Economics Free For All

[SwissMrs&Pitchfire]

The economics threads are scattered and the deflation one is too focused and ungainly, so I thought I would start a new general free-for-all economics thread beginning with this new piece:

MarketWatch

Bond-insurer woes may trigger more write-downs
Doubts on AAA ratings for Ambac, MBIA spark turmoil in muni bond market By Alistair Barr, MarketWatch
Last update: 6:08 p.m. EST Jan. 18, 2008

SAN FRANCISCO (MarketWatch) -- Just when you thought it was over, trouble in the $2.3 trillion bond-insurance business could trigger another wave of big write-downs from banks and brokerage firms, experts said Friday.

'The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame.'
— Tamara Kravec, Banc of America Securities

We remain very uncomfortable with Merrill's CDO balance sheet exposure," the analyst wrote in a note to investors. "If the counterparties are downgraded, and they cannot post additional collateral, we would expect that Merrill Lynch would have to take a valuation reserve against that specific exposure."

[SwissMrs&Pitchfire]

cowboy

Saturday, January 19, 2008
Economic Tsunami: A Perfect Storm Threatens US Economy

Highly leveraged US expansion, growth and empire are about to be swept away like a bamboo hut. As China leads the world in dumping dollars, the US appears to have exhausted the means by which it can continue to leverage or finance expansion and imperialism.

Bush could not have picked a worse time to ratchet up his anti-Iran rhetoric. China's disenchantment with US dollars is a reaction to Bush's bellicose rhetoric. Iran's strategic position was recognized by Alexander the Great, significantly the last "conqueror" to have successfully invaded from the west.

As this blog reported recently, Bush promised that the US would join an Israeli nuclear strike on Iran. It is impossible to tell if the US rhetoric is in response to Iranian threats to dump dollars or Iran's response to Bush's promise to join an Israeli nuclear strike on Iran. The GOP seems unconcerned as Bush's big mouth continues to make the rest of world jittery.

Bush believes that a nuclear war can be won! A nuclear war of any size will most certainly trigger a wave of cascading chaos that respects no borders. Already, Russia has warned that an attack on Iran will be considered an attack on Russia and a Chinese sub recently popped up undetected in the midst of the US Fifth Fleet. As this blog reported several months ago, China has the ability to put a nuclear sub off the US east coast undetected!

We were warned. In 2005, Treasury Secretary John Snow acknowledged economic growth was limited to a small percentage of Americans. Bush's base? Some things never change. Only a tiny elite experienced what they alone have dubbed the Reagan prosperity. A "prosperity" so limited is not prosperity; it is merely a redistribution of dwindling wealth. If poorer folk lost ground, to whom did wealth trickle? The GOP knows that what it says about economics is wrong. They will say whatever they think they can get you to believe.

A statutory debt limit of $8.184 trillion was reached in mid-February of 2005. The total collapse of the US economy was averted but only because no other country wished to be sucked into the US black hole. The dollar actually retained some value amid fears of a worldwide economic catastrophe.

China had been propping up the dollar so that US consumers could continue buying cheap Chinese crap, primarily via WalMart and other monstrous legacies of Globalization. At the time, US debt was some $8.162 trillion dollars and has only gotten bigger. US credit abroad is strained to breaking or broke. The US credit crisis trickles down to bond markets world wide. No country is too small to remain unaffected. Investors in New Zealand, for example, have this month complained that their interest payments have been suspended, the result of fall-out from the US credit crisis. It would appear that there is no where to run, no where to hide.

Moody's reports that "spending" threatens US ratings. Nevermind --Bush will simply balance the books upon the backs of those who can least afford it. Social Security recipients! The issue points up the endemic, perhaps genetic inability of GOP-types to think clearly. GOP profligacy will most certainly break Social Security but the GOP, as are their wont, will blame Social Security. The real culprit is, of course, the Pentagon, a fatted cow regularly milked by the sycophantic defense contractors who fight to suckle the Pentagon teat!

There is nothing wrong with Social Security, but the GOP can be depended upon to break it. Social Security is, in fact, government's only success. It turns a profit, called by critics a "liability". Of course it's a liability by definition because it is money owed to those who paid into it! Elementary accounting! Leave it to a gopper to turn a plus into a negative. Leave it to a gopper to demonize the government's only success story.

