Crossposted from The Stars Hollow Gazette

Cassandra Herr Doktor Professor–

It’s kind of annoying when people claim that I said the stimulus would work; how much noisier could I have been in warning both that it was grossly inadequate, and that by claiming that a far-too-small stimulus was just right, Obama would discredit the whole idea?

Of course, the WSJ also said that the stimulus wouldn’t work. The difference was in how it was supposed to fail.

The WSJ view was that federal borrowing would crowd out private spending by driving interest rates sky-high, that the bond vigilantes would destroy the economy. Note that when the linked editorial was published, the 10-year rate was at 3.7%, with the Journal in effect predicting that it would go much higher.

My view was that government borrowing in a liquidity trap does not drive up rates, and indeed that rates would stay low as long as the economy stayed depressed.

How it turned out.

That’s a pretty clear test; among other things, you would have lost a lot of money if you believed the WSJ view.

Inflation is another issue; the WSJ kept telling readers that a big inflationary surge was coming. Commodity prices have muddied this issue to some extent, but even so actual developments on the inflation front have been a lot closer to what Keynesians were predicting than to the right-wing line.

Of course, I would much rather have actually had adequate policy than be vindicated by the form of our economic failure.

If you pay attention to economics it’s hard not to predict a Democratic defeat in 2012 of epic proportions starting at the top with Barack Obama.

Fact:  The US economy has just entered or is about to enter the second leg of at least a Double Dip Recession.

Second-quarter growth cut on inventories, trade

By Lucia Mutikani, Reuters

WASHINGTON | Fri Aug 26, 2011 12:43pm EDT

(Reuters) – U.S. economic growth in the second quarter was slower than previously thought and consumer confidence sank in August, further reducing prospects of a strong pick-up in output in the second half of the year.

Gross domestic product expanded at an annual rate of 1 percent, the Commerce Department said on Friday, as business inventories and exports were less robust. That was a downward revision of the government’s prior 1.3 percent growth estimate.

Separately, the Thomson Reuters/University of Michigan consumer sentiment index fell to 55.7 this month from 63.7 in July.

…

The economy advanced just 0.4 percent in the first quarter. Economists had expected second-quarter GDP to be marked down to a 1.0 percent rate.

The second GDP estimate for the quarter confirmed growth almost stalled in the first six months of this year.

Chance of Recession Is as High as 80%: Study

By: John Melloy, Executive Producer, Fast Money & Strategy Session, CNBC

Published: Thursday, 25 Aug 2011 | 6:55 PM ET

The Philly Fed puts a recession probability at 85.7 percent, while the consumer survey puts contraction chances at 80 percent, according to Bank of America’s probability model, which uses a so-called Bayesian technique that “tests if the economy is in a recession based on the interaction of variables that are associated with turns in the business cycle.”

…

According to their data, the Philly Fed has accurately forecast four of the last seven recessions. The older Michigan survey has accurately signaled three of the last eight recessions.

“It’s a 100 percent chance,” said Peter Schiff, CEO & Chief Global Strategist of Euro Pacific Capital. “In fact the recession might have already started.”

World Facing 50% Danger of Another Recession, Nobel Laureate Spence Says

By Robyn Meredith, Bloomberg News

Aug 25, 2011 7:00 PM ET

“I’m quite worried,” Spence said in a Bloomberg Television interview in Hong Kong yesterday. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in China particularly, and that will then immediately spread to the rest of the emerging economies.” He put the likelihood of such a scenario “at about 50 percent.”

…

China “cannot make up for the kind of loss of demand that would go with a downturn in the advanced economies,” Spence said. Because Chinese inflation is running at an official rate of 6.5 percent, a figure many economists say is understated, Beijing would be “pretty close to nuts” to fuel further credit growth, he said.

QE3 Is Coming by Year End: Roubini

By: Margo D. Beller, CNBC

Published: Thursday, 25 Aug 2011 | 5:49 PM ET

Roubini, also known as “Dr. Doom,” puts the chance of a double-dip recession at 50 percent.

