Barack Obama’s home state of Illinois is near the point of fiscal disintegration. “The state is in utter crisis,” said Representative Suzie Bassi. “We are next to bankruptcy. We have a $13bn hole in a $28bn budget.”

The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. “It’s a catastrophe”, said the Schools Superintedent.

In Alexander County, the sheriff’s patrol cars have been repossessed; three-quarters of his officers are laid off; the local prison has refused to take county inmates until debts are paid.

Florida, Arizona, Michigan, New Jersey, Pennsylvania and New York are all facing crises. California has cut teachers salaries by 5pc, and imposed a 5pc levy on pension fees.

The Economic Policy Institute says states face a shortfall of $156bn in fiscal 2010. Most are banned by law from running deficits, so they must retrench. Washington has provided $68bn in federal aid, but that depletes the Obama stimulus package.

Source/Full Story: Don’t go wobbly on us now, Ben Bernanke – Telegraph

The U.S. housing bust and auto sector upheaval have left hundreds of thousands of workers looking for jobs in the same sectors, in the same places, and at the same time.

Some of these jobs won’t come back even after the recession ends because Americans are unlikely to buy as many new homes or cars as they did at the peak of the easy-money days.

The result is that it may be several years before the United States returns to full employment — and even then the jobless rate may not get back to the low 4.9 percent level where it stood when the recession began in December 2007.

“I don’t think we’re going back there any time soon,” said James Galbraith, an economist who teaches at the University of Texas’ LBJ School of Public Affairs. He thinks unemployment may stay “close to 10 percent for quite a long time.”

Persistently high unemployment would be problematic for President Barack Obama, who has made creating or saving jobs the measure of success for a $787 billion stimulus package.

It would also complicate policy for the Federal Reserve, the U.S. central bank, which is supposed to promote full employment and keep inflation in check. Eventually, the Fed will want to raise short-term interest rates from their current level near zero, but it will be hard-pressed to do so while the jobless rate remains abnormally high.

Unemployment normally rises in recessions. What makes the current episode worrisome is that the biggest job losses are heavily concentrated, both in terms of sectors and geography.

The worst of the auto sector job cuts are in the U.S. Midwest, and a large portion of the out-of-work home builders are in Florida and California. The areas with low unemployment include low-population states like Wyoming and South Dakota.

This suggests that not only are there too few jobs to go around, but there is also a mismatch between where the workers are and where the jobs are.

Source/Full Story:: Reuters

UN chief Ban Ki-moon warned Thursday that failing to act to halt the global economic crisis could lead to widespread social unrest and failed states, ahead of the G20 crisis summit here.

“What began as a financial crisis has become a global economic crisis,” the UN secretary general wrote in an article in the Guardian newspaper.

“I fear worse to come — a full-blown political crisis defined by growing social unrest, weakened governments and angry publics who have lost all faith in their leaders and their own future.”

He said the global economic downturn affected the poorest countries the most, and noted that in these countries “things fall apart alarmingly fast”.

“Unless we build a worldwide recovery we face a looming catastrophe in human development,” Ban wrote.

World leaders meet in London on Thursday to decide how to tackle the global financial crisis, but are divided on whether to boost the world economy with an injection of capital, or to focus on new rules to prevent another such crisis.

Ban called for a “truly global stimulus” package, and argued that developing countries need one trillion dollars over 2009 and 2010.

He added: “There is a thin line between failing banks and failing countries, and we cross it at our peril.”

Source: AFP

World leaders gathering for Thursday’s G20 summit in London were warned today by the Organisation of Cooperation and Development that the world economy was shrinking much faster than previously thought and that global trade was in freefall.

The Paris-based thinktank also told the British prime minister, Gordon Brown, there was no room for the type of fiscal stimulus that the prime minister had been touting around the world.

“The world economy is in the midst of its deepest and most synchronised recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade,” the OECD said in its latest twice-yearly economic forecasts.

It predicted that in spite of big cuts in interest rates around the world, fiscal stimuli and banking system bailouts, recovery would not come until 2010 at the earliest.

The organisation had warned on Monday that unemployment among its 30 rich nation members was likely to rise by 25m in the current crisis.

Japan and Germany announced big rises in joblessness today: in Germany it rose to 3.5m, its highest since February 2008 and giving a jobless rate of 8.1%, while Japan’s rate reached a three-year high of 4.4%. Japan announced a new fiscal stimulus package as it seeks to pull its economy – a big exporter punished by the slump in world trade – out of a deep recession.
…

The OECD expects global trade volumes to slump by 13% this year. “International trade is in freefall,” it said.
…

Separately, the World Bank forecast that growth in the developing world would slow to just 2.1% this year from 5.8% in 2008.

“Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks but also reducing opportunities available to them, and frustrating their hopes,” said Justin Yifu Lin, the World Bank’s chief economist.

