit of the time telescope: Recovery must come by then, beyond 2012 we pass into unknown dimensions.

Well. I think we know who's the mole in our midst. Thanks, Davos, for your Daily posts.

Woodman's picture
Woodman
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Re: Daily Digest - Apr 28
Davos wrote:

...I do have a generator, I either need to convert it to propane (we have 500 gallons in ground) or I need to build solar panels, I have read up on this and it is likely the route we will pursue. 

Take care!

Davos, I would like to hear more on your solar panel experience if you pursue it.  Seems like better route than a generator.  The direction I've focused on is minimal refrigeration in favor of canned, non-perishable, or continuously harvestable foods.  I'd like just a small solar setup for some lights and radio, so I wouldn't have to run my truck inverter like during the icestorm last winter. 

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