Blog

Week of June 9, 2008

Sunday, June 15, 2008, 6:51 AM
06/09/2008


June 14

Israeli hawks pushing for strikes on Iran (June 12 – Monterey Herald JERUSALEM)

Six months ago, after American intelligence
agencies declared that Iran had shelved its nuclear-weapons program,
the chances of a U.S. or Israeli military strike on the Islamic
Republic before President Bush left office seemed remote.

Now,
thanks to persistent pressure from Israeli hawks and newly stated
concerns by the International Atomic Energy Agency, the idea of a
targeted strike meant to cripple Iran's nuclear program is getting a
new hearing.

As Bush travels across Europe to gain support for
possible new sanctions against Iran, Israeli leaders have been working
to lay the psychological foundation for a possible military strike if
diplomacy falters.

In public threats and private briefings
with American decision-makers, Israeli officials have been making the
case that a military strike may be the only way to thwart Iran's
nuclear ambitions.


G-8 Says Economy Faces `Headwinds,' Oil a Threat (June 14 - Bloomberg)

Finance ministers from the Group of Eight nations
singled out spiraling food and fuel prices as their chief concern in
warning ``headwinds'' dog the global economy.

``The world
economy continues to face uncertainty and downside risks persist,'' the
officials said in a statement after meeting today in Osaka, Japan.
``Elevated commodity prices, especially of oil and food, pose a serious
challenge.''

Inflation is accelerating after the price of oil
reached an unprecedented $139.12 a barrel last week and food costs from
rice to soybeans set records this year. Central banks are already
shifting toward tighter monetary policy even as expansion fades.

``The
G-8 is turning up the volume in terms of its inflation concern,'' said
Claudio Piron, a currency strategist at JPMorgan Chase & Co. in
Singapore.

The ministers stuck to their practice of not making
a joint comment on currencies when central bankers are absent from the
talks. Even so, U.S. Treasury Secretary Henry Paulson and French
Finance Minister Christine Lagarde spoke in favor of a strong dollar.
Japanese Finance Minister Fukushiro Nukaga said there was no discussion
of intervention among the ministers.

``A strong dollar is in
our nation's interest,'' Paulson told reporters. Lagarde said she was
``happy to hear'' that view. The dollar had its biggest weekly gain
against the euro since 2005 on bets the G-8 governments would signal
they favor further increases


Darling expects to hear bad news on inflation (June 14 – The Guardian)

Alistair Darling is preparing for an open letter
from the governor of the Bank of England next week as inflation
continues to spiral out of control.

The chancellor, in Japan
this weekend for a meeting of G8 finance ministers, will get an
official letter from the bank's governor Mervyn King if, as expected,
inflation is shown to have strayed more than a percentage point above
2% in May when the figure is released on Tuesday. The letter must
explain why inflation has exceeded the Bank's 2% target and detail its
plans to bring the figure down.


Recession indicators say downturn is already here (June 14 – IHT)

Hopes that the United States can avoid a recession
were renewed this week by evidence that the government's rebate checks
were stimulating spending, at least for now. But two recession
indicators based on employment statistics offer evidence that a
recession may have begun months ago.

While both indicators are
based on declining job markets, they differ in that each comes from a
different survey conducted by the Bureau of Labor Statistics. Those
surveys - one of business establishments and the other of households -
sometimes offer contradictory views of the employment picture, but now
they both indicate an economy that has slowed significantly.

private sector employment


Letters From Vermont (June 14 - NYT)

Despite the focus on the housing crisis, gasoline
prices and the economy in general, the press has not done a good job
capturing the intense economic anxiety — and even dread, in some cases
— that has gripped tens of millions of working Americans, including
many who consider themselves solidly middle class.

Working
families are not just changing their travel plans and tightening up on
purchases at the mall. There is real fear and a great deal of suffering
out there.

A man who described himself as a conscientious
worker who has always pinched his pennies wrote the following to
Senator Bernie Sanders of Vermont: “This winter, after keeping the heat
just high enough to keep my pipes from bursting (the bedrooms are not
heated and never got above 30 degrees) I began selling off my
woodworking tools, snowblower, (pennies on the dollar) and furniture
that had been handed down in my family from the early 1800s, just to
keep the heat on.

“Today I am sad, broken, and very
discouraged. I am thankful that the winter cold is behind us for a
while, but now gas prices are rising yet again. I just can’t keep up.”


