Where is the US economy headed?

Rama, Those loss estimates from the subprime mortgage debacle is still not complete. Most institutions that invested in those instruments still don't know the make up or the degree of losses - yet. Most of that information will probably come later this year, but it's gonna be mostly bad news for those institutions.

Most banks are reacting too slowly to improve their balance sheets. They should have laid off thousands of workers when this debacle was first revealed; and any profit they made during the past couple of years will be wiped off in quick order. They are looking for outside financing by selling a good portion of their companies to foreign money. This trend will continue for the foreseeable future: America is now for sale.

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C I
"America is now for sale."
None dare to invest their wealth to buy the presentday USA.

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The powerful government-run investment funds of Asia and the Middle East -- which have been gobbling up global assets recently -- are hitting new resistance.

Some obstacles are political in nature. But others center on bottom-line questions about whether investments like these are solid business moves.

The latest example: China's government has apparently squashed a multibillion-dollar investment in Citigroup Inc. by state-owned China Development Bank. The move suggests there is discord in Beijing over how best to deploy China's money pile. A few previous China investments like these have fared poorly so far financially.
http://online.wsj.com/article/SB120030610310488191.html

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Citigroup is also in talks with the Government of Singapore Investment Corporation and the Kuwait Investment Authority.

Large investors like Prince Walid bin Talal of Saudi Arabia, who helped rescue Citigroup in the early 1990s, and Capital Research and Management, a money management firm that is the bank's biggest shareholder, are being offered the chance to invest as well to help prevent their current stakes from being severely diluted, but it is unclear whether they will choose to do so. Other investors may also be involved.
http://www.iht.com/articles/2008/01/14/business/citi.php

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How much help do you think this will be for the economy?

http://www.foxnews.com/story/0,2933,298271,00.html

Congressman John Dingell Proposes 50-cent Gas Tax Hike to Fight Global Warming
Thursday, September 27, 2007

Quote:

WASHINGTON ?- Dealing with global warming will be painful, says one of the most powerful Democrats in Congress. To back up his claim he is proposing a recipe many people won't like ?- a 50-cent gasoline tax, a carbon tax and scaling back tax breaks for some home owners.

Quote:

Dingell says he hasn't rule out such a so-called "cap-and-trade" system, either, but that at least for now he wants to float what he believes is a better idea. He will propose for discussion:

?-A 50-cent-a-gallon tax on gasoline and jet fuel, phased in over five years, on top of existing taxes.

?-A tax on carbon, at $50 a ton, released from burning coal, petroleum or natural gas.

?-Phaseout of the interest tax deduction on home mortgages for homes over 3,000 square feet. Owners would keep most of the deduction for homes at the lower end of the scale, but it would be eliminated entirely for homes of 4,200 feet or more.

Gee, this sure looks like it will help the economy, doesnt it.

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Mysteryman
I don't think so. Anyway every doctor has got his own prescription for the dying patient.

"In London, most of the 25 billion pound ($50 billion) capital injection into the quasi-fraudulent housing lender Northern Rock appears to have been lost. Since British house prices have only just begun to decline, and in London at least must have much further to fall than in any comparable region of the US, mortgage losses in the UK market are still hidden well below the surface, with only the tiniest fraction of the iceberg being visible. After all, even a 50% decline in top-end London house prices would still leave them excessive in terms of income levels - it must be remembered that Tokyo housing lost 70% of its value after 1990.

This will not however be the end of the story. Wall Street's woes and those of the City of London are not limited to the mortgage sector. Credit card debt, leveraged buyout debt and emerging market debt all seem likely to leave their imprint on Wall Street's balance sheets. In addition, there is a huge quantity of toxic waste from the derivatives and private equity businesses that is currently infesting Wall Street's balance sheets, and those of London houses."
http://www.atimes.com/atimes/Global_Economy/JA16Dj01.html

"The Fed responded with what the market has interpreted as a promise of aggressive rate cuts, while Bank of America has apparently for now resolved the Countrywide debt issue. Citigroup's stock rallied on rumors of a major new investment from Prince Alwaleed and others. Washington Mutual's stock price rallied sharply on rumors of merger talks with JPMorgan. Countrywide's stock surged as CDS prices collapsed, a dynamic sure to have caused considerable grief to those shorting the stock to hedge against default protection written."

The world is a much different place today. The mortgage finance bubble is a bust, Wall Street finance is imploding, and foreign financial institutions are keen to cut and run from the business of providing US credit. Countrywide's mortgage problems will be absorbed - along with so many other risks - by our own highly vulnerable domestic banking system. Worse yet, the economy is quickly succumbing to recessionary forces. With a high degree of confidence we can proclaim that the Mortgage Crisis has now evolved into a Corporate Debt Crisis - and this crisis will not be resolved anytime soon - by rates, by helicopters, or by bailouts."
http://www.atimes.com/atimes/Global_Economy/JA15Dj01.html

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mysteryman wrote:

How much help do you think this will be for the economy?

http://www.foxnews.com/story/0,2933,298271,00.html

Congressman John Dingell Proposes 50-cent Gas Tax Hike to Fight Global Warming
Thursday, September 27, 2007

Quote:
WASHINGTON ?- Dealing with global warming will be painful, says one of the most powerful Democrats in Congress. To back up his claim he is proposing a recipe many people won't like ?- a 50-cent gasoline tax, a carbon tax and scaling back tax breaks for some home owners.

