Source:  MarketWatch

Now that the books are closed on the fourth quarter’s performance, it’s fair to say that the final three months of 2008 will go down as the worst quarter for the U.S. economy since the 1930s.

In terms of the things that matter most — output, income, wealth, profits, foreclosures and job growth — the fourth quarter was a disaster.

If you look at each of those categories in isolation, we may have seen worse on rare occasions, but when you examine the big picture, it was the worst since the Depression.

Aside from the creative destruction that will ultimately lead to a growing economy, just about the only positive development was the rapid decline in energy and commodity prices.

The Commerce Department reported Thursday that output fell at a 6.3% annualized rate in the fourth quarter, the biggest drop since 1982 and the third worst gross domestic product figure in the past 50 years.

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Commodities prices surged on Thursday as investors sought protection against the risk of higher inflation by buying everything from oil and gold to copper and sugar.

Plans by the Federal Reserve to buy $300bn of US government debt triggered the stampede into commodities markets, which had suffered sharp price falls on worries that the world was heading for a depression. For the first time in almost a year, traders looked to oil and other raw materials as a hedge against an unexpected jump in prices.

The benchmark S&P GSCI index, a basket of raw materials, rose 6 per cent as oil prices soared to $51 a barrel, up 7 per cent on the day, to their highest level since December. Copper reached a four-month high.

The switch into commodities was triggered by concern that the US central bank might find it difficult to manage down the country’s money supply when its economy turned. That could lead to sharply rising prices for many goods and services.

Source: FT.com

I don’t buy this for a minute.  Real unemployment, ie. people who don’t have jobs, is already around 18%.

Source: Reuters

U.S. unemployment will top 9 percent before the recession is over, according to a Reuters poll of economists that points to a significantly bleaker economic outlook than just one month ago.

The current quarter is likely to mark the low point for output, marking a 4.9 percent annualized contraction, the worst since 1982 and far deeper than the 3.5 percent shrinkage forecast in a similar poll just one month ago.

U.S. gross domestic product (GDP) shrank an annualized 3.8 percent in the fourth quarter of 2008, the deepest trough since 1982 although not as bad as the euro area or Japan.

But analysts say an eventual rebound in U.S. growth will be at best meek since the crisis has done lasting damage to the nation’s productive potential.

U.S. GDP will shrink 1 percent in 2009 as a whole, according to the poll of nearly 60 economists taken Feb 13-19, contracting sharply in the first six months but then slowly gaining some traction toward year-end.

“Even that may be way too optimistic,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.

Unemployment is forecast to rise sharply, eventually putting more than 13 million Americans out of work. Already at 7.2 percent, the highest since 1992, the jobless rate is set to soar to 9.1 percent, a level not seen since 1983, before it stabilizes.

The figures were collected before the Fed published the latest downgrade to its own forecasts, effectively giving up hope for economic growth in 2009.

Financial markets also have gotten a strong whiff of the deteriorating outlook in recent days. U.S. stock markets sold off sharply earlier this week, closing not far above the lows reached in November.

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Technorati Tags: unemployment, inflation, recession, depression

Source:  CNN.com

President Obama appeared before a national audience Monday night to make the case for his economic stimulus plan, saying this is not your “run-of-the-mill recession.”

The president stressed the urgency of passing the roughly $838 billion measure, which his administration and Democratic leaders say will help pull the U.S. economy out of its current skid.

“My bottom line is to make sure that we are saving or creating 4 million jobs, we are making sure that the financial system is working again, that homeowners are getting some relief,” he said in his first prime time news conference.

Obama’s remarks came the day before the Senate votes on its version of the stimulus bill. The House passed its version of the stimulus bill nearly two weeks ago — without a single Republican vote. If the measure passes the Senate, the two chambers will have to reconcile the differences between the two bills. See what’s in the bills »

Obama urged Congress “to act without delay,” saying that only the federal government can break the “vicious cycle” gripping the U.S. economy.

“It is absolutely true that we cannot depend on government alone to create jobs or economic growth. That is and must be the role of the private sector,” he said.

“But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life.”

Obama said the plan was “not perfect,” but would create up to 4 million new jobs. Video Watch Obama explain how the plan will create jobs »

The president said 90 percent of those jobs would be generated by the private sector, a rebuttal of some conservative critics who say the plan amounts to little more than a government jobs bill.

Much of the package involves infrastructure spending, long-term energy projects and aid to cash-strapped state and local government. The president predicted that with his plan, the country would see significant improvement starting next year.