The Great Inflation Debate (June 13 – Businessweek)

If there's one thing Americans don't like, it's a
cheater. And as far as many people are concerned, it's cheating to
calculate the rate of inflation by deliberately excluding soaring food
and energy prices. After all, the logic goes, we all have to pay for
food and energy, so why ignore it when measuring inflation? Is this
some kind of conspiracy to ignore the plight of the poor or to make the
economy look healthier than it really is?

Actually, there are
two strong arguments for ignoring food and energy prices in setting
monetary policy. Even if you don't agree with them, it's probably a
good idea to understand what they are—if only to prepare yourself for
the next barbershop debate over why everything's so expensive these
days.


Treasury Two-Year Notes Head for Biggest Weekly Loss Since 1982 (June 13 – Bloomberg)

Treasuries fell, with two-year notes headed for
their steepest weekly loss in 26 years, before a government report that
may show consumer prices rose in May at the fastest pace since
November.

The Federal Reserve will increase its 2 percent
benchmark interest rate in quarter-point increments in September and
October to curb inflation, Barclays Capital Inc. predicted in a report
today. China, which invests up to a third of its record $1.68 trillion
in foreign-currency reserves in Treasuries, should seek
higher-returning alternatives, a former legislator said.

``The
Fed is shifting attention to inflation as data suggest the U.S. is not
heading into any big economic chasm right now,'' said David Keeble


June 13

Consumer Prices Increase, Sentiment Deteriorates (June 13 – Bloomberg)

The consumer price index increased 0.6 percent,
the most since November, after a 0.2 percent gain the prior month, the
Labor Department said today in Washington. The Reuters/University of
Michigan preliminary index of consumer sentiment fell to 56.7 in June,
a reading unseen since 1980, from 59.8 in May.

``The Fed is in
a terrible situation here,'' Michael Darda, chief economist at MKM
Partners LP in Greenwich, Connecticut, said in an interview with
Bloomberg Television. ``We are certainly in a slow period'' and ``the
Fed is talking tough on inflation.''


Housing: It'll get worse (June 12 – CNNMoney NEW YORK)

With home prices plunging by more than 30% in
some markets, bargain-hunters are ready to pounce. But it may pay for
buyers to wait. Many housing experts say that the worst-hit metro areas
have even farther to fall, and could see total drops of as much as 50%.

"The housing boom was unprecedented in U.S. history," said
Michael Youngblood, a portfolio analyst with FBR Investment Management,
"and the correction will be as well."


Foreclosures Rise 48% in May as Repossessions Double (June 13 – Bloomberg)

Banks repossessed twice as many homes in May and
foreclosure filings rose 48 percent from a year ago as falling house
prices trapped borrowers in mortgages they couldn't afford, RealtyTrac
Inc. said in a report today.

One in every 483 U.S. households
either lost the home to foreclosure, received a default notice or was
warned of a pending auction, RealtyTrac said. That was the highest rate
since the Irvine, California-based company began reporting in January
2005 and the 29th consecutive month of year-over-year increases.
Nevada, California and Arizona posted the highest rates in the U.S. and
New Jersey entered the top 10.

' Foreclosures add to inventory
and crowd out regular sales, Michelle Meyer and Ethan Harris,
economists at Lehman Brothers Holdings Inc. in New York, wrote in a
report yesterday. Foreclosures will account for 30 percent of national
home sales this year as 1.2 million foreclosed single-family homes will
eventually enter the market, they said. They estimate foreclosed
properties, which typically sell for about 20 percent less than other
homes, will depress home prices nationally by 6 percent.


The Peak Oil Crisis: The Summer Ahead (June 12 – Falls Church Press)

The situation is not good. Our average gasoline
price just climbed past $4 a gallon and all indications are that it
will continue to rise.

Declining car sales and airline flights
will not bring about the reduction in demand that will be needed. Even
if we were to ground all of our civilian aircraft, we would only save
about a million barrels of fuel a day, about 5 percent of our daily
consumption.

It will take decades to swap out our fleets of
inefficient cars for something more suitable. It is going to take a lot
more than cancelling a few flights and slowing the addition of
inefficient vehicles to our fleet.