…

While bad economic data on housing, jobs and home sales suggests a double-dip in the U.S., Ireland, Portugal, Italy and Spain “are already back in recession or never got out of the first one.” Data also suggest France and Germany are in “borderline contraction” while the U.K. “has not had any economic growth for three quarters.”

With Economic Pessimism Rising, Americans Move Towards Keynesianism

By: Jon Walker, Firedog Lake

Friday August 26, 2011 9:30 am

(T)here is now a slim plurality of the country ready to embrace real spending on jobs programs. A five point increase over two months is a rather impressive amount of movement on what could be considered a fairly fundamental question of government ideology.

More government spending to create jobs is exactly what Keynesian economics prescribes. The fact that, without realizing it, more Americans are open to the idea of Keynesian spending to help the economy is remarkable given how the top leadership in both political parties have trumpeted the importance of deficit reduction over all else for so long. And Republicans have been openly disparaging Keynes, just as they did in the Great Depression.

This change in attitudes is a reflection of just how seriously worried regular people are right now about what they perceive as the worsening state of the economy. Since the last time Pew asked this (my link- ek) question the number of people who think the economy is getting worse has increase by over 10 points according to Gallup’s tracking poll.

AP-GfK poll: Views on economy, Obama role sour

By TOM RAUM, Associated Press

22 hrs ago

The survey found that 86 percent of adults see the economy as “poor,” up from 80 percent in June. About half – 49 percent – said it worsened just in the past month. Only 27 percent responded that way in the June survey.

…

As the public’s outlook on the economy dips, so has approval for the president’s economic stewardship.

More than 6 in 10 – 63 percent – disapprove of Obama’s handling of the economy. Nearly half, or 48 percent, “strongly” disapproved. Approval of his economic performance now stands at just 36 percent, his worst approval rating on the issue in AP-GfK polling.

Among Democrats, 58 percent approve of the president’s handling of the economy, down from 65 percent in June. Among Republicans, approval dipped to 9 percent from 15 percent.

Just 51 percent consider Obama a strong leader, down from 60 percent in June and 65 percent following the capture and death of Osama bin Laden in May. In June, 85 percent of Democrats in the poll called him a strong leader. Now, the number is down to 76 percent.

…

Some 75 percent in the poll said the country is heading in the wrong direction, up from 63 percent in June. Among Democrats, 61 percent chose “wrong direction” – up from 46 percent in June.

In a new high, 52 percent of all adults said they disapprove of his overall performance – 52 percent, up from 47 percent in June. Among Democrats, approval fell 8 points, to 74 percent from 82 percent in June. Among Republicans, it fell to 11 percent from 22 percent.

…

Unemployment increased to 9.2 percent in July, up from 9.1 percent in June. And most economists don’t expect it to decline much below 8.5 percent by the November 2012 presidential election. No president has won re-election with a jobless rate that high since Franklin D. Roosevelt in 1936.

Stock Tip: Be Worried. Workers are Consumers.

Robert Reich

Friday, August 19, 2011

We’re slouching toward a double dip, and the stock market is imploding, because consumers – whose spending is 70 percent of the economy – have reached their limit.

It’s not just the jobless who can’t spend. It’s mainly people with jobs. Median wages continue to fall. Weekly wages in July for Americans with jobs were 1.3 percent lower than eight months before.

…

Many on Wall Street are scratching their heads, trying to understand why the stock market is plummeting. After all, they tell themselves, corporate earnings are still near record highs.

But it’s becoming clear those earnings can’t be sustained. Corporate earnings are the highest they’ve been relative to worker wages and benefits since just before the Great Depression. And the richest 1 percent of Americans are getting a higher percent of total income since just before the Great Depression.

Get it? It was only a matter of time before the boom on Wall Street turned into a bust. Economic booms cannot continue without American workers participating in them.

…

What will happen to the Dow Jones Industrial Average when corporate earnings revert to their historic average relative to American wages? I’ve seen various estimates. They’re not pretty.