Republicans opposed to the plan say it includes too much wasteful spending and won’t stimulate the economy. Obama insisted he has been consulting with GOP lawmakers on the plan.

The campaign arm of Senate Republicans wasted little time Monday night calling into question Obama’s commitment to bipartisanship.

Even before the news conference came to a close, National Republican Senatorial Committee spokesman Brian Walsh released a statement saying, “President Obama promised change and bipartisanship in Washington, but that’s not what Americans have witnessed in the crafting of this gargantuan spending bill.

“Despite his rhetoric tonight, President Obama cannot possibly be proud of the final result — a bloated, trillion dollar spending bill crafted in a partisan manner that represents the same wasteful Washington spending and will fall on the shoulders of future generations.”

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Technorati Tags: Obama, recession, depression, economic stimulus plan

Source: Bloomberg.com

Advanced economies are already in a “depression” and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

“The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

“All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.”

The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.

“There is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,” said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. “But there is still the risk it can be short-circuited by further financial turmoil.”

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Technorati Tags: depression, International Monetary Fund, Dominique Strauss-Kahn

I suspect we are actually face to face with a Maxi…The Great Depression.

Source: Bloomberg

Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. may slump into a “mini depression” unless policy makers spend trillions of dollars to spur growth.

“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.”

President Barack Obama has proposed a stimulus package intended to spur growth estimated at as much as $900 billion. The U.S. economy shrank by 3.8 percent in the fourth quarter, the most since 1982 as consumer spending recorded the worst slide in the postwar era, the Commerce Department said last week.

Pimco won a Federal Reserve contract in December as one of the four managers of a $500 billion program to purchase mortgage-backed securities. The company was also one of the managers selected to run the Commercial Paper Funding Facility in October.

The Fed will have to step in and buy Treasuries, Gross said, to keep long-term interest rates low as the U.S. increases its debt sales to finance a growing budget deficit and stimulus programs. Central bank officials said Jan. 28 they were “prepared” to buy longer-term Treasuries.

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Technorati Tags: Depression

Source: AFP

US President Barack Obama came under pressure on Tuesday to resist protectionism in reaction to the global economic crisis as top companies announced massive losses and protests broke out in Europe.

“We must avoid protectionism,” German Chancellor Angela Merkel told reporters when asked about a “Buy American” clause to promote US products in Obama’s 888-billion-dollar (683-billion-euro) economic stimulus plan.

“Protectionism is the wrong answer” to the economic crisis, she added.

The German leader’s comments came after a similar warning in a speech in Tokyo by the head of the International Monetary Fund, Dominique Strauss-Kahn, who said: “Beggar thy neighbour policies will never give a good result.”

There is growing concern among economists that some of the anti-crisis measures being implemented by governments to save jobs and aid ailing industries are contributing to a new wave of protectionism around the world.

Adding to pressure for more state intervention, companies in Asia, Europe and the United States announced further losses and job cuts as the recession bites deeper into some of the world’s leading economies.

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Technorati Tags: protectionism

Source: washingtonpost.com

On the eve of what is expected to be the clearest evidence yet of the nation’s deepening recession, bad news rolled in from across the economy and the world.

Sales of new homes in December plummeted, corporations announced plans to cut 13,000 more U.S. jobs, unemployment claims jumped, and a troubled icon of U.S. manufacturing, Ford Motor, yesterday announced a massive loss.

Early this morning, the Japanese government announced that factory output had fallen 9.6 percent and that joblessness in the world’s second-largest economy jumped to 4.4 percent, in the largest increase in 41 years.

The accelerating pattern of grim indicators has led up to a report scheduled for release this morning on U.S. economic performance in the final three months of last year. Many economists think the economy shrank by as much as a 6 percent annual rate — that would be the worst quarter for the economy since 1982 — and they see little potential for growth until later this year.

Capturing the sentiment of a nation caught in an economic tailspin, President Obama said yesterday that it was “shameful” that Wall Street firms doled out nearly $20 billion in executive bonuses even as the government was spending billions of dollars to rescue financial firms.

Stocks stumbled yesterday on the dire economic data, with the Dow Jones industrial average dropping 2.7 percent, or 226.44 points, to close at 8149.01.

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Technorati Tags: recession, depression, unemployment

View the entire pictorial at the Source: guardian.co.uk

Carmakers around the world are cutting production as inventories build up to unprecedented levels. Storage areas and docksides are now packed with vast expanses of unsold cars as demand slumps.