While not yet precarious,
the supply/demand/stockpile balance in the U.S. is becoming a cause for
concern. Keep in mind that the U.S. must import two-thirds of its crude
oil and petroleum products each day. So far this year domestic crude
production is down by 1.6 percent over last year, but imports of crude
and products are down by 7.5 percent. Over the last month the situation
has grown worse with crude oil imports down by 8 percent and net
product imports down by 25 percent.

Now this would be all
right if we were reducing our consumption by an equal amount. So far
this year however, U.S. consumption is down by only 2.8 percent and
according to the EIA during the last month, U.S. consumption of
gasoline and other petroleum products is down by only 1.3 percent. Like
the rest of the world, we are living on stockpiles.


European protests against high fuel prices turn violent (June 13 - This is London)

Violence has flared across Europe as hauliers,
fishermen and taxi drivers protest against rising fuel prices they say
are crippling their industries.

Protests have now gone worldwide, with the Philippines and Thailand also seeing angry workers taking to the streets.

Spain
appears to have been worst hit, with lorry drivers on either side of
the dispute paying with their lives. In Thai capital Bangkok, tens of
thousands of heavy lorries threatened to cause havoc as farmers
demonstrated and fishermen have begun burning their boats in nationwide
protests against soaring prices of fuel and other essentials.


Factories close, supermarkets empty and jets run out of fuel as truckers' strike bites (June 12 – The Guardian)

Strike action by thousands of Spanish and
Portuguese truckers produced ominous knock-on effects on food supplies,
aviation and industry yesterday, as Lisbon airport ran out of fuel, car
factories shut down and petrol stations and supermarkets reported
shortages.

In a worrying sign for other European countries
that face rising discontent at the spiralling cost of diesel, a third
day of strikes generated widespread mayhem and the mood turned ugly
after the first casualties of the standoff: two strikers died in
clashes on picket lines.

Tourists flying to Lisbon faced
delays after the airport ran out of fuel. Some flights were diverted to
Porto. Only emergency, military or state flights were allowed out of
Portela airport, a spokesman said. Only emergency fuel stocks saved
Spanish airlines from similar disruption.

Supermarkets,
meanwhile, reported dwindling supplies. Authorities at Spain's two
biggest wholesale markets, Mercamadrid, in Madrid, and Mercabarna in
Barcelona, reported deliveries of meat, fish and fruit were almost at a
standstill.

In Barcelona, at a branch of Caprabo supermarket,
there was no fresh fish or meat on the shelves. Shopper María Luz
Martínez, 38, said: "The lorry drivers are looking after themselves
while we are all suffering. But the government doesn't appear to be
that interested."

As panic buying among motorists continued,
petrol stations were running dry. Drivers in Lisbon trying to fill up
their cars were turned away. In Spain, "empty" signs hung from pumps at
hundreds of stations across the country. Three car firms, Seat, Nissan
and Mercedes, suspended production because of parts shortages.


Peak Moment: Learning from the Collapse of Earlier Societies (May 29 – Global Public Media)

According to Professor Guy Prouty, every
civilization rises, evolves, and then collapses to a simpler structure
-- and this will include our own. Comparing America with the Western
Roman Empire, Prouty notes the over-reach of our military, the
unsustainability of capitalism, peak oil, and climate change. And, this
time, we may see a global collapse. Transitioning to a simpler society
will require us to change behavior and consciousness: decrease energy,
get out of debt, decentralize, de-consume, grow our own food, build
community, see ourselves as connected to the planet. Collapse is not
the end, he says. It's part of a natural cycle.

June 12

Commodity Prices Show No Letup (June 12 – NYT CHICAGO)

Commodity prices went wild on Wednesday, with
the price of corn shooting through the $7 barrier for the first time,
soybeans and wheat moving up sharply and oil jumping more than $5 a
barrel.

The higher commodity prices are likely to add to a
worldwide inflationary picture that seems to worsen by the day. Prices
of many grocery items in the United States have been rising briskly,
with some goods like eggs and milk — produced from animals fed with
corn — up by 13 to 30 percent in the past year.

“You know
those complaints you’ve been hearing about high food prices? They’ve
just begun,” said Jason Ward, an analyst with Northstar Commodity in
Minneapolis.


