Past Peak: Economy Archives

June 08, 2008

State Of The Union

The average price of gas here in the US has reached $4 a gallon for the first time. Crude oil is at $138.54 a barrel, up almost $11 in a single day Friday, with Morgan Stanley predicting $150 a barrel by July 4. Unemployment jumped by half a percentage point in May, the largest monthly jump in a generation. And more than a million US homes are now in foreclosure, the most ever.

Tough year to be running as a Republican.

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February 26, 2008

Slip-Sliding Away

Economy Peak Oil

The price of oil today set a new all-time record — again. It currently sits at $100.88 per barrel.

In related news, the dollar today fell to a new all-time record low against the euro — again. It currently sits at 1.5014 (i.e., it now costs more than a buck and a half to buy what a euro buys).

Oops.

Posted by Jonathan at 05:35 PM | Comments (0) | Link to this

February 03, 2008

Annie Leonard's Story Of Stuff

Activism Economy Environment

Good chance you've already seen this, but if not go check out Annie Leonard's video Story of Stuff, viewable here. Much of it is familiar, but it's got some startling statistics and a great quote or two. Its real strength, though, is the way it pulls together some of the big picture. Recommended.

A teaser:

Posted by Jonathan at 06:14 PM | Comments (0) | Link to this

January 22, 2008

Fed Hits The Panic Button

In Asia, Monday's stock market slide continues. The Fed has hit the panic button, cutting interest rates 3/4 of a point, eight days ahead of its next scheduled meeting. WaPo:

Today's declines in Asia were even more severe than those on Monday, and several markets hit multiyear lows. Indian shares plunged so quickly — nearly 11 percent — that its stock markets halted trading soon after opening. In South Korea, volatile futures prices prompted the main Kospi market to briefly suspend program selling orders at midday. The Australian market suffered its worst one-day fall ever, while Japan's Nikkei fell 5.65 percent to its lowest point since 2005. It is down nearly 18 percent this year.
In Hong Kong, the Hang Seng index was down 8.65 percent today, after dropping 5.49 percent yesterday. It's off 19 percent this year and is 30 percent lower than a peak in late October.

"This is an expression of panic — really nothing less than panic about prospects for the U.S. economy," said Stephen Green, senior economist with Standard Chartered Bank.

Salon's Andrew Leonard has a couple of reactions:

First: Ben Bernanke has proven, once and for all, that juicing the stock market is now considered Job #1 for the Federal Reserve Bank. The material effects of rate cuts do not show up in economic growth statistics for months or even years after their enactment. By making an emergency "inter-meeting" cut a mere eight days before its regularly scheduled meeting, Bernanke is conducting economic policy in order to appease market psychology. The fragile psyches of Wall Street traders who played such a pivotal role in creating this mess by romping through the derivatives wonderland, are now in control of government strategy. That can't be good.
Second: When the "mild" recession of 2001 hit, it was tempting for some to blame George Bush, although fairer minds, no matter how partisan their inclinations, had to acknowledge that, economically speaking, one couldn't pin responsibility for the inevitable fluctuations of the business cycle on a newly arrived President. All one could do is critique how the new president handled the situation. But if the current economic downturn gets anywhere near as bad as some of the more gloomy observers are suggesting, there will be no escaping the verdict of history on this administration. The worst recession since World War II? Just another line on Bush's resumé, highlighted, underlined, in bold and italics.

There's an old saying on Wall Street that fear is a much more powerful emotion than hope, and more contagious, too. Which is why markets go down much faster than they go up. At times like this, you can think of the stock market as a giant theatre that's suddenly on fire. Except in this theatre, you can't leave your seat until you find someone else willing to buy it from you. When the building's on fire, you've got to slash prices in a hurry to find a buyer. Meanwhile, all around you, other people are desperate to get out of the building, too. Hence the P-word.

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January 21, 2008

Brace Yourselves

Investors heard Bush's economic stimulus speech, and they're unimpressed. Stock markets around the world are in free fall:

DJ Euro STOXX 50 — down 7.31%
FTSE 100 (UK) — down 5.48%
CAC 40 (France) — down 6.83%
DAX 30 (Germany) — down 7.16%
IBEX 35 (Spain) — down 7.54%
NIKKEI 225 (Japan) — down 3.86%
HANG SANG (China) — down 5.49%

US stock markets are closed today for MLK Day, but Dow futures are down over 500 points. Tomorrow's going to be ugly.

Posted by Jonathan at 11:55 AM | Comments (0) | Link to this

December 18, 2007

The Rich Get Richer Much, Much Faster

We all know the US income distribution is obscenely skewed. But this is truly grotesque (NYT):

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows.
The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

Got that? In just two years, the increase in incomes of the top 1% was more than a third greater than the total incomes of the bottom 20%. Things haven't been this skewed since 1929, and we all know what happened then.

Posted by Jonathan at 01:36 PM | Comments (0) | Link to this

November 13, 2007

More Than 50% Chance Financial System "Will Come To A Grinding Halt"

Yikes. The head credit strategist at Morgan Stanley figures it's more likely than not that the financial system will grind to a halt. Bloomberg:

There's a greater than 50 percent probability that the financial system "will come to a grinding halt" because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.
The world's biggest banks and securities firms have written down at least $45 billion in the value of assets linked to subprime mortgages for the third quarter after borrowers with poor credit histories failed to keep up with payments. Structured investment vehicles have defaulted on debt, forcing lenders including Legg Mason Inc. and SunTrust Banks Inc. to prop up their money-market funds to cushion them from possible losses.

"You have the SIVs, you have the conduits, you have the money-market funds, you have future losses still in the dealer's balance sheet in the banks," Peters said in an interview in New York. "That's all toppling at once."

The risk of systemic shock from the current subprime meltdown is quite large in the near term, Peters said. "It's an overarching concern that we have," he said.

Losses stemming from the subprime mortgages have caused a seizure of a lot of other markets, especially the securitization market, Peters said.

The U.S. asset-backed commercial paper market had its biggest weekly drop in two months in the week ended Nov. 7, according to a Federal Reserve report. Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other assets fell $29.5 billion, or 3.4 percent, to a seasonally adjusted $845.2 billion.