As evidence of an imminent collapse, FEMA can be counted on to activate a vast web of concentration camps complete with armed military personnel to keep the "vast unwashed" non-GOP throng in line. These concentration camps look quite a lot like Gitmo or the corporate prisons in Bush's Texas. They are intended to "manage" the population of US citizens in the event of a "terrorist" attack which the GOP can be counted on to manufacture and exploit. That such plans exist is a verifiable fact. Check out: Operation Northwoods , the Pentagon's seditious, treasonous plan to blow up a ship in Guantanamo Bay and blame a civilian uprising, large-scale dissent, or an insurrection against the government.

Meanwhile, The Patriot Act has made a terrorist of anyone who dares to disagree with Bush's imperious and illogical definitions of everything. The US Senate has conspired with the criminal Bush to ban habeas corpus, a move necessary to populate a gulag of Bushco concentration camps. The congress gave Bush sole authority to declare martial law and suspend habeas corpus. This heinous, venal and illegitimate administration will simply ignore the Posse Comitatus Act to enforce its decrees with military force.

In a stealth maneuver, President Bush has signed into law a provision which, according to Senator Patrick Leahy (D-Vermont), will actually encourage the President to declare federal martial law (1). It does so by revising the Insurrection Act, a set of laws that limits the President's ability to deploy troops within the United States.
The Insurrection Act (10 U.S.C.331 -335) has historically, along with the Posse Comitatus Act (18 U.S.C.1385), helped to enforce strict prohibitions on military involvement in domestic law enforcement. With one cloaked swipe of his pen, Bush is seeking to undo those prohibitions.

Public Law 109-364, or the "John Warner Defense Authorization Act of 2007" (H.R.5122) (2), which was signed by the commander in chief on October 17th, 2006, in a private Oval Office ceremony, allows the President to declare a "public emergency" and station troops anywhere in America and take control of state-based National Guard units without the consent of the governor or local authorities, in order to "suppress public disorder."

President Bush seized this unprecedented power on the very same day that he signed the equally odious Military Commissions Act of 2006. In a sense, the two laws complement one another. One allows for torture and detention abroad, while the other seeks to enforce acquiescence at home, preparing to order the military onto the streets of America. Remember, the term for putting an area under military law enforcement control is precise; the term is "martial law."

-- Bush Moves Toward Martial Law, Frank Morales, Information Liberation

The US economy is broken and faces imminent and total collapse. The US is bankrupt --morally and financially. Given the eventual and horrible outcomes, it is hard not to conclude that Bush and his co-conspirators deliberately embarked upon a program of profligate spending and wars of naked aggression in order to bring about this result.

Since the New Deal, Republicans have been on the wrong side of every issue of concern to ordinary Americans; Social Security, the war in Vietnam, equal rights, civil liberties, church- state separation, consumer issues, public education, reproductive freedom, national health care, labor issues, gun policy, ampaign-finance reform, the environment and tax fairness. No political party could remain so consistently wrong by accident. The only rational conclusion is that, despite their cynical "family values" propaganda, the Republican Party is a criminal conspiracy to betray the interests of the American people in favor of plutocratic and corporate interests, and absolutist religious groups.

Well, perhaps I was not the first to call the GOP what it is. For years, I have warned that the GOP is not a political party; it is a criminal conspiracy, a crime syndicate, for which there is probable cause to imprison its entire leadership.

I am reminded of New Orleans. Normal people looked at New Orleans and saw a humanitarian disaster about which this government did not give a $#!%! Bush and the GOP, however, looked at the flood waters covering venerable old neighborhoods and saw a new Disneyland which would rise up above the waves! God Bless the Child that's got his own, but may God damn the gopper who exploits a tragedy for personal and party gain! How many, I wonder, have felt betrayed by the country they loved?

[Proud 2b Peculiar]

I wish that it was more clear that all are guilty, not just one party or another.

[SwissMrs&Pitchfire]

NYT
(fair use discussion purposes)

January 20, 2008
Overseas Investors Buy Aggressively in U.S.
By PETER S. GOODMAN and LOUISE STORY

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company established a new factory in Adrian, Mich., adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.

For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies — more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.

The surge of foreign money has injected fresh tension into a running debate about America’s place in the global economy. It has supplied state governors with a new development strategy — attracting foreign money. And it has reinvigorated sometimes jingoistic worries about foreigners securing control of America’s fortunes, a narrative last heard in the 1980s as Americans bought up Hondas and Rockefeller Center landed in Japanese hands.

