President Obama is selling the strongest consumer protections ever, bringing transparency to financial dealings. He suggests closing loopholes to stop recklessness and irresponsibility and to hold Wall Street accountable while giving shareholders new power in the financial system. President Obama lays out what Wall Street Reform is about, and questions whether opposition from the Senate Republican Leader might have something to do with his recent meeting with Wall Street executives.
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The U.S. government is in denial of classic facts the majority of the time. Even though Barack Obama has been reasonably honest concerning the immediate future, the figures he used before the inauguration to promote his plans to Congress are hopelessly underestimated and fail to add up on a mathematical level. In the meantime, Americans have the magic and charisma of a new president to chart the uncertain tragic waters of what will ultimately be a recovery given enough time. However the bad news and underlying economic factors coming out of 2008 do not speak of a speedy recovery on any level. When Barack Obama suggests that the American population in general will sacrifice, he isn’t kidding. Even the most optimistic reports paint “a bleak economic landscape ahead” with real unemployment approaching 18% with a sudden increase expected (see recent Digital Economy articles for more details).
Bankers have seen the massive destruction of their net worth and the ability to conduct business. As a result, so have we all. What was your hard-earned 401K last year? What was your net worth two years ago? The Bush administration had only seen to slowly respond to the crisis in addition to adding sweet Federal Reserve liquidity to keep failing institutions and most of the relevant power structure in place solvent. They used laissez-faire economics as an excuse to do little or nothing until their hand was forced by extreme circumstances and the national plight of total economic failure. Henry Paulson admitted his team’s inability to find and deal with the real scope of the national banking toxic-debt, instead choosing the easy course of simply recaptalizing bank with nationalized capital from taxpayers. As a confessed seasoned professional insider, Paulson was unable to determine or realize the full extent of the national collateral damage or he simply isn’t saying, which may be closer to the truth.
America has this plight to look forward to in 2009 barring other unforeseen issues:
* A huge rush of residential housing mortgage failures due to ‘housing resets’, the blight of unemployment and the inability for Americans to qualify for loans because of tightening banking rules which were conveniently ignored previously.
* A tsunami of commercial mortgage foreclosures.
* Billions in credit card defaults that threaten to further decimate the banking system coupled with banking cutbacks in anticipation of the same.
* As unemployment skyrockets, a tsunami of auto repossessions and loan defaults.
* Economic decimation through toxic banking instruments and complex debt instruments combined with $500 trillion in unmanageable credit default swaps.
25% real unemployment is realistic by the summer of 2009, near the estimated high of depression unemployment charted in the 1930s. Unhappily, the resulting fallout will simply get worse and the economy spirals downward as more unpredicted events occur. Some areas in close relation to the Big Three automakers could see unemployment much higher than that. This commentary just touches the beginning as municipalities and states sink into further debt this year. The nation that used to live on credit will truly be living on credit in order to sustain America on any level. The profitaking of the last decade coupled with predatory banking designs has truly taken its toll. The U.S. economy didn’t have enough energy to maintain a stagflation last year. Deflation will be the ultimate result as the nation pulls into recovery years down the road. These are likely the unpleasant facts unless central bankers have a better idea. That is unlikely unless they start thinking outside the box they have built. ~ E. Manning
When compared to the political wisdom being spread about in Washington, D.C. recently, the Federal Reserve, the government watchdog for the U.S. economy stands out in contrast. At the last FOMC meeting, the Fed admitted that (more…)
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Barack Obama has projected that his future economic stimulus plan will create nearly 3.7 million jobs by the end of 2010, mainly in construction, leisure services and manufacturing. His plan is supposed to lower the unemployment rate by 1.8% by 2010. Yet, most intelligent Americans and experts alike see plenty of hard times ahead.
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Unemployment: Jiggering with Accounting
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Concerns about inflation have changed to deflation, considering the sudden drops in many prices, mostly energy, and the radical increase in joblessness. Interestingly, this economic downturn has bad company in the Great Depression, with the Consumer Price Index plunging by 1 percent last month, the largest single fall since 1938. However the extent and breadth is still nowhere near the Great Depression with years of falling prices. The core economic index has declined for six months, the only time since the Second World War.
Most economists aren’t forecasting that 2009 will present persistent price declines that made the Great Depression what it was, but the fact remains that any recovery is largely determined by consumer spending which accounts for two-thirds of the U.S. economy. Barack Obama is preparing to arm his economic arsenal with a major economic stimulus that includes job creation in the expectation of overcoming recent heavy job losses this year. Gordon Brown is already doing similar things in Britain to spice up the economy there.
Meanwhile, a global slump is in process which could easily hold the world in its clutches despite attempts at stimulus. Central bankers and ministers of finance are up nights massaging interest rates, shoring up banking and creating new stimulus programs.
The worse the economy gets, the more banks are battered by loan defaults and the falling value of collateral. Credit becomes less available which further restrains consumer and business activity, grinding the economic action down more. What we have now is classic debt deflation. Debtors across the board are reducing or eliminating debt. When everyone acts at once, prices for capital assets fall precipitously, even below what concerned pundits call market value as consumers wait for better pricing.
The current risk of deflation is compounded and amplified by the global nature of the current crisis. Commodities have fallen hard and fast as investors have bailed out, comeuppance for years of abusive futures investing, albeit legalalized gambling, through investing on the global scene that many believed would never end. ~ E. Manning
Three more banks failed, mostly due to California’s slumping mortgage industry. But stimulus is on the mind of President-elect Barack Obama. “If we don’t act swiftly and boldly, most experts now believe that we could lose millions of jobs next year,” the Democratic president-elect said in a weekly radio address at http://www.change.gov, another change showing the influence of the digital economy. Now, the nation risks sinking into a deflationary spiral. While the spiral of devaluation is not really news for economists, a little truth is refreshing to hear.
To counteract that prospect, Obama is proposing an aggressive two-year plan to generate 2.5 million jobs focusing on a deteriorating infrastructure. He was not shy about employment numbers for the U.S. economy. Obama did not eliminate the mention of rising unemployment numbers, identifying with those that are awake nights for concern about whether next month’s money will meet debts or whether those that go to work in the morning return home that afternoon with pink slips. He has committed to a stimulus that he says is up to the job. ~ E. Manning
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reeling in the converts
With the unprecedented possibility of being ordained into the Obama Cabinet as Secretary of Treasury, Timothy Geithner as President of the Federal Reserve Bank of New York also brings additional youth to one of the youngest administrations in recent history. Bringing Geithner into the fold not only shows the Obama administration’s commitment to the economy, but the rising influence and political power that the quasi-government body of central bankers wield in the U.S. economy. His “fresh face” remains an increasing endorsement for change that propels the Barack Obama administration. The reality is that central bankers are wielding their power like never before as they are brought into the fold of government to secure their great investment in America.
The decision to esconse Geithner would also garner allies among the Republicans, a move that Barack Obama seems inclined to make considering the other choices that he has on the nominee table. Geithner’s nomination would be more than a political move, but rather a mutual vote of confidence in the U.S. power structure where central banking influence and cash flow is concerned. Central bankers make copious amounts of cash from their prize cow, the U.S. federal government and taxpayer while plowing all kinds of effort into securing their position among the stars of authority. Central bankers may have finally hit the big time, both in influence and popularity. ~ E. Manning
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