…
The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s.

But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago — for a house that was, on average, only ten percent bigger and 25 years older. They also had to pay twice as much to hang on to their health insurance.

To cope, millions of families put a second parent into the workforce. But higher housing and medical costs combined with new expenses for child care, the costs of a second car to get to work and higher taxes combined to squeeze families even harder. Even with two incomes, they tightened their belts. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and other flexible purchases — but it hasn’t been enough to save them. Today’s families have spent all their income, have spent all their savings, and have gone into debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer.
…

Source/Full Story: huffingtonpost.com

The Social Security Administration makes it official Thursday: There will be no cost of living increase for Social Security recipients next year, the first year without one since automatic adjustments were adopted in 1975.

The announcement comes as President Barack Obama and key members of Congress call for a second round of $250 payments to more than 50 million seniors, veterans, retired railroad workers and people with disabilities.

The payments would be equal to about a 2 percent increase for the average Social Security recipient. The cost: $13 billion.

Obama called on Congress Wednesday to approve the payments, and several key members of Congress said they would.

“This additional assistance will be especially important in the coming months, as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis,” Obama said in a statement.

Blame falling consumer prices for no automatic increase next year. By law, Social Security’s cost-of-living adjustment, or COLA, is pegged to inflation, which was negative this year, due largely to falling energy costs.

Source/Full Story: Yahoo! News
Technorati Tags: Social Security, COLA

The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday.

Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke’s ability to hold down inflation would be the metric by which the Fed’s success would be measured.

“We won’t know for a year if he’s done a good job so far, because he shoveled money out of an airplane to save banks and the financial system,” Grassley said in a conference call with Iowa reporters. “But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn’t start mopping up some of the money that’s out there.”

Source/Full Story: The Hill’s Blog Briefing Room

Great news :-\

Consumer prices rose at a surprisingly steep rate in June and the nation’s factories continued to pull back production, according to new data released today that affirm that the economy remains weak but is not entering a dangerous cycle of falling prices.

The consumer price index rose 0.7 percent last month, the Labor Department said, driven primarily by a 17.3 percent rise in the price of gasoline. But even excluding volatile food and energy costs, prices rose more than analysts expected, by 0.2 percent.

The data offers the most solid evidence yet that the nation has avoided the onset of deflation, a dangerous process in which the weak economy causes prices to fall, leading people to further rein in spending and setting off a vicious cycle. Instead, prices for a wide range of goods — clothing, medical care, even automobiles — saw price increases in June.

Source/Full Story:: washingtonpost.com

Gordon Brown has urged the world’s major economies not to take their foot off the spending pedal, saying that “going for growth” could protect vital public services from cuts.

Speaking at an Anglo-French summit in Evian yesterday, the Prime Minister said: “If we can get growth, if we can get unemployment down, if we can keep interest rates and inflation down, then there is scope to do the things we want to do, and that is to get money to the frontline services.”

But Peter Hain, the Welsh Secretary, became the latest member of the Cabinet to raise the prospect of spending cuts after the general election. Although aides insisted he was not contradicting Mr Brown, Mr Hain said: “Once we emerge from recession, it is fair to state that a slower growth of public spending will be the best strategy. The next 10 years cannot be the same as Labour’s past 10 years of record investment in our schools and hospitals spending. We will need patience as well as prudence. It will mean being tough on priorities and going hard for efficiency. But such sensible Labour prudence over the medium term is quite different from Tory slash-and-burn starting now.”

Source/Full Story: The Independent

Right…..

The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy after the $787 billion rescue package launched in February, an adviser to President Barack Obama said.

“We should be planning on a contingency basis for a second round of stimulus,” Laura D’Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis. said on Tuesday.

Addressing a seminar in Singapore, Tyson said she felt the first round of stimulus aimed to prop up the economy had been slightly smaller than she would have liked and that a possible second round should be directed at infrastructure investment.

“The stimulus is performing close to expectations but not in timing,” Tyson said, referring to the slow pace at which the first round of stimulus had been spent on the economy.

Tyson, who is a dean of the Haas School of Business at University of California, Berkeley and was also a White House economic adviser to former President Bill Clinton, said an additional factor affecting the stimulus was that the economy was in a far worse shape than the administration had estimated.

INFLATION NOT A CONCERN

Tyson dispelled concerns about the ballooning U.S. fiscal deficit that is estimated to hit nearly 10 percent of gross domestic product, and its possible inflationary consequences.

“The Federal Reserve is not going to allow the U.S. to inflate away its debt,” she said.

Source/Full Story: Reuters

I missed this one somehow.  Ms. Flint is now history of course…

Gordon Brown’s housing minister exposed the Government’s fears over the falling housing market today when she accidentally left in view a top-secret report as she walked into No 10.

Caroline Flint’s briefing note conceded that house prices would fall by 5 to 10 per cent “at best” this year and that “we can’t know how bad it will get”.

The detailed document carried into Downing Street for the weekly Cabinet session admitted that home building was also “stalling”, in a bleak assessment of UK economic prospects.

The gaffe coincided with new figures showing inflation jumping from 2.5 per cent to 3 per cent and mortgage lending at its lowest level for more than three decades.

…

The notes explained that leading house price indicators were predicting reductions for the first time in recent years. The document read: “Given present trends, they will clearly show sizeable falls in prices later this year – at best down 5% – 10% year on year.”

The document compared current repossession rates with the spectre of the housing crash of the early 1990s, although noting that last year’s figures were only a third of 1991.

Source/Full Story: Times Online

The problem now is what happens when current monetary policy collides with a policy of “vast government borrowing” on a scale unknown since the 1940s.