Florida at the Precipice of Depression (June 10 – Mike Morgan’s Blog)

I was going to call this "Banks March Us Into
Depression," or maybe more fitting is . . . "Complete Collapse of US
Banking System." Folks, that is what we are looking at. I don't see any
way around it. What we're seeing here in Florida, is your crystal ball.
And what happens here, is coming to a town near you . . . soon.

This
past week I didn't write anything, because what I am seeing unravel is
disturbing to the point I had to question what I was seeing and
hearing. So I decided to take as much time as I needed to digest it
all, and then put something together for you. So here goes . . .

Banks
cannot afford to take 50-75% hits on mortgages, and that is exactly
what is happening. The precipice is here, and we are on it. Recent
reports about home sales rebounding are insignificant, because no one
is accurately describing the growing inventory build-up. Banks simply
don't have the margins to deal with this crisis. And for that reason,
we will see massive bank failures and this will snowball into a
complete economic meltdown. If you have an argument against this
scenario, I'd love to debate you on a live conference call. We deal
with the banks. We know what is going on before the numbers show up at
the Fed or any analysts desks. We deal with the public, so we hear the
desperation at all levels. I listen to grown men cry about how to
explain to their families that they are losing everything. I listen to
people that I fear are on the verge of suicide. I read about people
committing crimes simply to put food on the table. Spend a week with
me, and you'll understand why there is no feasible way to avoid a
Depression.

The banks will fail, just as they failed in 1929 .
. . but worse because this time some of this leverage is as high as
40:1. Insurance? Where is that going to come from? There is no
insurance that can cover the cost of the coming bank failure, unless we
just print more money.


Home price drop means $4 trillion in lost capital (June 11 – Reuters NEW YORK)

No one knows when the credit crisis will end.
But when it does, U.S home prices may have lost a third of their value,
high-yield bond valuations will hit levels close to those seen during
the last recession, and what may amount to $1 trillion of Wall Street
losses may translate into almost $4 trillion of lost access to capital.

That's the view of top credit analysts, who say a U.S. housing
decline, sparked last year by subprime mortgage debt defaults, will
likely last another two years as a wider group of consumers, including
prime borrowers, feel the pinch from a tightening of credit.


Budget deficit soars to $165.9 billion on rebate payments (June 11 – Marketwatch WASHINGTON)

The federal budget deficit widened to $165.9
billion in May as the government paid out some $48 billion in tax
rebates to individuals, the Treasury Department reported Wednesday.
Receipts fell to $124.3 billion in May, down 24% compared with the
previous May. Outlays rose 25% year-on-year to $290.2 billion. The May
budget deficit was close to the $165 billion forecast by the
nonpartisan Congressional Budget Office.


How To Get Out Of This Mess (June 11 – Comstock Partners)

In this report we will attempt to explain what
needs to take place in order to resolve the mess we find ourselves in
due to over consumption, excess debt and the government trying to micro
manage.

We believe the Fed and Government were the main cause
of the dual bubbles (stock market and housing) by attempting to stop
the perceived deflation in 2001. Now they are trying to stop or slow
down the housing price declines and potential recession.

However,
instead of propping up housing prices and the economy they are starting
another bubble in dollar based commodities. The Fed will not be
successful if they try to micro-manage our economy with a secondary
role in controlling inflation. In our opinion, if they continue to
attempt to liquidate us out of this mess, it will only postpone the
inevitable decline in house prices and lead us into a long deflationary
environment just like Japan experienced starting in 1990.


That Stagflation Show (June 9 – The Wall Street Journal)

Friday's market rout in employment, oil, the
dollar and stocks was not the end of the world, but it is a warning.
The message is that the current Washington policy mix of easy money and
Keynesian fiscal "stimulus" is taking us down the road to stagflation.

Washington
has been on this path in earnest since the credit market blowup last
August. The Fed slashed interest rates dramatically to save Wall Street
and prevent a recession, ignoring the risk to the dollar. Meanwhile,
Congress and the White House agreed to about $168 billion in
"stimulus," mainly in the form of tax-rebate checks to prop up consumer
spending. If you don't feel stimulated by this repeat of nostrums from
the 1970s, join the club.


June 11

Central bank body warns of Great Depression (June 9 – Banking Times)

The Bank for International Settlements (BIS),
the organisation that fosters cooperation between central banks, has
warned that the credit crisis could lead world economies into a crash
on a scale not seen since the 1930s.

