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Great Depression 2 Right Around The Corner?

Scary stuff from MarketWatch columnist Paul Farrell the other day. On Monday, Farrell wrote:

Now it’s time for my 2008 update, a look into the future where things will get far worse during the next presidential term. And given human behavior, especially in the deep recesses of Wall Street’s “greed is good” DNA, it seems inevitable that no matter how well-intentioned the new president may be Wall Street and Washington’s 41,000 special-interest lobbyists will drive America into the Great Depression 2.

Farrell then goes and rattles off 30 ‘leading edge’ indicators of the next Great Depression. From the piece:

Every day there is more breaking news, proof Wall Street’s greed is already back to “business as usual” and in denial, grabbing more and more from the new “Bailouts-R-Us” bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 “leading indicators.” Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America’s credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new “shadow banking system”
3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The “antitaxes” message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

And “leading indicator” number 30? Farrell wrote:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.

He sees “nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds.” It’ll get worse because “the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government.”

Reuters concludes: “Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’”

Farrell’s conclusion?:

We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

Geez. Looks like I picked the wrong week to quit smoking…

Scenes from Airplane! (1980)
YouTube Video Link

Source:

“30 reasons for Great Depression 2 by 2011”
Paul B. Farrell
MarketWatch, November 17, 2008

Second Stimulus Package Imminent?

Sounds like a sizeable stimulus package to boost the U.S. economy may be on the horizon. From Christopher S. Rugaber of the Associated Press last night:

A group of business executives on Tuesday urged President-elect Barack Obama to “quickly implement” a large stimulus package soon after taking office.

The stimulus package should be more than $300 billion, said the group, which included Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein, Time Warner Inc. CEO Jeffrey Bewkes, and Wachovia Corp. CEO Robert Steel.

“This really was far and away” the top priority, said Roger Ferguson, chief executive of financial services firm TIAA-CREF.

The recommendation follows similar comments made by a top Obama adviser late Monday to the conference sponsored by The Wall Street Journal. About 100 CEOs divided into four groups to formulate recommendations for Obama in different areas, including energy, health care, the international economy and the U.S. economy.

Just what might a second stimulus package consist of? Rugaber wrote:

A second stimulus package should “emphasize investment in infrastructure,” such as roads, bridges and other construction, as well as alternative energy projects, the CEOs said.

The stimulus also should include permanent tax cuts rather than one-time tax rebates, Ferguson said, because permanent cuts are more likely to be spent and to boost the economy.

The AP Economics Writer added that President-elect Barack Obama sees this additional stimulus package as THE top priority. Rugaber wrote:

Days after winning the election, Obama said if a second stimulus package does not get done in the current lame-duck session of Congress, “it will be the first thing I get done as president of the United States.”

Source:

“CEOs want at least $300B stimulus from Obama”
Christopher S. Rugaber
Associated Press, November 18, 2008

Next Stimulus Package May Not Include Tax Rebate Checks

Dashing the hopes of many Americans, it’s starting to look like any additional stimulus package from the U.S. government might not include tax rebate checks. Martin Vaughn of the Wall Street Journal’s “Real Time Economics” blog wrote yesterday:

Taxpayers who have learned to equate “economic stimulus” with “a check in the mail” had better not count on rebate checks this time around.

Lawmakers are beginning discussions of an economic recovery legislation they might consider as early as next month. Unlike stimulus legislation passed in the spring, the centerpiece of which was tax rebates of as much as $600 per individual, the focus this time is on infrastructure spending, aid to states, and help for the poor through food stamps and jobless benefits.

Democratic congressional leaders have not ruled out that the package could include some type of tax relief. But according to interviews with lawmakers and staff, Democrats do not appear inclined to undertake another broad-based rebate program.

FREE Health Insurance Price Comparisons for Individuals and Families

As to a possible explanation why a second “broad-based rebate program” is not being planned, Vaughan noted:

Some economists have called this year’s tax rebates a policy failure, saying they fell short of their intended effects to spur consumer spending and growth. They have said that consumers used much of the money distributed to pay bills or to pay down debt. “The last tax rebate did nothing but raise consumption spending in the economy for a short period of time. It was very disappointing,” said Allen Sinai, chief global economist at research firm Decision Economics, Inc.