Sales of U.S. corporate bonds slowed to $11.1 billion last week, the lowest in two months, according to data compiled by Bloomberg.

"While the near-term concern is the systemic shock of the subprime-related losses, the medium- and long-term concern is the impact on the average consumer," Peters said. "The ultimate irony here is that the U.S. consumer now needs readily available capital more easily than ever, but they're going to have the most difficult time getting it."

If that's what they're saying publicly...

Posted by Jonathan at 04:55 PM | Comments (1) | Link to this

US Dollar Continues To Fall

Nothing like a trip to Europe to make you painfully aware of the dollar's continuing slide. A month ago, people were shocked when the dollar hit 1.42 against the euro. Today it's at more than 1.46. I.e., it takes almost a buck fifty to buy what a euro buys. When Bush took office, it only took about 90 cents. An enormous sea change in a breathtakingly short time.

Posted by Jonathan at 04:49 PM | Comments (0) | Link to this

October 29, 2007

It's All Downhill From Here

Economy Future Politics War and Peace

Excerpts from a cheery rant by Stirling Newberry at The Agonist:

Technocrats are technocrats because they like measurable things. Thus there is a great deal of discussion of peak oil, because oil production is a measurable thing. As someone who has written about peak oil longer than most, and understood its implications better, I would be the last person to diminish the importance of physical scarcity and lessening bandwidth as a problem for the global economy. Particularly in the light of our dependence on petroleum and other carbon based forms of energy. However our present spike in oil has nothing to do with peak oil directly, but instead everything to do with a gush of dollars. Peak dollar capacity, not peak production capacity, is what is making $100/bbl the new "over/under" number among the oil traders I talk to. [...]
The present spike of oil is, to some extent, driven by offshoring and demand. This decade is really like the 1920's not the 1930's. While prosperity has not reached many in the developed world, this has been a boom time for the developing world. When America was a developing nation, we profited from similar consumption binges in the then core nations of France, Great Britain and Germany. We are making the same mistakes they did in their time in the sun.

The real reason for the spike in oil prices is the pouring of dollars into the global economy meant to bail out the banking sector without imposing any accountability on the people who run it.

The coming World War

So Bernanke pumps dollars into the system, those dollars go elsewhere, and the difference - we stagnate while others advance - makes inevitable, and at this point I say inevitable - that there will come a point where military conflict will be used by those others to evict the United States from the privileged position of having 6% of the world's population and using 25% of the world's oil. That day is coming and the question now is how many millions of people will die when it arrives. Americans have declined, and will in 2008 decline again, to do anything to stop the arrival of a real world war, to replace this fake made for cable one. There aren't many any chances left. This same was true in the 1840's and 1920's. The real instability is yet to arrive.

When it does arrive there will be several islamic states with atomic weapons and the means to deliver them. They will, as the underdogs in the conflict, have the ability politically to use these weapons, perhaps assymetrically, to bring down an order that they do not need. New York City and London are simply too tempting as targets, and the counter attack against the oil fields would destroy what we need. The arabs do not need our financial centers for much longer, we will need the oil in such a conflict.

There is at this point nothing that will be done about this. The current leadership of the US, and of Europe, is completely committed to a global conflict in the future in order to keep doing what they are doing in the present. The right that people are willing to kill for is the right to overconsume what is underpriced. The disutility of oil - in physical terms of war, pollution and scarcity - is well under priced. The price of oil will rise to just below the cost of solving the problems. It will always be a little bit cheaper to pay Saudi Arabia an oil tax not to solve the problem, than to pay ourselves to solve the problem. Just as it was always a little bit cheaper to let slavery continue than to buy it out. That is, until such time as it was clear that there were two mouths and one slice of pie. That day is inevitable, because right now many people are happily munching on the pie. Don't exclude yourself.

What's next, the short term

Short term, if you see a maniac running down the street randomly shooting people while the police look on, bet that he will keep shooting until he runs out of bullets. George Bush will keep fighting in Iraq until the second he leaves office. Congress will keep handing this maniac bullets, and the Central Bank will keep looking the other way. Don't get too attached, to your kid's left arm. [...]

Coal. Bet on coal. Coal. Coal. Coal. Coal. Why? Because both China and the US have lots of it, and will want to use that to get out of dealing with their energy problems, or face economic contraction. [...]

However, this particular farce doesn't have much longer to run, already the process of buying up the financial sector by arabs and chinese interests is proceding. That means that soon the bankers and the other elite are going to start hating this expansion as much as the rest of the country...Bet that the trough after the recession will be, as the last two have been, long, slow, and hard.

This is why I shout this now: get rid of debt, and work your butt off for every bit of money you can now, because this is the last year or so that it will be really easy to do. After that, we might have an expansion, but you won't see any advantage from it.

What can our current political leadership do? Can? Lots of things. Are? Nothing.

They after all, are getting very well paid. 2004 was the most important election in your lifetime. 2008 is the least important election in your lifetime. Nothing is going to be decided. Nothing. [Emphasis added]

Have a nice day.

[Thanks, Miles]

Posted by Jonathan at 04:47 PM | Comments (1) | Link to this

October 26, 2007

Three-Quarters Of ARM Borrowers Are Clueless

Hundreds of billions of dollars worth of adjustable rate mortgages are going to reset in the next six months. Are people ready? No. And they don't even know it. CNN (via Cryptogon):

About $50 billion in adjustable rate mortgages reset this month, driving interest rates up for many borderline borrowers. And despite efforts to raise awareness, it doesn't look like anyone is really prepared for what's to come.
"I don't know if there's anything much [borrowers] can do," said Keith Gumbinger of HSH Associates, a publisher of mortgage related information. "Hopefully, they've been prudent about preparing for it, building a nest egg or refinancing the loan."

But most borrowers are likely to just scramble to pay the higher expenses - some of which will jump by 50 percent and come as a big surprise.

According to a survey conducted last month for the AFL-CIO by Peter D. Hart Research Associates, three quarters of borrowers have little clue about how much their payments will increase when their loans adjust. Nearly half don't know how their loans actually reset. [...]

When asked whether they were confident or worried about making their monthly mortgage payments over the next few years, 41 percent of homeowners whose adjustable rate mortgages (ARMs) had already reset said they were worried. Only 18 percent of pre-reset borrowers were concerned. [...]

