Depression in the USA - Deflation verus Inflation

[tricha]

US sees job cuts as economy cools

Jobs have been cut in many industries

The US has seen the first decline in employment since August 2003, providing fresh evidence that the US economy could be entering a recession.
Employers cut 17,000 jobs from their payrolls in January, Labor Department figures showed. Economists had been expecting a rise of 80,000.
The US economy has slowed sharply in recent months as a housing market slump has dented consumer spending.
US interest rates have been cut twice in nine days to boost growth.
"Serious signs"
In a speech in Kansas on Friday, President George Bush acknowledged that the US economy was going through a rough patch and urged lawmakers in Washington to pass an economic stimulus package.
"Inflation's low. Productivity's high, but there are certainly some troubling signs, serious signs that the economy is weakening and that we've got to do something about it," Mr Bush said.
US Congress and the Bush Administration have agreed an economic stimulus package which would add $150bn in tax rebates.
The measure has already been passed by the House of Representatives but is still awaiting Senate approval.
Recession mode
The job losses were across all sectors of the economy including manufacturing and professional services.
"The economy is in recession mode," said Peter Morici, an economist at the University of Maryland.
The unemployment rate fell to 4.9% from 5% in December, a two-year high, but overall the number of people in the labour force declined.
We should expect to see more bad news on the labour market


Nigel Gault, Global Insight


The Federal Reserve cut interest rates to 3% from 3.5% on Wednesday.
It followed an emergency unscheduled cut last week, when the Fed slashed the cost of borrowing by the largest amount in 25 years to prevent the economy from slowing further. "We should expect to see more bad news on the labour market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in," said Nigel Gault, an economist at Global Insight.

[Kookaburra]

I can only see the future of the US being a recession and as I do hold to the decoupling theory as it applies to sentiment I feel strongly that world share-markets have a long way to drop yet. Of course there will be bounces on the way down, like this week, but that is the normal course of a bear market. Apart from holding a token in gold stocks I will remain fully out of the market for some time yet. Each of your postings only serves to confirm my bearish sentiment.

[tricha]

I can only see the future of the US being a recession and as I do hold to the decoupling theory as it applies to sentiment I feel strongly that world share-markets have a long way to drop yet. Of course there will be bounces on the way down, like this week, but that is the normal course of a bear market. Apart from holding a token in gold stocks I will remain fully out of the market for some time yet. Each of your postings only serves to confirm my bearish sentiment.

Probably a wise move Kookaburra


US economy concerns knock shares

US service sector data has triggered the latest fall in share prices

World stock markets have declined on renewed fears about the health of the US, the world's largest economy.
Wall Street opened sharply lower after data showed that activity in the key US service sector contracted for the first time in nearly five years in January.
The US data raised fears that problems in housing and financial markets have spread to the wider economy.
European shares also dropped on the news as concerns that a US slowdown, would be felt globally.
The US benchmark Dow Jones average fell 1.76%, or 222.65 points, to 12,412.51 in morning trade.
The tech-heavy Nasdaq index slid 1.27%, or 30.21 points, to 2,352.64.
The Institute of Supply Management's index of business activity in the non-manufacturing sector slid to 41.9 from a 54.4 reading in December. Economists had forecast a milder decrease to 53.0. London's FTSE was down 2.09% at 5,900.2, Germany's Dax lost 2.73% to trade at 6,809.68 and France's Cac 40 fell 2.96% to 4,826.41.

[tricha]

My personal view on this recession is the price of oil will be the key to the severity of it all.
Do you think twice now, when you fill your car up about where you are going to go. All that gas money that could has been spent on something else



How much oil does the US import ?????????????????

.................................................. ................................................

I'm guessing at 15,000,000 barrels a day x it by $30 = $450,000,000

Try it again at $60 a barrel = $900,000,000

Try it again at $90 a barrel = $1,350,000,000

Try it at $150 a barrel = $2,250,000,000


The big picture is quite scary.