Technorati Tags: Carmakers, layoffs, recession, depression

Source: seattlepi.nwsource.com

Microsoft Corp. said Thursday morning it would lay off up to 5,000 employees, or 5 percent of its work force, over the next 18 months, including 1,400 jobs today, marking the first time in its history that it has laid off workers across the company.

The announcement came as Microsoft posted quarterly results far short of analysts’ and its own expectations. Read that story here.

The company said that jobs would be eliminated in research and development, marketing, sales, finance, legal, human resources, and IT.

A spokeswoman said the company would provide “generous severance and outplacement services.”

Microsoft also said that travel budgets and marketing expenses would be slashed and confirmed that it would postpone almost all new construction on its campus. The company also said that it would reduce the number of vendors and contingent staff.

The changes should cut the company’s annual operating expenses by $1.5 billion this year.

The cuts show how the economy has taken a toll even on companies renowned for their ability to withstand downturns.

The announcement is also a severe blow to the Puget Sound region, which counts Microsoft among its largest and strongest employers. A spokeswoman said the company would not say how many jobs would be cut in Washington state.

Already, unemployment had been mounting sharply in the region, reaching 7.1 percent in December, up from 6.4 percent the month before.

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Technorati Tags: Microsoft, layoffs, unemployment, recession, depression

Source:  Times Online

Icelanders all but stormed their Parliament last night. It was the first session of the chamber after what might appear to be an unusually long Christmas break.

Ordinary islanders were determined to vent their fury at the way that the political class had allowed the country to slip towards bankruptcy. The building was splattered with paint and yoghurt, the crowd yelled and banged pans, fired rockets at the windows and lit a bonfire in front of the main door. Riot police moved in.

Now in the grand sweep of the current crisis, a riot on a piece of volcanic rock in the north Atlantic may not seem to add up to much. But it is a sign of things to come: a new age of rebellion.

The financial meltdown has become part of the real economy and is now beginning to shape real politics. More and more citizens on the edge of the global crisis are taking to the streets. Bulgaria has been gripped this month by its worst riots since 1997 when street power helped to topple a Socialist government. Now Socialists are at the helm again and are having to fend off popular protests about government incompetence and corruption.

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Technorati Tags: riots, civil unrest, depression

Source: Telegraph

By Ambrose Evans-Pritchard

Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.

Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and €73bn (£65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state.

A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece’s social fabric is unravelling before the pain begins, which bodes ill.

Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe’s monetary project – either in EMU or preparing to join – and each is trapped.

As UKIP leader Nigel Farage put it in a rare voice of dissent at the euro’s 10th birthday triumph in Strasbourg, EMU-land has become a Völker-Kerker – a “prison of nations”, to borrow from the Austro-Hungarian Empire.

This week, Riga’s cobbled streets became a war zone. Protesters armed with blocks of ice smashed up Latvia’s finance ministry. Hundreds tried to force their way into the legislature, enraged by austerity cuts.

“Trust in the state’s authority and officials has fallen catastrophically,” said President Valdis Zatlers,
who called for the dissolution of parliament.

In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgaria’s parliament in Sofia turned violent on Wednesday.

These three states are all members of the Exchange Rate Mechanism (ERM2), the euro’s pre-detention cell. They must join. It is written into their EU contracts.

The result of subjecting ex-Soviet catch-up economies to the monetary regime of the leaden West has been massive overheating. Latvia’s current account deficit hit 26pc of GDP. Riga property prices surpassed Berlin.

The inevitable bust is proving epic. Latvia’s property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months.

Leaked documents reveal – despite a blizzard of lies by EU and Latvian officials – that the International Monetary Fund called for devaluation as part of a €7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump.

This was blocked by Brussels – purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project.

Latvians have company. Dublin expects Ireland’s economy to contract 4pc this year. The deficit will reach 12pc of GDP by 2010 on current policies. “This is not sustainable,” said the treasury. Hence the draconian wage deflation now threatened by the Taoiseach.

The Celtic Tiger has faced the test bravely. No government in Europe has been so honest. It is a tragedy that sterling’s crash should have compounded their woes at this moment. To cap it all, Dell is decamping to Poland with 4pc of GDP. Irish wages crept too high during
the heady years when Euroland interest rates of 2pc so beguiled the nation.

Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by year’s end.

Private economists fear 25pc before it is over. Spain’s wage inflation has priced the workforce out of Europe’s markets. EMU logic is wage deflation for year after year. With Spain’s high debt levels, this is impossible.