With a growing share of investment coming from so-called sovereign wealth funds — vast pools of money controlled by governments from China to the Middle East — lawmakers and regulators are calling for greater scrutiny to ensure that foreign countries do not gain influence over the financial system or military-related technology. On the presidential campaign trail, the Democratic candidates have begun to focus on these foreign funds, calling for international rules that would make them more transparent.

Debate is swirling in Washington about the best way to stimulate a flagging economy. Despite divided opinion about the merits, foreign investment may be preventing deeper troubles by infusing hard-luck companies with cash and keeping some in business.

The most conspicuous beneficiaries are Wall Street banks like Merrill Lynch, Citigroup and Morgan Stanley, which have sold stakes to government-controlled funds in Asia and the Middle East to compensate for calamitous losses on mortgage markets. Beneath the headlines, a more profound shift is under way: Foreign entities last year captured stakes in American companies in businesses as diverse as real estate, steel-making, energy and baby food.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. With American banks reeling from the housing downturn and loath to lend, businesses are hungry for cash.

The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash.

As the German company ThyssenKrupp Stainless broke ground in November on what is to be a $3.7 billion stainless steel plant in Calvert, Ala., its executives spoke effusively about the low cost of production in the United States and the chance to reach many millions of customers — particularly because of the North American Free Trade Agreement, which allows goods to flow into Mexico and Canada free of duty.

“The Nafta stainless steel market has great potential, and we’re committed to significantly expanding our business in this growth region,” said the company’s chairman, Jürgen H. Fechter, according to a statement.

Foreign giants like Toyota Motor and Sony have been sinking capital into American plants. Investment in the American subsidiaries of foreign companies grew to $43.3 billion last year from $39.2 billion the previous year, according to the research and consulting firm OCO Monitor.

“This is a vote of confidence in the American economy, the American marketplace and the American worker,” the deputy Treasury secretary, Robert M. Kimmitt, said. “These investments keep Americans employed and keep balance sheets strong.”

Five million Americans now work for foreign companies set up in the United States, Mr. Kimmitt said, and those jobs pay 30 percent more than similar work at domestic companies. Nearly a third of such jobs are in manufacturing, which explains why Rust Belt states have been wooing foreign investment.

“We’ve lost 400,000 manufacturing jobs,” said Michigan’s governor, Jennifer M. Granholm, a Democrat, who has traveled three times to Europe and twice to Japan in pursuit of investment since taking office in 2003. “I’ve got to get jobs for our people.”

Some labor unions see the acceleration of foreign takeovers as the latest indignity wrought by globalization.

“It’s the culmination of a series of fool’s errands,” said Leo W. Gerard, international president of the United Steelworkers. “We’ve hollowed out our industrial base and run up this massive trade deficit, and now the countries that have built the deficits are coming back to buy up our assets. It’s like spitting in your face.”

Other labor groups take a more pragmatic view.

“We need investment and we need to create good jobs,” said Thea Lee, policy director for the A.F.L.-C.I.O. in Washington. “We’re not in the position to be too choosy about where that investment comes from. But it does bring home the consequences of flawed trade policies over many, many years that we’re in this position of being dependent.”

At the center of concern is the growing influence of sovereign wealth funds, which invested $21.5 billion in American companies last year, according to Thomson. Analysts say they could skew markets by investing to improve the fortunes of their national companies or to pursue political goals.

“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism,” said Jeffrey E. Garten, a trade expert at the Yale School of Management. “The United States has not ever been on the receiving end of this before.”

Perhaps emblematic of national ambivalence, in an appearance on CNBC last week, the voluble market analyst Jim Cramer spoke in menacing terms about the growing role of state investment funds from the Middle East and China.

“Do we want the communists to own the banks, or the terrorists?” Mr. Cramer asked. “I’ll take any of it, I guess, because we’re so desperate.”

Proponents of investment from overseas note that finance from sovereign wealth funds is a mere trickle of the overall flow from abroad. Indeed, the bulk comes from Europe, Canada and Japan. Just as Americans have scattered investments around the world in pursuit of profit — with holdings of foreign stock and debt exceeding $6 trillion in 2006, according to the Treasury Department — foreigners are looking to the United States, with their capital generating economic activity, proponents say.