The OECD echoed comments made last week by the Bank of England governor, Mervyn King, when he said Britain’s worsening budget deficit meant the government had little room to cushion the impact of the recession if it turned out to be deeper than expected.

Source: guardian.co.uk

The president of the European Union on Wednesday slammed U.S. plans to spend its way out of recession as “a road to hell.”

Czech Prime Minister Mirek Topolanek, whose country currently holds the rotating EU presidency, told the European Parliament that President Barack Obama’s massive stimulus package and banking bailout “will undermine the liquidity of the global financial market.”

A day after his government collapsed because of a parliamentary vote of no-confidence, Topolanek took the EU presidency on a collision course with Washington over how to deal with the global economic recession.

The blunt comments pushed other European politicians into damage control mode, with some reproaching the Czech leader for his language and others reaffirming their good diplomatic ties with the U.S.

Most European leaders say the focus should be on tighter financial regulation, while the U.S. is pushing for larger economic stimulus plans — but nobody has so far escalated the rhetoric to such strident levels.

Topolanek’s words are the strongest criticism so far from a European leader as the 27-nation bloc bristles from recent U.S. criticism that it is not spending enough to stimulate demand.

They also pave the way for a stormy summit next week in London between leaders of the Group of 20 industrialized countries.

Source: The Associated Press

Source: WLWT Cincinnati

Thousands of Tri-State residents gathered Sunday on Fountain Square in downtown Cincinnati to voice their opposition to government spending bills recently signed by President Barack Obama.

The group called itself the Cincinnati Tea Party, modeled after the Boston Tea Party of 1773.

Many of the demonstrators carried signs with slogans that said “Honk if I’m paying your mortgage” or “Stop spending my allowance.” Some even wore tea bags on their hats to make their point.

Cincinnati police estimated the crowd at 4,000 people. Many who spoke with News 5 Sunday afternoon said they’re angry, including Congresswoman Jean Schmidt.

“I bet there’s 5,000 people here and they’re mad, just as I’m mad. They have a right to be mad at the unbridled spending that’s happening in Washington,” said Schmidt.

Protesters argued that the government shouldn’t be spending money it doesn’t have and they fear taxes and deflation will follow.

“The money you have now will be worth half as much next year, if they keep spending this money. They’ve got to stop spending this money,” said Mike Sparks.

Protestors signed a petition rejecting the stimulus package. Organizers said they planned to gather again on April 15 and march the petition to city hall.

Some U.S. public school districts are turning to mass layoffs of teachers and support staff to ease ballooning deficits in the latest sign of how the recession is hurting ordinary Americans.

The looming layoffs contrast with President Barack Obama’s pledge to improve education in the United States. On Tuesday, Obama proposed lengthening the school year and paying top teachers more. And the $787 billion federal stimulus package includes billions of dollars for schools.

On Friday, the Los Angeles Unified School District — the nation’s second largest — will issue preliminary layoff notices to nearly 9,000 staff members, including teachers.

“The deficit we’re looking at over the next 17 months is just over $700 million, so it’s a significant, devastating cut we need to prepare to balance out this budget,” Megan Reilly, the district’s chief financial officer, said in a telephone interview.

The district’s money woes arise from reduced state funding for local school districts, which rely heavily on California’s general fund for their budgets, she said.

State officials recently closed a $42 billion state budget gap through July 2010 with the help of cuts to education spending from the general fund. California’s revenues have tumbled as the recession and financial crisis worsened.

“We are waiting hopefully and anxiously on federal stimulus dollars,” Reilly said.

An initial $44 billion in federal stimulus money will start flowing to states in 30 to 45 days, U.S. Education Secretary Arne Duncan said on Saturday.

Source: Reuters

Source: FT.com

Stock markets in the US and Europe tumbled on Thursday after Chinese authorities failed to deliver a stimulus package expected by many investors and European central banks slashed interest rates in response to a worsening recession.

The global turmoil combined with continuing concerns about US banks – Citigroup fell below $1 a share at one point – to send the S&P 500 skidding 4 per cent to its lowest level since September 1996. Germany’s Dax lost 5 per cent, France’s Cac 40 fell 4 per cent and the UK’s FTSE 100 dropped 3 per cent.

Asian markets continued the rout on Friday, though losses were less dramatic than in the US. Tokyo’s Nikkei average slid 3.1 per cent and the MSCI index of Asia-Pacific stocks outside Japan was down 0.9 per cent. Australia’s share market fell 1.8 per cent, while South Korea dropped 1.2 per cent.

Markets had rallied on Wednesday on hopes China’s leaders would unveil a stimulus package at the opening of the National People’s Congress. When premier Wen Jiabao failed to announce additional measures beyond the Rmb4,000bn ($585bn) investment plan unveiled in November, investors grew pessimistic.

“We’re unwinding the market’s enthusiasm that was based on a flimsy premise, Chinese fiscal stimulus,” said Jay Mueller, portfolio manager at Wells Capital, who added that US investors were also concerned about Friday’s US employment report.