Bernanke “optimistic.” Philly Fed says another recession 85% sure; Roubini says it’s coming

by John Aravosis, Americablog

on 8/26/2011 10:40:00 AM

Anyone who votes to cut any spending this year or next, or signs such legislation, shouldn’t be re-elected.  Period.  This is criminal that Congress and the President just cut spending, and now plan on doing it again in the super committee.  It’s equally criminal that the President refused to adequately defend the stimulus (and refused to push for a big enough stimulus the first time), then embraced deficit reduction over a year ago, when the economy was still teetering on the brink.

Every single one of them, the Democrats in Congress, the Republicans in Congress, and the President own this double dip recession if it comes, as they do the already crappy economy we have.  And I don’t know how you vote for anyone who is supporting legislation that will literally depress the economy further.

…

We need another massive stimulus now. Or a lot of people are going to lose their jobs and their homes, and it will be the fault of every single politician in Washington, from the White House to the Congress.  The President’s constant pandering to conservative Dems and Republicans is no longer academic.  It’s  having real world consequences.

A lot of Politicians are going to lose their jobs too, including Barack Obama.

Electoral victory my ass.

Crossposted from The Stars Hollow Gazette

Yes, I know the financial markets are only peripherally connected to the actual economy and the Dow is a poor indicator even of that but it’s sometimes amusing to watch the numbers at the big casino.

Thursday is jobless day and once again the number of newly unemployed is over 400,000 with an upward revision of last week’s much better number so that they are now even worse than this week.  Green shoots, Recovery Summer don’t you know.

But these titans are not so much worried about that as they are once again about Greece.

Greek Bond Yields Climb to Record High on Speculation Bailout Will Fail

By Emma Charlton and Keith Jenkins, Bloomberg News

Aug 25, 2011 10:49 AM ET

Greek bonds slumped, with 10-year yields rising for an eighth day to a euro-era record, amid concern Finland’s demands for loan collateral jeopardize Greece’s second bailout package and may trigger a default.

…

“Markets are doubting whether the second bailout package will ever be ratified by all the euro-region member states,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “There’s not much that can worsen the situation from where we are now.”

Greek 10-year bond yields rose 49 basis points to 18.38 at 3:44 p.m. in London, after climbing as high as 18.55 percent.

…

The two-year yield jumped 185 basis points to 45.88 percent, extending a 5.6 percentage point increase over the past two days. It earlier reached a euro-era record 45.91 percent.

The cost of credit-default swaps insuring Greek debt rose three basis points today to 2,253 basis points, the highest in more than a month, according to CMA.

Greek Default Fears Rise

By RIVA FROYMOVICH And MARK BROWN, The Wall Street Journal

AUGUST 25, 2011, 11:33 A.M. ET

BRUSSELS-Euro-zone policy makers appeared nowhere near settling a dispute Thursday over Finland’s collateral demands in exchange for participating in a €109 billion ($157.1 million) bailout for Greece, raising concerns the Mediterranean nation may default.

…

Under that deal, Greece would pay Finland hundreds of millions of euros from its bailout loans as collateral against those same loans at the expense of other euro-zone countries. Since Finland is set to contribute just 2% of Greece’s total rescue package, guarantees from the richer euro-zone nations would be going directly to Finland.

Which leads to headlines like this one in The Telegraph–

Market crash ‘could hit within weeks’, warn bankers

A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.

By Harry Wilson, and Philip Aldrick, The Telegraph

9:50PM BST 24 Aug 2011

Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender’s bonds against default is now £343,540.

The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

…

“I think we are heading for a market shock in September or October that will match anything we have ever seen before,” said a senior credit banker at a major European bank.

Here’s a bit of video from the BBC of an interview with Nassim Taleb-

(I wanted to include a quote from Robert Alexander Dumas at MyFiredog Lake, but it’s crashing the piece so I’ll try and figure it out later.)

But you shouldn’t worry or fret.  Warren Buffet just dropped $5 Billion of new capital into Bank of America so my advice is that you take all the money you have in the world and view this downturn as a buying opportunity to get long in banks.