[stevo1]

They are big scary numbers.About two and a half years ago i found that my calculator could no longer compute various calculations because it wouldnt hold enough noughts.Think the rate of inflation was 1 to 3% world wide and generally still is(various governments world wide have manipulated the way they calculate cpi) .In effect the true measure of inflation is in oil gold property and other tangabiles and the way they have increased in price reflects governments' failure with their jiggery pokery and the debasement of peoples wealth(and propensity to save)by using fiat currencies and artificially low interest rates.So my guess would have been in the past a hua of a recession(prior to the emergence of the BRIC economies it would be a certainty)what is happening at the moment is the US fed throwing a lot more US pesos on the inflation fire in an attempt to stave off recession.I think the west has largely got away with this illusion in the past because of the cheap "stuff" coming out of China,(somewhat deflationary?apparently so .Allowing more disposable income to go into sharemarkets and housing,consumption etc) cheap money,easy credit and a wiiling consumer base.,The Chinese now are starting to export inflation and with Brazil Russia India China now wanting(needing) oil iron base metals and other tangabiles to continue into their capitalist culture these may continue upwards in price.Anyway i am even starting to bore myself with this .The "price of oil " may be the key to the severity of it but may more so be a measure of past (and possibly future) inflation and the price of it could be a direct indicator of recession or/and inflation.

[tricha]

Stevo1 -"The "price of oil " may be the key to the severity of it but may more so be a measure of past (and possibly future) inflation and the price of it could be a direct indicator of recession or/and inflation."

Thats the trouble BRIC want their share and there is not enough to go around.

Is the US recession contagious


Fresh worries on Japanese economy

Worries persist that Japan will be dragged down by problems in the US

Machinery orders by Japanese firms fell in 2007 for the first time in five years, government figures have shown.
Core private-sector machine orders - seen as a key indicator of corporate investment - were down by 4% from 2006.
The decline came after orders slipped 3.2% in December from the previous month, after a 2.8% drop in November.
The figures will add on fears Japanese firms are curtailing spending amid a US economic slowdown, and the data sent the Nikkei stock index down 1.44%.
There have been persistent concerns about whether Japan's fragile economic recovery will be able to withstand a sharp slowdown in growth in the US, its main export market.
"A slowdown in exports, which had led Japan's economy for the past five years, is now inevitable," said Naoki Murakami, senior economist at Goldman Sachs.
The Bank of Japan kept interest rates steady at 0.5% at its last meeting and some analysts are now predicting that the next move could be a cut - a dramatic change of tone from just a few months ago.
The economics minister, Hiroko Ota, said the government was keeping a keen eye on economic developments, but that orders were expected to pick up over the January to March period. She added: "We need not be overly pessimistic about the current state of machinery orders." The negative data hurt shares in Japan's construction equipment makers and sent the benchmark Nikkei 225 index down 1.44%, to close at 13,017.24.

[tricha]

Bargaining with
the Bear
London, England - Melbourne, Australia
Monday, 11 February 2008
In This Issue:Bargaining with the Bear…

Liquidation underway…

Commodities hit a new all-time high...

----------------------------------

From Dan Denning at the Old Hat Factory:

--Relentless. That's what this bear market in credit is. It won't quit.

--First it was subprime loans. Then Alt-A. It will probably include securitized credit card receivables before it's over. Now, we have trouble in the European junk bond market and rumblings in the corporate bond market. And at long last, liquidation in the CDO market.

--"The European high-yield bond market remains frozen, as spreads at the widest levels in nearly five years fail to draw investors worried that prices may fall further due to the global credit turmoil," reports Natalie Harrison for Reuters. The great unwinding of leverage may be about to hit another gear.

--"Unwinding of synthetic CDOs - which reference CDS contracts - is thought to be behind some of the rapid spread-widening on credit indices on Friday," reports Sam Jones at the Financial Times.

--It gets tricky here. But the basic explanation for Friday's action is that to shut down a CDO you have to buy protection in the credit default swap market. Like any market, higher demand usually leads to higher prices. The unwinding of CDOs will mean higher prices for credit default risk, and big losses on CDOs.

--DABDA. Denial, anger, bargaining, acceptance, depression, acceptance.

--Those are the stages of grief according to Elizabeth Kubler-Ross in her book, "On Death and Dying." This bull market in financial engineering and credit is either dead or dying. But you can see that various market participants are at different stages in the grieving process.