In its latest quarterly
report, the body points out that the Great Depression of the 1930s was
not foreseen and that commentators on the financial turmoil, instigated
by the US sub-prime mortgage crisis, may not have grasped the level of
exposure that lies at its heart.


More financial land mines ahead (June 10 – CNN Money NEW YORK)

When Lehman Brothers reported a stunning $2.8
billion loss Monday, it was just the latest sign that bad mortgage
loans continue to be a problem for the financial markets and the
economy.

But subprime mortgages could only be the beginning.
Many economists and market experts are worried that other problems are
lurking that could cause a new credit crisis for consumers and
businesses.

Meredith Whitney, the banking analyst for
Oppenheimer & Co., estimates that the credit problems will continue
to dog financial markets into 2009. She thinks future losses will dwarf
the roughly $25 billion set aside by Wall Street firms so far to cover
them -- perhaps reaching $170 billion by next year. Other experts agree
that the worst is not yet over.


Banking on Gardening (June 11 – NYT)

Seed companies and garden shops say that not
since the rampant inflation of the 1970s has there been such an uptick
in interest in growing food at home. Space in community gardens across
the country has been sold out for several months. In Austin, Tex., some
of the gardens have a three-year waiting list. George C. Ball Jr.,
owner of the W. Atlee Burpee Company, said sales of vegetable and herb
seeds and plants are up by 40 percent over last year, double the annual
growth for the last five years.

“You don’t see this kind of
thing but once in a career,” he said. Mr. Ball offers half a dozen
reasons for the phenomenon, some of which have been building for the
last few years, like taste, health and food safety, plus concern,
especially among young people, about global warming.

But, Mr.
Ball said, “The big one is the price spike.” The striking rise in the
cost of staples like bread and milk has been accompanied by increases
in the price of fruits and vegetables.


Global Crude Oil Production Dropped in 2007, BP Says (June 11 - Bloomberg)

Global oil production fell for the first time in
five years in 2007 and reserves also declined as prices rose to
records, BP Plc said in its annual Statistical Review of World Energy.

Crude
oil production dropped 0.2 percent to 81.533 million barrels a day last
year, from 81.659 million barrels a day in 2006, the London-based
company said today. Proved reserves were 1,237.9 billion barrels at the
end of last year, compared with a revised total of 1,239.5 billion
barrels for 2006.


World Faces `Oil Crisis;' IEA Ready to Tap Reserves (June 11 - Bloomberg)

The world faces an ``oil crisis,'' and the
International Energy Agency stands ready to release emergency
stockpiles even as the biggest consumers discuss measures to contain
spiraling demand, the agency's chief said.

``Any major
oil-plant accident can cause a supply disruption,'' Executive Director
Nobuo Tanaka said in an interview in Tokyo. ``We at the IEA are
monitoring the oil market and preparing ourselves to call for the
release of strategic petroleum reserves at any time in the event of a
major disruption.''

``We can call it an `oil crisis' given the
current price, and that it continues to climb even after global efforts
to cut consumption,'' Tanaka said. ``We see a critical, structural
issue in the global oil market, where supply growth isn't catching up
with demand.''


Talking peak oil in the heartland (June 10 – Energy Bulletin)

For those who expect an alternative fuel or
technology to replace oil, the conference held out no hope. Keynote
speaker David Goodstein, professor of physics at Caltech, and author of
the book, Out of Gas, went through all of the alternatives: coal,
natural gas, biofuels, solar, wind, geothermal and nuclear and showed
how each one has severe physical limitations in the real world. For
instance, here is his take on nuclear energy:

To produce
enough nuclear power to equal the power we currently get from fossil
fuels, you would have to build 10,000 of the largest possible nuclear
power plants. That’s a huge, probably nonviable initiative, and at that
burn rate, our known reserves of uranium would last only for 10 or 20
years.

Talking Peak Oil in the Heartland


China Plans More Nuclear Reactors, Uranium Imports (June 11 - Bloomberg)

China, the world's second-biggest energy
consumer, plans to add more nuclear-power capacity by 2020, step up
uranium imports and explore for the fuel in nations as diverse as
Kazakhstan and Niger.

The country's nuclear-power capacity
will rise to at least 60 gigawatts by the end of the next decade, Wang
Yonggan, secretary of the China Electricity Council, said at the
National Nuclear Congress in Beijing today. Overall generation capacity
will double to 1,500 gigawatts by then, Wang said.