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U.S. companies, consumers and communities may grow so addicted to government financial help that cutting them off could trigger another recession soon after the current one ends.

Between the U.S. Federal Reserve’s trillions of dollars in lending programs, the $787 billion stimulus package and $700 billion — and counting — in bank bailout funds, no one can accuse officials of soft-pedaling their crisis response.

But there is increasing concern that when the flow of public money subsides — beginning next year when much of that stimulus package is spent — the economy still won’t be strong enough to stand on its own.

"The stuttering attempts to repair the banking and lending mechanisms so far by the new administration suggests that by late 2010, the specter of a second dip into recession will be looming large," said Merrill Lynch economist Sheryl King.

The latest evidence of the government’s ever-changing plans came on Monday when insurer American International Group Inc got its third bailout, each with different terms.

That did nothing to improve confidence on Wall Street, where investors dumped stocks amid fears that the financial crisis was worsening.

The longer it takes to stabilize the financial sector, the more the economy suffers, and that feeds back into bigger loan losses and the need for even more government intervention.

John Silvia, chief economist at Wachovia, said the government’s success so far in shoring up markets and reviving the economy resembled the pattern of police patrols.

"At each corner where a policeman is stationed, we witness a decline in crime," he said. "In every market where the Fed focuses its liquidity facilities," credit conditions improve.

Unfortunately, where there is no direct government support, conditions are grim. Merrill expects unemployment to hit 10 percent by the end of 2009, with house prices losing 10 percent to 15 percent more and the stock market dropping another 20 percent.

That could erase $6.5 trillion off of household wealth, on top of the $12 trillion hit consumers have already taken, Merrill’s King estimated.

Source:   Reuters

Source:  MarketWatch

The House of Representatives approved a sprawling, $787 billion stimulus package backed by President Barack Obama on Friday, handing the new president a key victory on his top economic priority. Obama and Democrats say the bill will create 3.5 million jobs over 2 years. It also contains a $400 tax cut for individuals and billions of dollars in infrastructure spending and assistance to states and the unemployed. The vote was 246 to 183.

Technorati Tags: stimulus package

Source: Reuters

“Today’s grim job numbers underscore the human toll of our economic crisis and add to the overwhelming evidence for getting a recovery package to the president’s desk fast,” said the chairman of the Congressional Joint Economic Committee, Democratic Rep. Carolyn Maloney of New York.

Many private-sector analysts agreed on the need for some action to try to slow the relentless slide in job prospects.

“These are huge, huge declines, said Nigel Gault, director of U.S. economic research for Global Insight in Lexington, Mass. “Hopefully it will concentrate some minds in the Senate so they can come to an agreement (on a stimulus package).”

Stock prices were up strongly in afternoon trade on investor hopes that lawmakers will be jolted into moving forward with stimulus measures, rather than arguing whether tax cuts or spending measures would be the best way to boost activity.

But U.S. Treasury debt securities prices dropped for fear that a wave of government borrowing will be coming to fund any new spending or make up for revenue losses from tax cuts.

Economist Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania, said conditions were clearly worsening and will do so until confidence improves.

“Firms have decided that survival is job one and if that means slashing workers, so be it,” he said, adding that it was critical for Washington to adopt stimulus that creates demand.

U.S. Commissioner of Labor Statistics Keith Hall emphasized the degree the deterioration in labor markets has gathered steam as a U.S. recession wears on.

“January’s sharp drop in employment brings job losses to 3.6 million since the start of the recession in December 2007,” Hall said in a statement, and “about half the decline occurred in the last three months.”

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Technorati Tags: job losses, unemployment

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: 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

Perhaps many of us can rely on “wages” from the government and in exchange we can repair broken roads and maybe paint government buildings, pick up trash along the highway, and construct windmills.  This is similar to what the Germans did when Hitler took office and the people were happy and thankful to have the work.

Source: CNN.com

…During the presidential campaign, Obama proposed a $175 billion stimulus package over a two-year period, but some of his economic advisers have said recently that the package would need to be much larger.

Asked if Obama would scale up the package, given the economic conditions, Obama’s incoming senior adviser, David Axelrod, said he thinks Obama is “going to do what’s necessary.”

“I’m not going to throw a figure out here. What he said is, he wants a plan big enough to deal with the large challenges we face. And I think there’s a growing consensus across the spectrum among economists that we’re going to have to do something big,” Axelrod said Sunday on ABC’s “This Week.”

Obama on Saturday offered an outline of his economic recovery plan to create 2.5 million jobs by 2011, saying American workers will rebuild the nation’s roads and bridges, modernize its schools and create more sources of alternative energy.

Details of the plan are still being worked out by his economic team, Obama said, but he hopes to sign the two-year, nationwide plan shortly after taking office January 20.

Obama noted he will need support from both Democrats and Republicans to pass such a plan, and said he welcomes suggestions from both sides of the aisle…

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Technorati Tags: economic recovery plan