But the mortgage situation can't hope to improve until banks tighten lending practices, and it doesn't look like they're quite on track. This past summer, the Mortgage Bankers Association revealed that delinquency rates for loans made in 2006 were rising.

And a new report from investment bank, Friedman, Billings, Ramsey, suggests that as conditions began to collapse during the first half of 2007, lenders still failed to vet borrowers carefully.

According to the report, lenders did not tighten underwriting standards until July or August, when the subprime crisis came to a head. As a result, delinquency rates for these most recent loans are even higher than those for 2005 and 2006.

With so many poorly underwritten loans, future delinquency rates and foreclosures could soar. And while October will be the peak year for resetting ARMs in 2007, new records will be set in early 2008; March will see more than $100 billion in resetting loans. [Emphasis added]

I love that "Hopefully, they've been prudent about preparing for it, building a nest egg or refinancing the loan." Please. If three-quarters of borrowers don't even know how much their payments will increase, I think we can assume they haven't been taking steps to prepare. They took ARM mortgages in the first place because that's all they could afford. Makes building a nest egg a little tough.

Posted by Jonathan at 05:16 PM | Comments (1) | Link to this

October 24, 2007

IMF Head: "Abrupt Fall" In Dollar Possible

Outgoing IMF head Rodrigo Rato warns that an "abrupt fall" in the US dollar may be in the offing. AFP (via Cryptogon):

The head of the International Monetary Fund, Rodrigo Rato, warned Monday of a potential "abrupt fall" in the US dollar that could roil the global economy.
"There are risks that an abrupt fall in the dollar could either be triggered by, or itself trigger, a loss of confidence in dollar assets," Rato said at the close of annual meetings here of the IMF and the World Bank.

The outgoing IMF managing director spoke here as the European single currency hit a new high of 1.4347 dollars and global equity markets plunged amid renewed fears a US credit crunch could pitch the world's biggest economy into recession.

"The uncertainty ... comes from downside risks that are much higher than they were six months ago. The turbulence in the credit markets is a warning that we cannot take the benign (global) economic environment of recent years for granted," Rato said on the final day of the annual meetings of the IMF and the World Bank.

"We still do not know the full effects of the decline in the housing market and the subprime problems of the US economy. Further disruption in financial markets and further falls in housing prices could lead to a global economic downturn," he said. [...]

US Treasury Secretary Henry Paulson, addressing the plenary session of the 185-nation twin financial institutions, also sounded a note of caution.

"We need to continue to be vigilant, because all of our capital markets are not yet functioning normally," Paulson said.

Rato warned that a global slowdown would exacerbate other existing risks, noting emerging economies' reliance on private capital inflows which are expected to reach a record 620 billion dollars this year, after a 2006 total of 573 billion, according to the Institute of International Finance.

"Some emerging economies that have relied on external financing to fund large current account deficits could be tipped into crisis by a combination of reduced demand for their exports and tighter financial market conditions," the IMF chief said. [Emphasis added]

The US dollar is the ground floor of a gigantic house of cards. If it tumbles, the ramifications will be enormous. It may be inevitable, however, as the US has been living beyond its means for years. Print up enough IOUs, and sooner or later people get fed up and say "Enough already."

Posted by Jonathan at 01:34 PM | Comments (0) | Link to this

October 17, 2007

Housing Slump Worsens — Again

A sampling of today's housing news...

The confidence of U.S. home builders has been shaken to its lowest point since records began 22 years ago, a housing trade group said Tuesday.

The Commerce Department said Wednesday that new home construction fell to its lowest rate in 14 years last month. Housing starts dropped 10.2% to an annual rate of 1.191 million in September. Economists expected a rate of 1.285 million.

Compared to September last year, the number of building permit applications - an indication of future activity in the US housing market - plummeted by 30.8 per cent and fell 7.3 per cent below August. [...]
Building permits fell 7.3 per cent, the sharpest decline since January 1995, to an annual rate of 1.226 million and 30.8 per cent below last year.

Ouch.

Posted by Jonathan at 12:49 PM | Comments (0) | Link to this

October 03, 2007

Pending Home Sales Drop Is "Big News"

Dean Baker, co-director of the Center for Economic and Policy Research:

The 6.5 percent drop in August pending home sales is big news. The drop in the index, which measures the number of contracts signed, follows a 10.7 percent drop reported for July. This is a truly extraordinary two-month decline of 16.5 percent. This is a new index (it began in 2000), so it is easily the sharpest fall on record, but it would likely have been the sharpest two month decline in contracts at any point in the post-war era. The actual falloff in sales is likely to be even larger, since a high percentage of these contracts will not close because buyers cannot arrange financing.
While it's possible that sales may stabilize and even rise back somewhat now that the mortgage markets are in somewhat better shape, they are now down more than 20 percent from year ago levels in this index and by more than 30 percent from the year-round average in 2005. The idea that the economy will somehow brush off a decline of this magnitude and keep moving along at a healthy pace seems almost bizarre. With consumption growth weak, equipment investment flat, and non-residential investment peaking, there is little other trade driven by a falling dollar (and thereby higher import prices) to sustain growth. [Emphasis added]

But what I really want to know is who's going to get custody: Britney or K-Fed.

Posted by Jonathan at 05:25 PM | Comments (0) | Link to this

September 27, 2007

Dollar Hits All-Time Low

Economy Peak Oil

The dollar continued its slide, falling to 1.4189 against the euro today, the dollar's all-time lowest point since the euro was invented. The dollar's set a new low each of the last six trading days.

Meanwhile, oil prices rose $2.58 (3.21%) for the day, to close at $82.88 a barrel, after topping $83 a barrel in intraday trading.

But stocks? They're up. Who says markets are rational?

Posted by Jonathan at 05:13 PM | Comments (1) | Link to this

September 26, 2007

US Home Prices: Worst Drop In 16 Years

Housing news keeps getting worse. AP:

The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.
Home prices have fallen by more every month since the beginning of the year.

An index of 10 U.S. cities fell 4.5 percent in July from a year ago. That was the biggest drop since July 1991. [...]