China Orders Coal Companies to Increase Production, Steps in to Keep Prices Stable (June 10 – Xinhua BEIJING)

Amid coal shortage in some localities, China's
State Administration of Coal Mine Safety on Sunday issued an urgent
circular ordering domestic coal companies to increase production on the
premise work place safety be ensured.

The administration
required state-owned coal mines to "take effective measures" to
increase coal output and meanwhile step up safety management.


China Using Up Natural Resources Fast, Report Says (June 11 – Reuters GENEVA)

China is drawing on natural resources such as
farm land, timber and water twice as fast as they can be renewed in its
drive for development, a report from Chinese and international
environmentalists said on Tuesday.

The report said the next 20
years would be critical to correct the situation and put the Asian
giant's burgeoning economy, with a rapidly growing population, on to a
sustainable path.

"China's average ecological footprint has
doubled since the 1960s and now demands more than two times what the
country's ecosystems can sustainably supply," said a summary of the
report, issued by the Swiss-based WWF International.


June 10

Threatening Iran (June 10 – NYT)

Israeli leaders spent last week talking tough
about Iran and threatening possible military action. The United States
and the other major powers need to address Tehran’s nuclear ambitions,
but with more assertive diplomacy — including greater financial
pressures — not more threats or war planning.

We don’t know
what’s going on behind closed doors in Washington — or what Mr. Olmert
heard from Mr. Bush. But saber-rattling is not a strategy. And an
attack on Iran by either country would be disastrous.


Administration does not rule out currency intervention (June 9 – AP)

Bush and Treasury Secretary Henry Paulson appear
to be easing away from their hands-off approach to managing the value
of the dollar. While a strong dollar has long been stated U.S. policy,
that usually has amounted to no more than rhetoric unbacked by specific
steps.

The government has limited options for propping up the
greenback, especially in an election year with rising unemployment,
slumping consumer confidence and the worst housing market in decades.

Paulson
declined to rule out direct intervention -- the buying by the
government of dollars in currency markets -- as a way to influence the
currency's value. Another way to shore up the dollar is for the Federal
Reserve to raise interest rates -- seen as an unlikely prospect given
the current state of the economy.


Bernanke Says Fed to Resist Price Expectations Surge (June 10 - Bloomberg)

Federal Reserve Chairman Ben S. Bernanke said
policy makers will ``strongly resist'' any surge in inflation
expectations, delivering his clearest message yet the central bank is
done lowering interest rates.

Bernanke played down the biggest
jump in the unemployment rate in 22 years in May and said the risk of a
"substantial downturn" receded in the past month. Policy makers will
need to pay "close attention" to make sure the increase in commodity
costs doesn't pass through to broader consumer prices, he said in a
speech to a Boston Fed conference late yesterday.


Worries mount as world's farmers push for big harvest (June 10 – IHT GRIFFIN, Indiana)

In a year when global harvests need to be
excellent to ease the threat of pervasive food shortages, evidence is
mounting that they will be average at best. Some farmers are starting
to fear disaster.

American corn and soybean farmers are
suffering from too much rain, while Australian wheat farmers have been
plagued by drought.

Harvests ebb and flow, of course. But with
supplies of most of the key commodities at their lowest levels in
decades, there is little room for error this year. American farmers are
among the world's top producers, supplying 60 percent of the corn that
moves across international borders in a typical year, as well as a
third of the soybeans, a quarter of the wheat and a tenth of the rice.

"If
we have bad crops, it's going to be a wild ride," said the Agriculture
Department's chief economist, Joseph Glauber. "There's just no cushion."


Wealth Evaporates as Gas Prices Clobber McMansions (June 9 - Bloomberg)

Sky-high gasoline prices aren't just raising the
cost of Eugene Marino's 120-mile (193-kilometer) round-trip to his job
in the Washington area. They're reducing his wealth, too.

House
prices in his rural subdivision beyond the Blue Ridge Mountains in
Charles Town, West Virginia, have plunged as commuting expenses have
soared. A four-bedroom home down the street from his is listed for
$239,000, after selling new for $360,000 five years ago.


