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General Motors and Chrysler may be forced into Chapter 11

It seems that the Obama Administration is playing hardball with GM and Chrysler. They may force the companies into bankruptcy to protect American taxpayers from having to pony up yet more money for the beleaguered automakers. I see this as a positive development — although a pre-packaged Chapter 11 solution is the way this should end (a messy bankruptcy could […]

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What is an economic depression?

Depression is a taboo word in the English language. Its mention conjures up images of bread lines, shanty towns an general misery from the 1930′s. Yet, the D-word is making a comeback amidst the backdrop of a weak global economy. In fact, a growing number of pundits are calling this economic malaise a depression. But, what is a depression, really?

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IMF Head Strauss-Kahn uses the D-word Depression

You may have picked up on my change in terminology recently. I have gone from calling this rough patch in the global economy a rough patch, downturn, recession or some other euphemism to labeling it a Depression. Now, I am doing that for effect in part. Thinking of this as a longer-term downturn focuses one on mitigating downside risk rather than waiting for the eventual rebound. I think this is what we need to do.

However, I do believe it will be a depression in all likelihood — although we are not there yet. What I find interesting is that a number of prominent figures have started to voice the same beliefs in public. David Rosenberg of Merrill Lynch was the first. And even UK Prime Minister Gordon Brown let the D-word slip from his mouth. Bond King Bill Gross recently said it was a depression with a small ‘d.’ Now, we can add Dominique Strauss-Kahn to the mix.

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Is prophylactic protection needed for excessive stimulus?

Last week, Willem Buiter sized up the U.S. and the U.K. and found their desire to enact deficit-financed fiscal stimulus not credible. The attached video does a better job of summing up the mood Buiter invokes and the need for prophylactic protection from so much stimulus.

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Are central banks independent actors?

Just over a decade ago, the Bank of England was given full monetary independence from the British government, making it one of the last major central banks to achieve this status. The move was heralded as critical for maintaining confidence in the Pound and for removing political calculus from monetary policy.

But fast forward to 2009 and the heralded independence of the BoE, along with its counterparts, the Federal Reserve in the United States and the Bank of Japan amongst others, is not to be take for granted. Monetary policy seems to have come under the influence of politicians once again. Is this good for the global economy?

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Rio Tinto’s Leng quits after a month on the job

Jim Leng, the new Chairman of troubled mining giant Rio Tinto has quit abruptly despite having been employed by the company for only one month. This does not bode well as the company’s mountainous debt is at the core of why Leng is leaving the firm.

Bloomberg quotes Leng as saying “there has been a difference of opinion over which option the company should pursue.” Rio has “‘a financial issue to resolve in terms of its debt and repayment. I am hopeful that my resignation will enable the board to reach a consensual decision.”

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Bill Gross: This economy requires a check from the government

Bill Gross, the man who controls the largest bond fund in the world, believes that trillions of dollars in government spending will be necessary to get the economy going again. He warns that if the government does not spend trillions of stimulus to boost the economy, the U.S. and global economies could collapse. Now, on the whole, I tend to […]

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Marc Faber: The economic crisis is a consequence of U.S. government intervention

Marc Faber thinks it would better to nationalize the banks rather than bail them out. In his view, we are seeing special interests feeding at the trough.

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FDIC Friday Night Special: FirstBank of Georgia

The FDIC has closed another bank. This time it is FirstBank of Georgia. The bank only had $285 million in deposits, so this was no titan. Regional powerhouse Regions Financial has assumed the deposits, which is positive because last week we saw one case in which the FDIC could not find a buyer of the the failed institution’s deposits. The […]

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Massive U.S. job loss of 598,000 in January

Massive U.S. job loss of 598,000 in January

While job losses of 598,000 in today’s report for January 2009 were more than the 525,000 expected, it was within the expected range. Evidence of this comes from the increase in long-term treasury yields and stock futures prices immediately after the announcement.

Nevertheless, the number was the largest since 1974 and clearly indicates that the employment market is weak. We have now lost the greatest number of jobs in three months since data keeping began in 1939 – another data point which is telling. The unemployment rate also surged to 7.6%. However, we are nowhere near the bottom. Expect the unemployment rate to surge into double digits before the Depression ends. (Note: I had previously remarked I anticipated the unemployment rate to peak above 9%. I now expect the rate to be much higher than that).

Below is the heart of the U.S. Department of Labor’s employment situation summary accompanying the numbers. I have highlighted the most salient details.

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U.S. jobless claims foreshadow an ugly unemployment number

U.S. jobless claims foreshadow an ugly unemployment number

U.S. initial jobless claims soared to yet another 26-year high, registering 626,000 for the week ending January 31st. The continuing claims number was equally dreadful, hitting an all-time high of 4.79 million.

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Infighting begins within Obama’s team

We are barely two weeks into Barack Obama’s tenure and reports are surfacing everywhere that his “team of rivals” is at each other’s throat. President Obama had said just after the election that he was looking to pull together the best and the brightest. However, this strategy comes with a cost as the outsized egos assembled in his team are starting to jockey for political position.

A well-informed reader alerted me to the latest and most depressing story, which involves former Harvard President and Treasury Secretary Larry Summers shunting aside legendary ex-Fed Chairman Paul Volcker. Summers is trying to exclude Volcker, who is legendary for righting the U.S. economy after the stagflation of the 1970s. If he succeeds in sidelining Volcker, we will be the worse for it.

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