[Robert] Shiller, an economist at Yale University, told lawmakers in written comments last week that the loss of a boom mentality among consumers poses a "significant risk" of a recession within the next year. [Emphasis added]

The big wave of adjustable-rate mortgage resets hasn't even hit yet. The economy has been kept afloat in the Bush years by people taking cash out of their homes and spending it. That spending is coming to a screeching halt, so housing's problems are going to impact a whole lot more than just housing.

Posted by Jonathan at 04:38 PM | Comments (0) | Link to this

September 20, 2007

US Dollar In Free Fall, Hits All-Time Low Against The Euro

When you spend way more than you earn, there comes a time when nobody wants any more of your damn IOUs. True for individuals, true for nations. The US is about to learn a painful lesson.

Yesterday (Telegraph):

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.
"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said. [Emphasis added]

Today (FT):

The Canadian dollar rose to parity against the US dollar for the first time since 1976 on Thursday, buoyed by soaring oil prices and broad-based weakness in the greenback. [...]
Late in New York, the Canadian dollar rose 1.4 per cent to C$1.0012 against its US counterpart.

Elsewhere, the dollar dropped to a record low through the $1.40 level against the euro as the US currency continued its slide following the Federal Reserve's decision to cut interest rates this week.

Traders said the euro's rise through the psychologically important $1.40 level – seen as a pain barrier for eurozone exporters – triggered a host of stop-loss buying, sending the single currency higher.

The euro rose 0.8 per cent to $1.4071 against the dollar...

The dollar fell 0.4 per cent to $2.0093 against the pound, lost 1.5 per cent against the yen to Y114.44 and dropped 1 per cent to SFr1.1717 against the Swiss franc.

Some analysts put the dollar's weakness down to speculation that Saudi Arabia was set to abandon its peg against the US dollar. [Emphasis added]

When Bush took office, dollars were worth more than euros. Back then, it took about 90 cents to buy what a euro could buy. Now it takes $1.40.

It's not all Bush's fault, but the war — his war — is an important factor. We pay for it by, in effect, printing more and more dollars. That makes dollars worth less and less, which is a huge hidden tax on everybody who holds dollars. We may be approaching the point where the big dollar holders say "Enough!" and start dumping their holdings. Then, look out.

And then there's this, from today's BBC:

Losses from sub-prime mortgages have far exceeded "even the most pessimistic estimates", US Federal Reserve chairman Ben Bernanke has said. [Emphasis added]

This isn't going to be pretty.

Posted by Jonathan at 07:54 PM | Comments (0) | Link to this

September 18, 2007

2007 Foreclosures To Top 2 Million

As the Fed frantically tries to reinflate the bubble, housing continues to tank. CNN:

Late summer brought no relief from soaring foreclosures. The number of homes in some stage of default jumped 36 percent month-over-month in August, according to a regular monthly survey.
Delinquencies and defaults more than doubled year over year to 243,947, according to August figures released Tuesday by RealtyTrac, a marketer of foreclosed properties. RealtyTrac's forecast is for total foreclosure filings to exceed 2 million this year.

"The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable rate loans are beginning to reset now," James Saccacio, chief executive of RealtyTrac, said in a statement

October is expected to be a peak month for hybrid adjustable rate mortgages (ARMs) to reset, with the interest rates on some $50 billion worth of loans poised to go up dramatically. [Emphasis added]

October, eh? Brings to mind this and this.

Posted by Jonathan at 05:46 PM | Comments (0) | Link to this

September 06, 2007

Dire Scenarios From Two Top Economists

The US economy has been fueled in recent years by a housing/credit bubble that has made homeowners feel rich, causing them to take equity out of their homes and spend it. Two top US economists warn that that's coming to a screeching halt. FinFacts:

US homes may lose as much as half their value in some US cities as the housing bust deepens, according to Yale University professor Robert Shiller. Meanwhile, Martin Feldstein of Harvard University says that experience suggests that the dramatic decline in residential construction provides an early warning of a coming recession. The likelihood of a recession is increased by what is happening in credit markets and in mortgage borrowing. Feldstein says that most of these forces are inadequately captured by the formal macroeconomic models used by the Federal Reserve and other macro forecasters.
"The examples we have of past cycles indicate that major declines in real home prices — even 50 percent declines in some places — are entirely possible going forward from today or from the not too distant future," Shiller said in a paper presented last Friday at the Federal Reserve Economic Symposium in Jackson Hole, Wyoming.

Falling real-estate values may undermine consumer spending by spurring households to save more and by preventing them from tapping home equity.

Because price gains were larger and more widespread this time compared with past speculative booms, the risk of "substantial" price declines is greater, wrote Shiller. [...]

Last week the S&P/Case-Shiller Home Price Index posted a record annual decline in Q2 2007 - the worst since 1987. [...]

He said that 50 percent declines in the worth of some cities' homes wouldn't be unprecedented. Prices in London and Los Angeles fell by almost that amount from the late 1980s to mid-1990s. [...]

Harvard University Professor Martin Feldstein, who is a member of a group that calls the timing of recessions, said that the housing contraction threatens a broader recession, and the Federal Reserve should lower interest rates. [...]

"The economy could suffer a very serious downturn," Feldstein said. "A sharp reduction in the interest rate, in addition to a vigorous lender-of-last-resort policy, would attenuate that very bad outcome."

Feldstein said that Shiller's analysis began with the striking fact that national indexes of real house prices and real rents moved together until 2000 and that real house prices then surged to a level 80 percent higher than equivalent rents, driven in part by a widespread popular belief that houses were an irresistible investment opportunity. How else could an average American family buy an asset appreciating at 9 percent a year, with 80 percent of that investment financed by a mortgage with a tax deductible interest rate of 6 percent, implying an annual rate of return on the initial equity of more than 25 percent?

"But at a certain point home owners recognized that house prices – really the price of land – wouldn't keep rising and may decline. That fall has now begun, with a 3.4 percent decline in the past 12 months and an estimated 9 percent annual rate of decline in the most recent month for which data are available. The decline in house prices accelerates sales and slows home buying, causing a rise in the inventory of unsold homes and a decision by home builders to slow the rate of construction. Home building has now collapsed, down 20 percent from a year ago, to the lowest level in a decade.