June 9

The Economy - Why It’s Worse Than You Think (June 16 Issue – Newsweek)

But this downturn is likely to last longer than
the eight-month-long recession of 2001. While the U.S. financial system
processes popped stock bubbles quickly, it has always taken longer to
hack through the overhang of bad debt. The head winds that drove the
economy into this dead calm— a housing and credit crisis, and rising
energy and food prices—have strengthened rather than let up in recent
months. To aggravate matters, the twin crises that dominate the
financial news—a credit crunch and the global commodity boom—are
blunting the stimulus efforts. As a result, the consumer-driven economy
may not bounce back as rapidly as it did in the fraught months after
9/11.

As it seeks to regain its footing in the second half,
the U.S. economy faces two significant obstacles, neither of which was
evident in 2001. The first is entirely homegrown: the self-inflicted
wounds of the promiscuous extension and abuse of credit in the housing
and financial sectors. The second is a global phenomenon that has
comparatively little to do with American behavior: rampant inflation in
commodities such as oil, food and steel. These trends have conspired to
inflict genuine economic pain and deflate consumer confidence. The
Conference Board's Consumer Confidence Index in May slumped to a
16-year low.


The Next Real Estate Crisis (June 5 – BusinessWeek)

With the subprime mortgage crisis already
crippling the U.S. economy, some experts are warning that the next wave
of foreclosures will begin accelerating in April, 2009. What that means
is that hundreds of thousands of borrowers who took out so-called
option adjustable-rate mortgages (ARMs) will begin to see their monthly
payments skyrocket as they reset. About a million borrowers have option
ARMs, but only a fraction have already fallen due.

That was
the catch to option ARMs; borrowers were offered low initial payments
that would recast higher after several years. Many home buyers thought
they could resell their homes before their payments increased. But
instead, many of them got trapped. According to Credit Suisse (CS),
monthly option recasts are expected to accelerate starting in April,
2009, from $5 billion to a peak of about $10 billion in January, 2010.
Some of these loans have already started to recast. About 13% of option
ARMs that were issued in 2006 were delinquent by 60 days by the time
they were 18 months old, Credit Suisse said.


Overdue loans to Florida banks quadruple (June 5 – Tampa Bay Tribune)

The housing downturn continues to crush Florida
bankers: Overdue loans, mostly real estate related, have nearly
quadrupled the past year in the Sunshine State.

If that were
not enough, the state's lenders have unusually low cash reserves to
protect against mortgage defaults. And 41 percent of Florida-chartered
banks were unprofitable the first three months of this year. That's
twice the number of banks that bled red ink last year.


Wall St. firm told only some about risk (June 9 – Boston Globe)

UBS Financial Services Inc. knew as early as
December that a segment of the municipal bond business was in trouble,
but the Wall Street firm kept selling the investments to some clients
without warning them of the risk, according to documents reviewed by
the Globe.

By February, the $330 billion auction-rate
securities market had collapsed, locking out the nonprofits and
municipalities that had used the market for years to issue inexpensive
debt, as well as the investors who had purchased it. UBS brokers have
said they were as surprised as anyone about the market's shutdown.

But
on the other side of the firm, UBS was advising some large investment
banking clients of the looming problems at least three months before
all trading stopped, according to a letter to investors by one of those
clients, a New Hampshire bond issuer.


Corn Jumps to Record on U.S. Midwest Rain, Crude Oil, Dollar (June 9 – Bloomberg)

Corn jumped to a record on speculation rain in
the U.S. Midwest will cut supply and as rising oil costs and the
dollar's decline boosted demand for a hedge against inflation.
Soybeans, wheat and rice also gained.


U.K. Producer Prices Rise at Fastest Pace Since 1986 (June 9 –Bloomberg)

U.K. producer prices increased at the quickest
rate in two decades in May, increasing the odds the Bank of England
will refrain from interest-rate cuts even as the economy edges toward a
recession. Prices charged by factories rose 1.6 percent from April, the
Office for National Statistics said in London today. That's the most
since comparable records began in 1986 and double the median forecast
of 32 economists in a Bloomberg News survey. >From a year earlier,
prices rose 8.9 percent.


Scarcity in an age of plenty (June 9 – Joseph Stiglitz)

Around the world, protests against soaring food
and fuel prices are mounting. The poor - and even the middle classes -
are seeing their incomes squeezed as the global economy enters a
slowdown. Politicians want to respond to their constituents’ legitimate
concerns, but do not know what to do.

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

Login or Register to post comments