Source:

“Stimulus Plans Veer Away From Individual Checks”
Martin Vaughan
Wall Street Journal (Real Time Economics Blog), October 21, 2008

Even With Bailout, Talk Of Additional Intervention

Well, it’s official. The U.S. government bailout of Wall Street and the financial system is now law. From the Wall Street Journal’s Greg Hitt and Deborah Solomon today:

President George W. Bush signed into law an unprecedented $700 billion plan to rescue the U.S. financial system, one of the largest-ever government interventions in the nation’s economy — and almost certainly not the last.

The Treasury Department is expected to move quickly to start buying distressed assets from struggling financial institutions, although any impact might not be felt for some weeks. Many details — such as who will administer the program and how — are still to be worked out.

Even with the massive bailout, there is already talk of additional government intervention. Hitt and Solomon wrote:

It will likely be followed by other moves. The Federal Reserve could cut interest rates and take further steps to ensure there are enough funds coursing through the financial system. Congress has already beefed up jobless benefits and is expected next year to push for new stimulus efforts, such as spending on infrastructure.

Looking to next year, Democratic lawmakers are planning to revamp financial-system regulations, with hedge funds, private-equity funds and investment banks all likely to come in for tighter scrutiny. House Speaker Nancy Pelosi (D, Calif.) portrayed the legislation as “only the beginning” of the legislative response to the faltering economy…

“We will be back next year to do some serious surgery,” said House Financial Services Chairman Barney Frank (D., Mass.). Mr. Frank wants legislation to rewrite housing finance — including the roles of mortgage giants Fannie Mae and Freddie Mac – and overhaul regulation of financial services.

More intervention? Can’t wait…

Call me skeptical, but Congress has a habit of rendering things F.U.B.A.R. Speaker Pelosi may
want to pay heed to something one of her predecessors said many years ago:

One of the greatest delusions in the world is the hope that the evils in this world are to be cured by legislation.

-Thomas Reed, Speaker of the House of Representatives (1886)

Sources:

“Historic Bailout Passes As Economy Slips Further”
Greg Hitt, Deborah Solomon
Wall Street Journal, October 3, 2008

Second Stimulus Package Taking Shape?

Had an idea this would be a hot topic after the carnage on Wall Street today. CNN Money’s Corey Boles and Michael R. Crittenden wrote this evening:

Sens. Carl Levin, D-Mich., and Sherrod Brown, D-Ohio, said that the federal government needs to step in and help people on Main Street, urging Republicans on Capitol Hill and the White House to work with the Democratic majority in Congress to finalize an economic assistance package.

“The uncertainty about the future of the market underpins the need for another economic stimulus package,” said Levin…

Levin and Brown were speaking on a media conference call Tuesday morning.

Meanwhile, Senate Majority Leader Harry Reid, D-Nev., called on Republican presidential candidate Sen. John McCain, R-Ariz., to work to pass a second stimulus package…

House Majority Leader Steny Hoyer, D-Md., said the news from Wall Street underscored the need for another stimulus package, and said he hoped to bring a recovery plan to the House floor soon.

Speaker of the House Nancy Pelosi, D-Calif., said she hoped the Bush administration would come to the table to talk with Democrats.

Brown said elements of a stimulus package needed to include an extension of unemployment insurance benefits, spending to repair the country’s infrastructure, an increase in grants to states to help them pay for rising Medicaid costs, and an extension of tax credits for companies investing in research and development, and renewable energy sources.

According to CNN Money’s Boles and Crittenden, another goal of a second stimulus package could be to rescue the battered U.S. housing market. They wrote:

Democratic aides in the Senate said that lawmakers could attempt to do more with part of a second stimulus bill to bolster the housing market, which is at the root of the problems affecting banks like Lehman Brothers and Merrill Lynch due to their exposures to the subprime mortgage market.

The aides said that discussions were beginning Monday as to what that assistance could be, and that details weren’t available yet.

Boles and Crittenden also noted there are some who would like to see any housing initiatives include a halt to foreclosures. From the CNN Money piece:

John Sweeney, president of the AFL-CIO, the largest group of U.S. labor unions, renewed his call for a government-imposed moratorium on home foreclosures to allow the problems in the housing market to settle down.