"...[S]uch declines in housing construction were a precursor to 8 of the past 10 recessions. Moreover, major falls in home building were followed by a recession in every case except when the Korean and Vietnam wars provided an offsetting stimulus," Feldstein said.

"Why did home prices surge in the past 5 years?" Feldstein asked.

"While a frenzy of irrational house price expectations may have contributed, there were also fundamental reasons. Credit became both cheap and relatively easy to obtain. When the Fed worried about deflation it cut the Fed funds rate to one percent in 2003 and promised that it would rise only very slowly. That caused medium term rates to fall, inducing a drop in mortgage rates and a widespread promotion of mortgages with very low temporary teaser rates," he said. [Emphasis added]

Two things.

First, we learn all over again that bubbles are a fool's paradise. Everybody thinks the party will last last forever, and then it doesn't. Suddenly it's the morning after, hangover time. Which is to say, you mostly can't get something for nothing. Duh. Sure, some people get out in time, but most people don't. It cannot be otherwise, since when people start heading for the exits in droves, that's what pops the bubble. Who's going to buy your seat once the theatre's on fire?

Second, this didn't happen all by itself. The Fed and other banks created massive amounts of money out of thin air in the form of credit — i.e., debt (see this). All that new money created an impression of wealth, but since it didn't correspond to increases in actual wealth — since it was just numbers on paper and on computer hard drives — it was just so much hot air. Monopoly money. Which created all manner of market distortions, prompting people to do all sorts of things they otherwise wouldn't have done — building houses that weren't needed, taking out loans they couldn't afford, and so on. People who took the equity out of their homes and spent it all are going to wake up and find they have negative equity when their home value comes back down to earth. And then they're going to spend years digging their way out of the hole. As will a lot of home builders. A form of slavery, self-induced. And people think the Fed's their friend.

Posted by Jonathan at 06:10 PM | Comments (0) | Link to this

August 21, 2007

Money As Debt

With all the turmoil in the markets (real estate, stocks, you name it) and all the talk of a credit bubble, this might be a good time to stop and think about the fundamentals of money and credit. It's a story very few people understand.

Where does money come from? To the extent people think about it at all, they imagine government printing presses cranking out paper currency, like we've seen all those times on the tv. But the overwhelming bulk of money — something like 95% — is just numbers in accounting systems, on checks, or on some bank computer's hard drive. Where does it come from? It is created by banks, in the form of loans.

And where do banks get the money they lend? Again, to the extent people think about it at all, they imagine that banks take in money from depositors and lend that money back out to borrowers. But a moment's reflection tells you that this makes no sense: collectively, we save almost nothing, and our borrowing grows by leaps and bounds — all those unsolicited credit cards in the mail, all those home equity loans and second mortgages. Lending dwarfs saving, more so with every passing day. So it cannot be savings that the banks are lending out. Besides, when has anyone ever tried to take out a loan only to be told that the bank has run out of deposits to cover it? That's not how it works. In reality, banks lend out far more — many times more — money than they have on deposit (it's called fractional reserve banking).

It is debt that creates money. You sign a loan agreement, and they put a number in your account. Presto. Banks have a license to print money, metaphorically speaking — nice work if you can get it — and they'd just as soon you didn't understand what's really going on.

It's a difficult thing for most people to get their heads around: banks just create money out of thin air when people borrow. There's nothing backing up that money other than the borrower's collateral and promise to pay. And since people have to pay back more than they borrowed, the whole system depends, fundamentally, on continual growth in the supply of money — i.e., continual growth in the amount of indebtedness. It's a gigantic game of musical chairs. If the music ever stops, look out.

If you're like most people, you probably think I'm crazy. That can't be how it works. Well, here's an excellent animated video that explains it all in clear and entertaining fashion. Do yourself a favor and invest the time to watch and understand it. We'll come back to this topic in a little bit. Meanwhile, go watch the video.

Posted by Jonathan at 10:16 PM | Comments (1) | Link to this

August 01, 2007

Visual Aids

Corporations, Globalization Economy

Evolution has made us especially good at processing visual input. Here are some pictures worth a thousand words:

Animation: Obesity in the US

According to Wikipedia, high-fructose corn syryp (HFCS) "was rapidly introduced in many processed foods and soft drinks in the US over the period of about 1975–1985." Corn subsidies made corn artificially cheap, and since 1982 sugar tariffs have made cane sugar prohibitively expensive. Coke and Pepsi switched to HFCS in 1984, and now it's found in just about every processed food. Agribusiness giants made a pile of money, and a lot of the rest of us got fat — and increasingly unhealthy. Picture a time-lapse picture of the average American over that period, swelling up like a balloon.

Animation: CEO Pay

Speaking of balloons, slide your cursor along the timescale to see how compensation for American CEOs has changed since 1970. Enough said.

Graphs: US Foreclosures

No wonder the financial markets are rattled.

Posted by Jonathan at 06:48 PM | Comments (0) | Link to this

July 20, 2007

OFHEO: Help!

Policy Pete points us to a speech by James B. Lockhart III, director of OFHEO, the Office of Federal Housing Enterprise Oversight — no, I hadn't heard of it either. OFHEO's job is to oversee Fannie Mae and Freddie Mac, the "government-sponsored enterprises" that together own a staggering amount of mortgage debt in the US. As Pete says,

OFHEO is a sad case. Nearly every press release, issued with minimal clutter, even austerity, is a sad cry for help: "...won't somebody please look at this frightening report we're sending to you. Yes, we know it is scary and we know we can't do a damn thing about it even though you probably think we are trying to do something, only we can't because our hands are tied."

The problem is the sheer scale of the debt involved. Lockhart:

These Enterprises are huge. To put their size in perspective, as of March 31, the combination of the mortgage-backed securities (MBS) that they guarantee ($3.0 trillion) and their debt outstanding ($1.5 trillion) totaled $4.5 trillion; not that much smaller than the publicly held debt of the U.S. of $5.1 trillion.

Got that? The mortgage debt they own is almost as big as the entire national debt of the federal government. It's a big number.

Too much of that debt is in danger now because of the slowdown in housing and the resetting of adjustable-rate mortgages. Lenders have been taking unreasonable risks, irrationally hoping the housing bubble would last forever. But here's where things stand:

Ouch.