If fear of foreign money now inspires Americans to erect new barriers, that would damage the economy, said Todd M. Malan, president of the Organization for International Investment, a Washington lobbying group financed by foreign companies.

“The policy choices on the negative side would have enormous economic implications that would make the current situation look like a bubble bath,” he said.

Tensions spawned by foreign investment hark back to the 1980s, when Japan snapped up prominent American businesses like Columbia Pictures, and some intoned that the American way of life was under assault. The new wave of foreign money is washing in at an even more important time, analysts say.

The United States has lost more than three million manufacturing jobs since 2001, with foreign trade often taking the blame. Foreign-made goods now account for roughly one-third of all wares consumed in the United States, roughly tripling their share over the last quarter-century. The soaring price of oil and a widening trade deficit underscore how the American economy is increasingly vulnerable to decisions made far away.

In 2005, Congressional opposition scuttled a bid by the state-owned Chinese energy company Cnooc to buy the American oil company Unocal. The following year, furor on Capitol Hill prevented DP World, a company based in the United Arab Emirates, from buying several major American ports.

No such outcry has greeted the purchase of stakes in major Wall Street banks by state investment funds in the United Arab Emirates, Kuwait, China, Singapore and South Korea. This is largely because the banks sold passive slices and ceded no formal control, which would have set off a federal review of the national security implications. But the silence also reflects the imperative that these enormous institutions swiftly secure cash.

“It would be good if these companies didn’t need all this capital and better if the capital was available in the United States,” said Senator Charles E. Schumer, Democrat of New York, who was a vocal opponent of the DP World deal. “But given the situation that these institutions find themselves in and the fact that there’s a pretty strong credit squeeze, there’s only two choices: Have foreign companies invest in these firms or have massive layoffs.”

In years past, particularly when Japanese money washed in, many foreign purchases proved not to be so prudent in the end. This time, with the dollar weak and troubled American companies in a poor bargaining position, the prices really do seem cheap, some economists say.

“They’re buying financial assets at well under book value,” said Gary C. Hufbauer, a trade expert at the Peterson Institute for International Economics.

Trade experts assume tensions will rise as developing countries — which tend to have more state companies — continue to expand their share of investment in the United States.

Canada still spends the most money buying stakes in American companies — more than $65 billion in 2007, according to Thomson. But other countries’ purchases are growing rapidly. South Korea’s investments swelled to more than $10.4 billion last year from just $5.4 million in 2000. Russia went to $572 million from $60 million in that span; India to $3.3 billion from $364 million.

But even if political tension increases, so will the flow of foreign money, some analysts say, for the simple reason that businesses need it.

“The forces sucking in this capital are much bigger than the political forces,” said Mr. Garten, the Yale trade expert. “If there is a big controversy, it will be between Washington on the one hand and corporate America on the other. In that contest, the financiers and the businessmen are going to win, as they always do.”

[SwissMrs&Pitchfire]

Great Mish explanation of this relative to inflation:

Nomad wrote:
I am in the deflationist camp, too, but I am completely confused about what will happen when the $5 trillion in USD that is held in foreign banks starts returning to the US. Hey Mish, won't that trigger inflationary conditions? Isn't that the equivalent of a boost in money creation or am I missing something here?
Mish responded:
It's important to realize that that money has to come home. They cannot buy oil with it cause that just sends the money from japan or china to the mideast. Eventually they will buy US assets. They will own major portions of US companies, perhaps our toll roads and bridges. But I fail to see how one gets inflation out of that. Foreigners have a tendency to buy market tops. It may smooth the decline of the US stock market but that is about all it will do IMO.

Mish

[SwissMrs&Pitchfire]

http://bankimplode.com/

The Bank implode o meter.

[SwissMrs&Pitchfire]

http://money.cnn.com/real_estate/zip_code_foreclosures/

Foreclosures: 100 worst hit zip codes
Where the mortgage meltdown is having the heaviest impact.

How many times can you read lost wages?

[Proud 2b Peculiar]

hmm I wonder where my city falls on that list. I was sent that notice for our county that said 1200 families have lost their homes, an increase of 40% in foreclosures, so I am surprised that it is not on that list.

[SwissMrs&Pitchfire]

"Yeah, things is bad everywhere." The Little Rascals, Spanky speaking to "Uncle George" the Wild Man from Borneo.