Sucker.

Yup, this is the Bloomberg piece everyone is talking about.

Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans

By Bradley Keoun and Phil Kuntz, Bloomberg News

Aug 22, 2011 8:19 AM ET

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

…

The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

…

Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.

That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.

…

JPMorgan Chase & Co. (JPM), the New York-based lender that touted its “fortress balance sheet” at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank’s 97-year-old primary lending program to help banks in a cash squeeze.

Goldman Sachs Group Inc. (GS), which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.

…

The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.

TARP is the Treasury Department’s Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley.

Crossposted from The Stars Hollow Gazette

Ah yes, exceptional Americanism or American exceptionalism.

You know, whatever.

The 787 project has been delayed for over 4 years now, principally due to the fact that Boeing outsourced all the parts to nickle and dime their highly skilled and unionized labor force to death.

Unsurprisingly when they got them back for assembly they didn’t fit together.

Now this is a problem that was solved by one of Connecticut’s favorite sons, Eli Whitney, in 1798 because he needed some money after making institutionalized slavery profitable (we are proud of our Benedict Arnolds here in the Nutmeg State) but apparently ideas like interchangeability take a long, long time to get over the the Oregon trail to Washington.

And so as a consequence there are airports full of uncompleted 787s in various stages of decrepitude, covered in plastic tarps and weighed down with high tech cinder blocks so they don’t blow away.

Boeing’s 787 Glut Casts $16.2 Billion Cloud Over FAA Approval

By Susanna Ray, Bloomberg News

Aug 23, 2011 12:01 AM ET

Boeing amassed $16.2 billion worth of inventory related to the 787 through June 30, with so many almost-finished jets the company ran out of room to park them. There are 35 scattered outside the Everett, Washington, plant, in leased space across an adjacent airfield and in a facility in Texas. Many lack seats and lavatories and have black plastic over the windows and concrete blocks hanging from the wings to keep them from tipping over before engines are installed.

…

The mothballed jets represent almost $6 a share in inventory growth since 2009. Counting four planes in the factory and six test jets, Boeing has more 787s on hand than Richard Branson’s Virgin Atlantic Airways has planes in service.

…

Credit-default swaps tied to Boeing bonds, which rise as investor confidence falls, closed yesterday at the highest since Dec. 7, 2009, gaining 1.3 basis points to 84.5 basis points, according to data compiled by CMA. A basis point is $1,000 a year on a contract protecting $10 million of debt.

…

Boeing can “eat some of the dirt of the inventory cost” by spreading it out over the initial block of 787s, using so- called program accounting, said Demisch, the consultant. The company plans to reveal the size of that accounting block with its third-quarter earnings in October.

…

The 45th plane to be built — in the factory now — will probably cost Boeing at least $184 million, Harned estimated after analyzing inventory figures. That would make the average cost over the first 1,000 jets, including a learning curve, at least $116 million per plane, he projects. FAA approval this week after a flight-test program that began in December 2009 would set the stage for delivery of the first 787 to All Nippon Airways Co. next month.

…

Each plane is in a different state of readiness, since Boeing kept improving processes after the jets began rolling out of the factory in 2009.

They have undergone waves of repairs based on testing discoveries, and numerous jobs remain on “various and sundry components” before they’re ready for delivery, said Scott Fancher, Boeing’s 787 chief.

…

“Anytime you’re building an airplane out of sequence, the amount of work that’s required probably goes up by a factor of 10, because they have to unbuild all the things you built on top of whatever you have to change, and then build it all back,” said Demisch, the consultant. “It’s better than starting the airplanes from scratch, but it’s cost that will be added to production and make the likelihood of a profit on this program over the next half-dozen years very, very low.”

As much as I hate flying in general, let me just say I can’t wait to strap myself into one of those puppies.

Important people may experience minor inconveniences!

Film at 11.

There goes the rest of your cable news day.  I’ll keep looking for something else.