How big are the numbers we're talking about here? A million seconds is 11 and a half days. A billion seconds is 32 years. A trillion seconds is 32 thousand years. 4.5 trillion seconds? 142 thousand years. So if we pay it off at a rate of a dollar a second...

Have a nice day.

Posted by Jonathan at 04:55 PM | Comments (0) | Link to this

June 19, 2007

Record Foreclosures

This can't be good (WaPo):

The percentage of U.S. mortgages entering foreclosure in the first three months of the year was the highest in more than 50 years, according to the Mortgage Bankers Association. [Emphasis added]

Oops.

Posted by Jonathan at 05:37 PM | Comments (0) | Link to this

April 03, 2007

Major Sub-Prime Lender Goes Bankrupt

Pop goes the housing credit bubble. BBC:

New Century Financial, one of the largest sub-prime lenders in the US, has filed for Chapter 11 bankruptcy.
New Century sought protection from creditors after it was forced by its backers to repurchase billions of dollars worth of bad loans.

The company said it would immediately cut 3,200 jobs, more than half of its workforce, as a result of the move.

Sub-prime lenders, who target customers with poor credit histories, have suffered from a downturn in the market. [...]

Leading US economists warned on Monday that the current tide of defaults in the sub-prime mortgage sector would continue to weigh on the US's slowing housing market.

"We suspect the problem in the sub-prime area is just the tip of the iceberg for the mortgage market as a whole," said senior economist David Shulman, in the University of California's quarterly Anderson Report.

"For all practical purposes, the sub-prime market is in the process of shutting down." [Emphasis added]

The "tip of the iceberg." Stay tuned.

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April 02, 2007

Bush Economics

Jerome-a-Paris has the skinny. It's not pretty.

Posted by Jonathan at 10:30 PM | Comments (0) | Link to this

February 27, 2007

The Poor Get Poorer

During the Bush years, the fastest growing segment of the US population has been people living in extreme poverty. McClatchy:

The percentage of poor Americans who are living in severe poverty has reached a 32-year high, millions of working Americans are falling closer to the poverty line and the gulf between the nation's "haves" and "have-nots" continues to widen.
A McClatchy Newspapers analysis of 2005 census figures, the latest available, found that nearly 16 million Americans are living in deep or severe poverty. A family of four with two children and an annual income of less than $9,903 - half the federal poverty line - was considered severely poor in 2005. So were individuals who made less than $5,080 a year.

The McClatchy analysis found that the number of severely poor Americans grew by 26 percent from 2000 to 2005....The review also suggested that the rise in severely poor residents isn't confined to large urban counties but extends to suburban and rural areas.

The plight of the severely poor is a distressing sidebar to an unusual economic expansion. Worker productivity has increased dramatically since the brief recession of 2001, but wages and job growth have lagged behind. At the same time, the share of national income going to corporate profits has dwarfed the amount going to wages and salaries. That helps explain why the median household income of working-age families, adjusted for inflation, has fallen for five straight years.

These and other factors have helped push 43 percent of the nation's 37 million poor people into deep poverty - the highest rate since at least 1975.

The share of poor Americans in deep poverty has climbed slowly but steadily over the last three decades. But since 2000, the number of severely poor has grown "more than any other segment of the population," according to a recent study in the American Journal of Preventive Medicine.

"That was the exact opposite of what we anticipated when we began," said Dr. Steven Woolf of Virginia Commonwealth University, who co-authored the study. "We're not seeing as much moderate poverty as a proportion of the population. What we're seeing is a dramatic growth of severe poverty."

The growth spurt, which leveled off in 2005, in part reflects how hard it is for low-skilled workers to earn their way out of poverty in an unstable job market that favors skilled and educated workers. It also suggests that social programs aren't as effective as they once were at catching those who fall into economic despair.

About one in three severely poor people are under age 17, and nearly two out of three are female. Female-headed families with children account for a large share of the severely poor.

According to census data, nearly two of three people in severe poverty are white (10.3 million) and 6.9 million are non-Hispanic whites. Severely poor blacks (4.3 million) are more than three times as likely as non-Hispanic whites to be in deep poverty, while extremely poor Hispanics of any race (3.7 million) are more than twice as likely.

Washington, D.C., the nation's capital, has a higher concentration of severely poor people - 10.8 percent in 2005 - than any of the 50 states, topping even hurricane-ravaged Mississippi and Louisiana, with 9.3 percent and 8.3 percent, respectively. Nearly six of 10 poor District residents are in extreme poverty. [Emphasis added]

Bush gets most of the little support he has left from people who think of themselves as Christians. He and they might want to go back and read what Jesus actually said about caring for the poorest of the poor. Matthew 25:31-46, for instance.

Posted by Jonathan at 04:05 PM | Comments (0) | Link to this

February 22, 2007

Recycling: Incentives Needed

Economy Environment Politics

How are Americans doing at recycling plastic bottles? The answer is disappointing. Andrew Leonard, at Salon:

In 1995, nearly 40 percent of all plastic PET bottles sold in the United States were recycled. Ten years later, in 2005, the figure was only 23 percent.
The vast majority of water and plastic soda bottles consumed in the world are made of PET, aka polyethylene terephthalate. And perhaps contrary to expectations, this is one petroleum byproduct that is eminently recyclable. Indeed, and here's a second baffling peculiarity, producers of ground-up recycled PET "flake" cannot keep up with demand. Prices per pound are strong, propelled by Chinese buyers who will buy all the flake or bales of flattened bottles that they can get, to turn into pseudo-polyester and other materials.

So, we are recycling a smaller percentage of plastic bottles than 10 years ago, and yet supply of what is lovingly referred to as "post-consumer PET" can't keep up with demand. What's wrong with this picture? Why hasn't the market solved this problem?

The answer to the first question turns out to be simple. A handy chart provided by the National Association for PET Container Resources reveals that in 1995, the U.S. recycled 775 million pounds of PET bottles, out of a total of 1.95 billion pounds of bottles estimated to be on retail shelves. The actual total poundage recycled over the next 10 years stayed more or less the same, albeit finally beginning to tick up steadily in 2004. But the total amount of bottles produced more than doubled, jumping to nearly 5 billion pounds by 2005. Those of us who do recycle aren't necessarily recycling less as the years go by, we just haven't been able to keep up with the deluge.