--Ben Bernanke is somewhere between denial and bargaining. He knows there's a problem, but he would like to bargain with the Bear. "Let me cut rates to help home owners. You can have your pound of flesh from savers if you'd like. But please Bear, be reasonable."

--The Bear is not reasonable, but he is thoughtful. He wants you to believe he can be reasoned with. That way he can swipe you one paw at a time at his own leisurely pace. If you run, it makes his job harder. He wants you to sit and be still. It's easier to eat a stationary target.

--Jean Claude Trichet is also bargaining. Until recently, the European Central Bank has been a rock in the fight against inflation. It has not cut rates to "stimulate" or promote growth. But the credit Bear even has Trichet spooked. He has sat down to offer the Bear some easy-money honey.

--"Uncertainty about the prospects for economic growth is unusually high," Trichet told reporters last week. "We have had a reappraisal of risk in financial markets which triggered unusually high uncertainty, so the risks are on the downside from that standpoint."

--Trichet used the word "growth" and not "inflation" suggesting every so subtly that the bias at his bank is to cut European interest rates to ignite "growth." This prompted a bout of U.S. dollar strength last week which could continue.

--How very strange. Just last week, the U.S. Treasury had trouble auctioning $9 billion in thirty-year bonds. The market seemed to tell Uncle Sam, we do not want to lend you money for 30-years at a mediocre interest rate of 4.45%. Yet relatively speaking, the dollar could rally. Why?

--We have no idea. In a world of relative currency movements, it's a constant battle between growth and yield over which determines the market value of a currency. Sometimes investors value higher yields on government debt, believing that makes a government's money strong. Other times, high growth economies are valued.

--Our prediction is that gold and silver will to better than paper money for the next few years, both relatively and absolutely. As Bill says, all paper money eventually finds its intrinsic value.

--For more on silver, see today's essay. Psychologically, precious metals accept the Bear in credit. Indeed, they hug him as safely as one can hug an angry, furry, be-clawed 300-kilo animal. The more he mauls financial assets, the better it ought to be for real assets.

--And be prepared for more mauling of financial assets this week. "There were reports that several large German banks will need capital infusions to complete some upcoming mergers," reports Leslie Wines at the Associated Press. As you can see from the figures below compiled by BNP Paribas, the losses in the global banking sector have already been substantial.

[tricha]

My personal view on this recession is the price of oil will be the key to the severity of it all.
Do you think twice now, when you fill your car up about where you are going to go. All that gas money that could has been spent on something else



How much oil does the US import ?????????????????

.................................................. ................................................

I'm guessing at 15,000,000 barrels a day x it by $30 = $450,000,000

Try it again at $60 a barrel = $900,000,000

Try it again at $90 a barrel = $1,350,000,000

Try it at $150 a barrel = $2,250,000,000


The big picture is quite scary.

Come on folks, the maths http://www.youtube.com/watch?v=F-QA2rkpBSY, lets hear your views on this one posted by Financially Dependent on the Peak Oil Thread.

Who out there is in denial, has their head buried in the sand, the dynamics of the world as we know it has changed.



Peak Oil Passnotes: Knock-Through
By Edward Tapamor
07 Mar 2008 at 02:00 PM GMT-05:00

PARIS (ResourceInvestor.com) -- We have long talked about the various impacts of higher oil and energy costs. The way that inflated energy prices knock-through into other commodities, for example by hiking transportation and extraction costs, is one of them. From commodities they then knock through into your pocket, maybe making you feel poorer, or if you bet on their rise, possibly richer.
Other impacts aside from your personal well-being or otherwise have included the run-up in food prices, also linked to transportation and manufacturing, but also to the way biofuels have been so badly mismanaged. All along we have pointed out that there is a correlation between general all round inflation due to rising energy costs, but with a significant time lag.