Source:

“3rd UPDATE:Market Woes Reinforce Need For Stimulus -US Dem Sens”
Corey Boles and Michael R. Crittenden
CNN Money, September 15, 2008

House Speaker Pelosi Announces Second Stimulus Package

Looks like another stimulus check may soon be on its way to American households. According to Reuters today, House Speaker Nancy Pelosi met with several economists Tuesday and announced afterwards:

We will be proceeding with another stimulus package.

Reuters’ Andrew Taylor wrote:

Pelosi said that recently issued tax rebate payments of $600 to individuals and $1,200 for married couples have helped the economy but that more is necessary to offset the drag of higher gasoline prices and other costs…

The Democratic effort is still in its formative stages, but most of the proposals mentioned by Democrats were rejected by Bush during negotiations that produced the earlier stimulus measure. A new package probably won’t be acted on before Congress returns in September from its annual summer vacation.

According to Taylor, this second stimulus package could consist of additional tax rebates, heating and air conditioning subsidies for the poor, infrastructure projects, higher food stamp payments, and aid to the states.

Speaking of seconds, back on April 29 I talked about humor columnist Dave Barry, who published the following in the Miami Herald on April 13 in response to the first stimulus package:

…this year, filing taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.
Q. Where will the government get this money?
A. From taxpayers.
Q. So the government is giving me back my own money?
A. Only a smidgen.
Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
Q. But isn’t that stimulating the economy of China?
A. Shut up.

Source:

“Democrats plan second economic stimulus bill”
Andrew Taylor
Associated Press, July 15, 2008

America The Dutiful

Hope everyone had a wonderful holiday weekend. The weather was beautiful out here in the Windy City— especially for fireworks. I’m surrounded by pyromaniacs in my neighborhood, so I spent the evening of the Fourth on my balcony taking in a cigar and watching various home-grown fireworks displays. No casualties, as far as I know, but I’m still coughing up gunpowder. Even though I’m tied down with several projects at the moment, the next day I managed to squeeze in a barbecue out in the suburbs. Overall, it was an enjoyable weekend.

While I always appreciate the celebratory aspect of Independence Day, every year I also make it a point to remember those who made tremendous sacrifices for our country. Too numerous to mention, from Founding Father to Unknown Soldier, I, for one, am eternally grateful to you. Their deeds helped lay the foundation for this country, and we, the present-day caretakers of this great nation, must not let them down.

This weekend, I happened to come across an article in Time by Nathan Thornburg that talked about the rebuilding of Ground Zero in New York City. If we are to compare the progress being made at the World Trade Center site to our ability to manage this country, especially when it comes to economic challenges, well— we’re big trouble. Thornburg wrote:

Rebuilding ground zero was going to be a great show of American defiance, a Knute Rockne speech to the nation. Seven years on, though, this grand statement is barely a stammer. In an unsparing new progress report, the site’s landlord admitted that every part of the project is over budget and behind schedule. It will take several months just to map out a new timeline.

The 16-acre site is a tangle of more than 100 contractors and subcontractors answering to 19 public agencies—a sorry pageant of feuding bureaucrats, shady contractors, litigious developers and overzealous regulators. Even 9/11 advocacy groups share the blame, halting work over smallish details about how best to honor the victims. Few are honored by this impasse of competing agendas.

Nobody is arguing that the rebuilding effort–which will add as much Class-A office space as exists in all of downtown Atlanta–is simple. But lower Manhattan is in danger of becoming a metaphor for America’s sluggish response to our most pressing economic challenges. A recent U.S. Chamber of Commerce report shows a litany of problems: an overloaded rail infrastructure that needs new tracks, signals, tunnels and bridges. Most ports need dredging; almost half of all canal locks are obsolete. While China is spending nearly 9% of its gdp on infrastructure, Americans lose $9 billion a year in productivity from flight delays alone.

It is, at heart, about competitiveness. As the U.S.’s largest construction project limps along, China has built the equivalent of several World Trade Center sites in its furious run-up to the Olympics. While conscript labor and forced relocations aren’t the American way, the U.S. can’t be pleased about being lapped by a developing nation. The global economy rewards countries with the concentration and focus to build quickly and solidly. Bits and bytes are important, but so are steel and mortar. It’s not too late for ground zero to be a showcase for American engineering, efficiency and ingenuity. Anything less risks sending exactly the wrong message.