But now that we've answered the first question, there's still the second. With so many bottles available to be recycled, why can't we satisfy demand? One reason is that we don't have enough installed capacity to clean the bottles and chop them up into flakes. But another is that voluntary programs for recycling plastic don't appear to work too well. Maybe most people are like me, and didn't realize until today how recyclable the bottles are. Or maybe they don't live in one of the 11 states that mandate refundable deposits for PET bottles.

Because if you want to know why PET bottle recycling rates started to rise again in recent years, the answer appears to be simple: California. In 2004, California enacted a law that increased redemption values for PET containers. As a result, PET recycling in California surged.

Strange: Legislation and financial incentives make a difference! If government properly sets up a system that encourages people, whether you, me or the neighborhood poacher, to ferret out those bottles and turn them in, we can reduce landfill waste and clean up our neighborhoods. [Emphasis added]

The free market, all by itself, won't protect the environment. Regulation is needed — which means government regulation.

Give people an incentive, and they'll do the right thing. Providing that incentive just requires political will. What are we waiting for?

Posted by Jonathan at 05:18 PM | Comments (0) | Link to this

February 19, 2007

Climate Change And The Future Of The West

Economy Environment Future

From "The End of the West As We Know It?" by Anatol Lieven (IHT):

Every political, social and economic system ever created has sooner or later encountered a challenge that its very nature has made it incapable of meeting. The Confucian ruling system of imperial China, which lasted for more than 2,000 years, has some claim still to be the most successful in history, but because it was founded on values of stability and continuity, rather than dynamism and inventiveness, it eventually proved unable to survive in the face of Western imperial capitalism.
For market economies, and the Western model of democracy with which they have been associated, the existential challenge for the foreseeable future will be global warming. Other threats like terrorism may well be damaging, but no other conceivable threat or combination of threats can possibly destroy our entire system. As the recent British official commission chaired by Sir Nicholas Stern correctly stated, climate change "is the greatest and widest-ranging market failure ever seen."

The question now facing us is whether global capitalism and Western democracy can follow the Stern report's recommendations, and make the limited economic adjustments necessary to keep global warming within bounds that will allow us to preserve our system in a recognizable form; or whether our system is so dependent on unlimited consumption that it is by its nature incapable of demanding even small sacrifices from its present elites and populations.

If the latter proves the case, and the world suffers radically destructive climate change, then we must recognize that everything that the West now stands for will be rejected by future generations. The entire democratic capitalist system will be seen to have failed utterly as a model for humanity and as a custodian of essential human interests.

Even the relatively conservative predictions offered by the Stern report, of a drop in annual global gross domestic product of up to 20 percent by the end of this century, imply a crisis on the scale of the Great Depression of the 1930s; and as we know, the effects of that depression were not restricted to economics. In much of Europe, as well as Latin America and Japan, democracies collapsed and were replaced by authoritarian regimes.

As the report makes clear, however, if we continue with "business as usual" when it comes to the emission of greenhouse gases, then we will not have to wait till the end of the century to see disastrous consequences. Long before then, a combination of floods, droughts and famine will have destroyed states in many poorer parts of the earth — as has already occurred in recent decades in Somalia.

If the conservative estimates of the Stern report are correct, then already by 2050 the effects of climate change may be such as to wreck the societies of Pakistan and Bangladesh; and if these states collapse, how can India and other countries possibly insulate themselves?

At that point, not only will today's obsessive concern with terrorism appear insignificant, but all the democratizing efforts of Western states, and of private individuals and bodies like George Soros and his Open Society Institute, will be rendered completely meaningless. So, of course, will every effort directed today toward the reduction of poverty and disease.

And this is only to examine the likely medium-term consequences of climate change. For the further future, the report predicts that if we continue with business as usual, then the rise in average global temperature could well top 5 degrees Celsius. To judge by what we know of the history of the world's climate, this would almost certainly lead to the melting of the polar ice caps, and a rise in sea levels of up to 25 meters.

As pointed out by Al Gore in "An Inconvenient Truth," this would mean the end of many of the world's greatest cities. The resulting human migration could be on such a scale as to bring modern civilization to an end.

If this comes to pass, what will our descendants make of a political and media culture that devotes little attention to this threat when compared with sports, consumer goods, leisure and a threat from terrorism that is puny by comparison? Will they remember us as great paragons of human progress and freedom? They are more likely to spit on our graves. [Emphasis added]

The piece makes an essential point, though it could have been made more forcefully: unregulated market capitalism is, by its very nature, incapable of self-restraint, and hence incapable of dealing successfully with an issue like global warming. Capitalism is about the single-minded pursuit of one thing: profit. That single-mindedness is the source of capitalism's dynamism, but it is also, in a world of unregulated markets, going to be the source of capitalism's ultimate undoing. It costs nothing to emit greenhouse gases; it costs money to not emit them. Unless someone can figure out a way to reverse that circumstance, unregulated capitalism will be "successful" the way cancer is successful. It will grow and grow until, in the end, it kills its host.

So capitalism needs to be regulated, to save it from itself, and to save us from it. But a successful worldwide regulatory regime is ultimately going to have to be largely voluntary. Capitalists will have to restrain themselves. They are going to have to not cheat. Unfortunately, buccaneers have always vastly outnumbered saints.

[Thanks, Miles]

Posted by Jonathan at 02:27 PM | Comments (0) | Link to this

February 16, 2007

Bottom Falls Out Of New Housing Starts

The bottom just fell out of starts for new residential construction in the US. For single-family homes, for example, January starts were down 38.9% compared to January a year ago.

Salon's Andrew Leonard spoke to housing economist Dean Baker. Excerpt:

But why are so many analysts willing to declare the bottom has been reached?
"The long and short of it is: You have a lot of people who are anxious to see the turnaround, and looking desperately at single-month data. But I have a hard time seeing the conditions for that. There is still this huge overhang of unsold homes, along with a huge inventory of vacant homes, which is also an indication of possible financial stress. Foreclosures are rising very rapidly."