In other words we are feeling the impact of energy costs at – for argument’s sake – around the $70 per barrel range we had a year ago. Things like capital goods – big stuff such as plant and factory equipment – takes a good while to manufacture. So the estimated cost of say a smelter will rise as energy prices rise, even if the contract was signed when energy prices were lower.
Either the company that ordered the smelter will be hit as costs are passed on to it, or the manufacturer will be hit as it failed to ink any possible rise into its initial contract.
One of the things that has most worried us has been the possibility that the delays in energy costs knocking through were going to be discounted in the current economic malaise. Banks, energy companies and governments are not organisations that like to talk up a crisis, especially as they are the ones that tend to benefit from business as normal.
They all have a vested interest in pretending the next crisis is never going to happen. After all the banks were not exactly screaming out about the credit crunch. We cannot remember too many chief executives warning off poorer folks with bad credit histories from taking out mortgages on the back of the idea of never ending growth.
So what is perhaps slightly worrying at the moment is the prospect of a weakening U.S. economy, losing jobs faster than expected, with continuing banking and housing defaults, faced in no uncertain terms by oil prices wafting around the $106 per barrel price range.
Because, so far we have seen no inclination by any major economy to think their way out of trouble. Instead the only response to troubled times has been to cut interest rates which as those with memories even as poor as the average goldfish will recall, is exactly what got us in this mess in the first place.
We are always told how much more absorbent modern economies are to high energy costs as they have become more efficient, this is indeed true. But the least efficient and most bloated of all of them – with its industries that should have been bankrupt and foreign owned years ago – is the U.S.
Cutting dollar power so that the U.S. becomes some kind of bargain basement shopping mall for the rest of the world – I mean there is only so many pairs of trainers and flats in Manhattan a boy can have - is not going to be the answer. Many people around the world do want to see a smaller less powerful U.S., but a collapsing one is not something anyone is particularly after.
But what happens if that $106 oil takes 18 months to kick through into the U.S. economy? What will happen then? Who will warn us?

[tobo]

....
Because, so far we have seen no inclination by any major economy to think their way out of trouble. Instead the only response to troubled times has been to cut interest rates which as those with memories even as poor as the average goldfish will recall, is exactly what got us in this mess in the first place.

Putting together points from those last two 'discourses'
- the reliance on private (road) transport by suburbia and the centralised production/distribution system (gosh sounds suprisingly socialist, but I digress),
- and the observation that governments don't seem to have the wit to plan and manage with a strategic long term view:

the free economy means profit orientated carmakers will want to find a way to sell cars that don't need gasoline. "Hey, mister suburbian, electric cars plug in at the wall" (where electricity is provided magically - just as much as you want). That allows them to keep their cars.
And power companies will want to find a way to sell just as much electricity as you want. So they will just turn to the list of ways they can increase supply, rank them by price, and just keep picking the next cheapest they can.

Of course that does not address the issue of demand-lead inflation resulting eventually in so many people just not being able to afford all the increasingly expensive coffee, beef, cheese, vegies, training shoes, heating/air con, transport fuel, mortgage... so in time that distributed suburbia problem could start to bite.
I'm just saying, that, yes, economies don't tend to think their way out of trouble. Rather, individual businesses spot a gap in the supply of some product or service, and market the heck out of it.

It's similar to the global warming debate : we won't have a coordinated orchestrated collapse, but rather, individuals (or individual communities) will just fall off the edge one by one. (And some have been falling off that edge already for ages, and we just say "oh, that's just poor people, on the fringe of the system. That's not what the actual system is.")

[tricha]

Big fall in China's trade surplus

There is much political interest in Chinese trade figures

China's trade surplus unexpectedly fell in February, suggesting the US slowdown is hitting demand for Chinese goods.
China exported $8.6bn (£4.3bn) more than it exported last month, down from $23.7bn in February last year, according to government figures.
But economists warned that February data are very sensitive to the timing of China's lunar new year celebrations.
There was more concern that factory gate prices had risen 6.6% in the year to February.
Factory gate prices measure the amount that manufacturers are paid for their products and is a key indicator of consumer inflation to come.
Premier Wen Jiabao told parliament last week that the battle against inflation is his top economic priority for the year.
"Virtually everything is on the rise - not just fuel, but coal and iron ore," said Jun Ma, chief China economist at Deutsche Bank in Hong Kong. "All these things are growing much stronger than fuel, plus labour costs are going up too." Consumer prices figures are due out on Tuesday.