“We have the fiscal policy of a world war without a war.”

Referring to the clash between inflation and deflation he added: “I don’t know who is going to win but we know that while the struggle goes on ordinary people will get trampled. There will be more economic volatility and ordinary people will pay.”

He has also warned that in Britain he expects “more riots in major cities this year” because of the economic situation and says the recent “drip feed” of the peccadilloes of British MPs and their expenses is “just the beginning of a crisis of political legitimacy that will be played out over the next 18 months”.

Ferguson, a native of Glasgow, specialises in financial and economic history as well as the history of the British empire.

Source/Full Story: The Independent

Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s.

The American public is fearful, confused and changing their buying habits, which is showing up at Berkshire’s operating units, Buffett said during an appearance on the CNBC television network today. While the recession will end and future generations will live better than their parents, the economy “can’t turn around on a dime,” Buffett said, adding that some inflation is appropriate right now.

“We are doing things now that are potentially very inflationary,” he said. Buffett called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needs a commander-in-chief. “Patriotic Americans will realize this is a war,” he said.

Source: Bloomberg

Source: money.cnn.com

The nation’s economic slide during the last three months of 2008 was even sharper than previously estimated, with the broadest gauge of economic activity suffering its worst decline in 26 years, the government reported Thursday.

Gross domestic product, which measures the output of goods and services produced in the United States, fell at an annual rate of 6.2% in the fourth quarter, adjusted for inflation, according to a preliminary report from the Bureau of Economic Analysis.

The decline was worse than the 3.8% drop that the BEA reported in last month’s “advance” reading on fourth-quarter GDP. It was the largest drop in GDP since the first quarter of 1982, when the economy suffered a 6.4% decline.

The reading was also much worse than the 5.4% decline economists surveyed Briefing.com had expected.

“Things are just terrible out there,” said Gus Faucher, director of macroeconomics at Moody’s economy.com.

After a 0.5% decline in the third quarter, a 6.2% contraction reflects how severe the economic downturn was at the end of last year, and highlights concerns about the economy going forward.

Full Story

Technorati Tags: GDP

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.

Full Story

Technorati Tags: unemployment, inflation, 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.

Full Story

Technorati Tags: debt, inflation, depression

Source: The Associated Press

A nationally televised meeting between Iceland’s prime minister and other political leaders was forced off the air Wednesday night when angry protesters disrupted the broadcast.

For more than two decades, the leaders of Iceland’s political parties have met every New Year’s Eve over champagne and spiced herring to talk about the year ahead on Iceland’s Channel 2 television.

But this year’s show with Prime Minister Geir Haarde was cut short 45 minutes into the program when a torch-wielding crowd stormed Reykjavik’s Hotel Borg in an attempt to get to the studio.

Protesters inside and outside the hotel clashed with police, who fired pepper spray to disperse the 500-strong crowd. Some demonstrators threw water balloons, while others tossed firecrackers.

At one point, the broadcaster’s television cables caught fire, interrupting the live broadcast. The program cut to commercials, followed by an announcement that Channel 2’s equipment had been damaged and the show would be suspended.

Outside the hotel, a policeman hit on the head with a brick had to be hospitalized. Three protesters were arrested.

The disruption was the latest in a series of demonstrations that have rocked Iceland since the country’s economy imploded this fall under a mammoth load of bad debt. Unemployment has increased and inflation has soared.

Demonstrations have been largely peaceful — some protesters were reportedly invited in for coffee when they showed up at President Olafur Grimsson’s home earlier this month.

But other events have been violent. Icelandic authorities used tear gas for the first time since 1949 when a huge crowd tried to storm a police station in Reykjavik in November, and on Dec. 18, protesters smashed the windows of the country’s financial watchdog agency.

Technorati Tags: Iceland, riots, protests, demonstrations, inflation

Source: Reuters

The “nasty” U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said.

Additionally, a sustained retreat in prices for goods and services is a very real possibility that would further drag on the economy, according to the forecasting unit’s report.

“Where only last quarter we were worried about inflation, we are now worried about its very rare opposite: deflation,” the report said. Falling prices would cut demand and discourage employers from hiring.

“The record collapse in oil prices has brought with it welcome relief to motorists throughout the country and an effective tax cut of $440 billion in the form of a lower oil import bill,” the closely-watched report said. “Nevertheless the swift fall in oil prices is now lowering the absolute level of consumer prices and bringing with it likely declines in nominal GDP over the next three quarters.”

Where the forecasting unit in summer had projected a “subprime” outlook for the U.S. economy through the end of next year with growth at just above 1 percent, it now sees the economy facing a winter of discontent.

“The news from the economy is bad,” the report said. “The recession that we had previously hoped to avoid is now with us in full gale force.”

Full Story

Technorati Tags: recession, unemployment

Source: CNN.com

2008- An unusually destructive hurricane season

The 2008 Atlantic hurricane season ended Sunday, marking the finish of one of the busiest and costliest hurricane seasons ever.

The damage caused by this year’s Atlantic hurricanes is estimated at $54 billion, according to the National Climatic Data Center. That’s second in recorded history only to 2005, the year Hurricanes Katrina and Rita devastated the Gulf Coast. The total that year was an estimated $128 billion.

Government studies have noted that, when adjusted for inflation and other factors such as population density in coastal areas, some hurricane seasons from early last century could be seen as more expensive.

Still, the huge financial impact of this year’s storms took their toll on an already-struggling economy.

It was the fourth busiest Atlantic hurricane year since 1944. The National Climatic Data Center said 2008 is “the only year on record in which a major hurricane existed in every month from July through November in the north Atlantic.”

Full Story

Technorati Tags: hurricanes