Baker's reference to foreclosures brought up the second big question about the ultimate ramifications of the housing bust. The collapse of the sub-prime lending sector has led some financial analysts to wonder whether there will be a cascade effect on Wall Street that hurts the investors who have been buying and selling complicated financial instruments — credit derivatives and other exotic fare — that are directly or indirectly tied to the health of the housing sector. Has risk been spread around enough that Wall Street can ride out any storm? Or has the moment of truth for a largely unregulated and opaque system finally arrived?

First Baker speculated that the trouble currently being experienced by sub-prime mortgage lenders will spread into standard loans. If prices continue to fall, many homeowners will be holding mortgages whose value is greater than what they can sell their home for, he said.

"The problem will go well beyond sub-prime. We are going to see higher default rates on standard loans."

That in turn will increase the pressure on institutions and investors who have been speculating on such things as mortgage-backed securities. It won't just be the riskiest bets that blow up in hedge fund investor faces, but even some that were considered "safe."

"But we really don't have any idea how exposed the hedge funds are. No one knows how much they are leveraged. But there must be a lot of people exposed to far more risk than we understand, because you don't get the really high returns [enjoyed by hedge funds] without exposing yourself to a lot of risk."

So what's going to happen?

Dean Baker doesn't know. No one knows!

"We are just shooting in the dark," he conceded. [Emphasis added]

December's warmth caused a unusual amount of building activity, masking the slowdown. January's weather in the US was normal for a January, though, so the January numbers can't be blamed on the weather.

Posted by Jonathan at 02:49 PM | Comments (1) | Link to this

February 15, 2007

Pop Goes The Bubble

The housing bubble looks to be popping in earnest: the fourth quarter registered the largest drop in home prices ever recorded. Prices are now falling in more markets than they are rising. CNNMoney:

The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.
Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter of a year earlier, according to the report from the National Association of Realtors. That's the biggest year-over-year drop on record, and follows a 1.0 percent year-over-year decline in the third quarter.

In addition, 73 metropolitan areas reported a decline in the fourth quarter, compared to a year earlier. That outpaced the 71 that saw a gain. It was both a record number and percentage of markets showing a decline in the group's quarterly report. Five markets saw prices unchanged.

That decline was a far more widespread than the third quarter, when only 45 markets reported drops and 102 saw gains, or the second quarter when only 26 saw a year-over-year slump in prices. The national median price was still showing a year-over-year gain in the second quarter.

The most recent median prices are down even more — 3.4 percent, since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the last six months, with eight reporting double-digit declines. [...]

The nation's leading home builders have all reported declining prices for new homes, which are not captured in this report. [Emphasis added]

Retail sales are highly correlated with housing prices, so falling housing prices will cause significant ripple effects elsewhere. The resulting economic slowdown will reduce housing demand (and hence housing prices) even further, which will cause further economic slowdown, etc., in a self-reinforcing feedback loop.

A year or two ago, lenders were throwing loans at anyone who wanted one. Now they're regretting it. MarketWatch:

Major financial firms like Merrill Lynch, J.P. Morgan Chase, and HSBC Holdings, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.

The people who can't make their mortgage payments are going to have to start dumping their homes on the market, creating another feedback effect. It's musical chairs, and the music's stopping. If you've already got a seat, you're happy. Otherwise, not so much.

Posted by Jonathan at 05:31 PM | Comments (0) | Link to this

February 12, 2007

Housing Shock Waves

Salon reports on signs that the housing bubble is rapidly deflating. In Florida, January tax revenues fell for the third straight month, coming in at $108 million under budget for the month. Sales taxes alone fell $71 million. Sun-Sentinel:

Amy Baker, the coordinator for the Office of Economic and Demographic Research, attributed the drop in sales taxes to a "spillover effect" from a slumping housing market.
With fewer new homes being built and sold, sales of everything from shingles and sheet metal to washers and dryers are suffering, she said. "[That] is having some feedback into sales taxes," Baker said.

Similarly, the Sacramento Bee reported significant January revenue shortfalls in California, "which the state controller blamed on the real estate and construction industries." (Salon)

How big a deal is housing in the overall economy? Check this out. Bloomberg:

"Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005," she says. "Employment in residential construction declined in nine out of the 10 months ended January 2007," with 104,000 jobs in residential specialty trade contracting lost since the February 2006 peak, according to the Bureau of Labor Statistics. [Emphasis added]

Housing has been keeping the economy afloat, based on a lending bubble that, like all credit bubbles, could not last. Just three years ago, Alan Greenspan opined that "consumers would benefit if lenders provided more alternatives to traditional fixed-rate mortgages." Adjustable-rate mortgages have one problem, though: they adjust. Not coincidentally, the share price of New Century, the second largest provider of subprime mortgages to the US market, fell 36% on Thursday. The bill is coming due.

Posted by Jonathan at 06:42 PM | Comments (4) | Link to this

December 07, 2006

World Wealth Inequality Study

A new study on the world distribution of wealth [PDF], the most comprehensive study of its kind ever undertaken, finds (as of the year 2000):

the richest 1% of adults own 40% of global assets,
the richest 2% own more than half, while
the poorest 50% own barely 1% of the world's wealth.

I knew it was bad, but still.

Trickle-down economics, deregulation, tax cuts for the wealthy, "free trade" agreements, etc., have all contributed to the ever-increasing concentration of wealth into fewer and fewer hands. The lucky few love those policies — which pretty much tells you all you need to know.

Posted by Jonathan at 05:39 PM | Comments (1) | Link to this

October 14, 2006

Goldman Sachs And The Price Of Gasoline

Economy Energy Politics

As we've noted in the past, presidential approval ratings historically closely track the price of gasoline. The higher the price of gas, the lower the approval rating (see the graph here). That makes the recent plunge in gas prices good news for the White House, and for Republican candidates generally, going into the November elections.

Why have gas prices dropped so precipitously? Why now?

One significant factor that has gone largely unnoticed is a decision by investment bank Goldman Sachs to restructure its Goldman Sachs Commodity Index (GSCI) in a way that prompted the sudden selling of some $6 billion in gasoline futures. NYT:

Politics and worries about oil supplies may have caused gasoline prices to go up at the pump earlier th