Ground Zero, June, 2008

Source:

“Nation Building.”
Nathan Thornburg
Time, July 3, 2008

The United States Of Disrepair

Yesterday, I left my apartment on the northwest side of Chicago to visit my parents for Mother’s Day. Needless to say, the thirty minute trip to their home turned into a game of “Avoid the Pothole.” Granted, conditions were particularly bad this past winter. However, having driven for almost two decades now, I can’t recall the last time roads and other infrastructure around Chicagoland were ever this bad.

“Dude, where’s my car?”

Well, earlier today I came across a piece by David Edwards for the alternative news site The Raw Story (hat tip, What Really Happened) that shed some light on the situation in Chicago, and across the United States, for that matter. In “CBS: America’s infrastructure is crumbling,” the associate editor talked about “America in Disrepair,” which was shown on the CBS Early Show on May 10. Edwards wrote:

Unless more funding and effort are put into saving the nation’s infrastructure, it will continue to crumble, say experts. An estimated $1.5 trillion over the next five years could be needed to avoid large-scale disaster.

“When infrastructure declines, we’re going to become a second-rate country,” says engineer and former New York City transportation commissioner “Gridlock Sam” Schwartz.

You can view the 5 minute 45 second CBS broadcast here.

Source:

“CBS: America’s infrastructure is crumbling”
David Edwards
The Raw Story, May 11, 2008

The Two Week Rule

It was the end of July 1996, and I was sitting in my downtown Chicago office where I worked as a U.S. Senator’s aide. Trans World Airlines Flight 800 had just crashed days earlier in the Atlantic Ocean off New York City. As I read a list of not-too-funny jokes that airline passengers were overheard making (and subsequently detained for) in the aftermath of the incident (“Is that a bomb in your pocket or are you just happy to see me?”), I remarked that Americans have an incredibly short attention span. Despite all the theories being discussed in the media as to what had brought down the massive Boeing 747, I told a co-worker that in two weeks you’ll hardly hear a peep about the incident. And I was correct. I started calling it my “two week rule,” where the American media and public focus on a incident for two weeks or so, at which point our attention shifts to something new.

During the evening rush hour of August 1, 2007, the I-35W Mississippi River bridge, the fifth-busiest in Minneapolis, collapsed and fell into the river and onto its banks. 13 people died and approximately 100 more were injured as a result of the accident. The day after incident, USAToday reported:

Across the nation Thursday, there was a fresh urgency on improving infrastructure — the roads, bridges, utilities and other basics of modern life that aren’t always the most popular spending priorities for governments… In Minneapolis, there was grief, outrage and questions over whether government officials could have done more to prevent the disaster. “A bridge in the middle of America shouldn’t fall into a river,” said Sen. Amy Klobuchar, D-Minn., whose home is near the span.

The American Society of Civil Engineers says that $1.6 trillion is needed for infrastructure improvements. The most recent ASCE report card gives America’s infrastructure a grade of “D.” Experts say the main reason the country’s infrastructure is in such horrendous shape is because most of it was built in the 1950s and 1960s with a lifespan of about 50 years. Do the math and you’ll figure out why our bridges are falling down, falling down.

As the dog days of August waned, so did our interest in the Minneapolis bridge collapse and the larger issue of a decaying national infrastructure. As I leafed through the Sunday paper last night, I came across the following story in the Parade magazine:

“More for Pork, Less for Bridges”

After the horrific collapse of a highway bridge in Minneapolis in August, politicians nationwide called on the federal government to repair America’s infrastructure. Now the politicos who control the purse strings have spoken. Though $1 billion for bridge repairs was added to the transportation/housing bill just approved by the Senate, an amendment to stop funding “pork” until all of the at-risk bridges have been fixed was rejected, 82 to 14. Instead, $2.5 billion will go toward pet projects like these:

• Volcano monitoring in Alaska, $3 million
• A hiking and biking trail in West Virginia, $1 million
• A prototype streetcar in Oregon, $750,000
• A minor league ballpark in Montana, $500,000
• Renovation of a peace garden in North Dakota, $450,000

So the two week rule had played out once again. And what was the headline on CNN this afternoon? “Who’s going to win ‘Dancing with the Stars’?”