Either Mr Zapatero stops the madness, or Spanish democracy will stop him. The left wing of his PSOE party is already peeling off, just as the French left is peeling off to fight “l’euro dictature capitaliste”.

Italy’s treasury awaits each bond auction with dread, wondering if can offload €200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Rome’s throat. Italian journalists have begun to talk of Europe’s “Tequila Crisis” – a new twist.

They mean that capital flight from Club Med could set off an unstoppable process.

Mexico’s Tequila drama in 1994 was triggered by a combination of the Chiapas uprising, a current account haemorrhage, and bond jitters. The dollar-peso peg snapped when elites began moving money to US banks. The game was up within days.

Fixed exchange systems – and EMU is just a glorified version – rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Major’s “soft-option” defiance days before the ERM blew apart in 1992? Or Philip Snowden’s defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931.

Don’t expect tremors before an earthquake – and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia.

Greece no longer dares sell long bonds to fund its debt. It sold €2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up “roll-over risk” for later in the year. Hedge funds are circling.

Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in “repo” actions.

In other words, the ECB is already providing a stealth bail-out for Europe’s governments – though secrecy veils all.

An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germany’s hard-working citizens find out?

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Technorati Tags: depression, Europe

Source: Bloomberg.com

Economists slashed forecasts for U.S. growth in 2009 and projected Federal Reserve policy makers won’t be able to start raising interest rates until 2010, according to a monthly Bloomberg News survey.

The world’s largest economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in the survey taken from Jan. 5 to Jan. 12. The slump will push inflation below what some Fed officials consider price stability, the survey showed.

“It’s very hard to get anything into place to change the course of the economy in the first half of this year,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “We’re in the middle of something very deep here.”

How quickly the U.S. will pull out of the slide may depend on the $775 billion stimulus package that President-elect Barack Obama is pushing lawmakers to enact next month. The projections indicate he’ll be seeking to halt what may be the longest recession since World War II.

“This is a once-in-a-century crisis, and we’re about to see a once-in-a-century response,” said Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York. “We could be in for a wild ride” depending on the timing and size of the stimulus, he said.

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Technorati Tags: Recession, Depression

Source: washingtonpost.com

With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world’s appetite for financing U.S. government spending.

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world’s mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

While the current market for Treasurys is booming, it’s unclear whether demand for debt can be sustained, said Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends.

“There’s a time bomb in there somewhere,” Crandall said, “but we don’t know exactly where on the calendar it’s planted.”

The government’s hunger for cash began growing exponentially as the nation slipped into recession in the wake of a housing foreclosure crisis a year ago. Washington has since approved $168 billion in spending to stimulate economic activity, $700 billion to prevent the collapse of the U.S. financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurance giant American International Group and mortgage financiers Fannie Mae and Freddie Mac.

Despite those actions, the economic outlook has continued to darken. Now, Obama and congressional Democrats are debating as much as $850 billion in new federal spending and tax cuts to create or preserve jobs and slow the grim, upward march of unemployment, which stood in November at 6.7 percent.

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Technorati Tags: debt, inflation, depression

Source: Bloomberg.com

The decline in U.S. manufacturing deepened in December as demand for such products as cars, appliances and furniture reached the lowest level since at least 1948, signaling further cutbacks in factory jobs and production this year.

The Institute for Supply Management’s factory index fell to 32.4, below economists’ forecasts and the lowest level since 1980, from 36.2 the prior month. Readings less than 50 signal contraction. The group’s new-orders measure reached the lowest level on record and prices slid the most since 1949.

“Every component suggests that the weakness is going to carry over into 2009,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. “There’s just not a whole lot of new business coming in,” and companies will have a “painful adjustment” as consumers shun spending.

Today’s figures underscore that, with private demand collapsing, manufacturers’ best hope for new business this year may be President-elect Barack Obama’s plans for an unprecedented stimulus package. Obama has pledged an investment program in roads, schools and the U.S. energy network akin to the 1950s- era interstate highway construction boom.

Stocks advanced on the first day of trading in 2009, following the biggest annual drop for the Standard & Poor’s 500 Index in 71 years, on expectations government stimulus efforts will curtail the recession. The S&P index rose 1.4 percent to 916.16 at 11:08 a.m. in New York. Benchmark 10-year Treasury yields rose to 2.25 percent from 2.22 percent late Dec. 31.

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Technorati Tags: Manufacturing