Quote:
Dingell says he hasn't rule out such a so-called "cap-and-trade" system, either, but that at least for now he wants to float what he believes is a better idea. He will propose for discussion:

?-A 50-cent-a-gallon tax on gasoline and jet fuel, phased in over five years, on top of existing taxes.

?-A tax on carbon, at $50 a ton, released from burning coal, petroleum or natural gas.

?-Phaseout of the interest tax deduction on home mortgages for homes over 3,000 square feet. Owners would keep most of the deduction for homes at the lower end of the scale, but it would be eliminated entirely for homes of 4,200 feet or more.

Gee, this sure looks like it will help the economy, doesnt it.

It will be great MM.....it will force companies to develop new techonlogy, create new jobs, and continue to push America as the leader in new technology.

Sure, I won't be able to buy a $2.50 case of anything at Walmart anymore (it might be $2.55), but AMERICA will be for the better.

Did the economy suddenly stop when the price of gas TRIPLED over the last 8 years? What's a measily 16% increase when we just went through a 300% increase?

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And I'm still wondering why Republicans are called "conservatives"......the last thing they do is conserve anything.

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The biggest contradiction is the conservative support for Bush; the biggest spender in the history of our country.

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The biggest contradiction is the conservative support for Bush; the biggest spender in the history of our country.

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Mysteryman: the Fox report on Dingell's 50 cent gas/gallon tax increase would be to help fight global change. It follows a story I saw (but I can't remember where) about some supposedly independent commission's report suggesting a 40 cent increase to fund the upgrading of the highway infrastructure. i.e. bridges falling down.

Yes, the economic impact would be significant. My question is whether the use of the funds is a factor.

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As rebukes go in the close-knit world of central banking, few hurt as much as the scathing indictment of US Federal Reserve policy by Professor Anna Schwartz.

The high priestess of US monetarism -- a revered figure at the Fed -- says the central bank is itself the chief cause of the credit bubble and now seems stunned as the consequences of its own actions engulf the financial system.

"The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.

"They need to speak frankly to the market and acknowledge how bad the problems are, and acknowledge their own failures in letting this happen. This is what is needed to restore confidence," she told The Sunday Telegraph.

"There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says.

Schwartz remains defiantly lucid at 92. She still works every day at the National Bureau of Economic Research in New York, where she has toiled since 1941.
http://www.gata.org/node/5926

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Many looked on Greenspan as a god; I looked at him as a demi-god who failed to see the financial crisis looming ahead.

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Moreover, the stresses in the economy are now spreading to credit card companies. Capital One missed its 2007 earnings estimate by 20% amid increasing defaults, and raised its reserves substantially. Today American Express lowered its 2008 outlook, citing slower spending and more missed payments on credit cards as a result of the housing weakness spreading to other sectors of the economy.

With the news continuing to worsen, it will not be long before a recession is universally acknowledged and market attitudes change to "concern" and eventually to "capitulation". While the Fed will undoubtedly cut rates significantly and the Administration will attempt to initiate stimulative measures, the recession and falling earnings estimates are likely to play out as they always do. While the downturn is likely to be interspersed with misleading rallies, at some point investors will capitulate and the market will bottom. At present, though, we believe the bear market is only in its early stages.
http://www.comstockfunds.com/index.cfm?act=Newsletter.cfm&CFID=29697404&CFTOKEN=14628848&category=Market%20Commentary&newsletterid=1348&menugroup=Home

The unsettling zeitgeist of state capitalism

By Jeffrey Garten

Published: January 14 2008 19:45 | Last updated: January 14 2008 19:45

How can it be that Merrill Lynch, Citigroup, Morgan Stanley, Bear Stearns, UBS and other big banks have been turning to foreign governments for financial lifelines with so little public controversy? Perhaps it is because the dangerous broader context of what is happening – the rise of “state capitalism” – is not sufficiently recognised. Indeed, the reality may be that the era of free markets unleashed by Margaret Thatcher and reinforced by Ronald Reagan in the 1980s is fading away. In place of deregulation and privatisation are government efforts to reassert control over their economies and to use this to enhance their global influence. It is an ill wind that blows.
http://www.ft.com/cms/s/0/f0f2a32e-c2d6-11dc-b617-0000779fd2ac.html

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this seems to be the PANDORA'S BOX of the U.S. financial system !

Quote:

According to the myth, Pandora opened a container jar (commonly referred to as Pandora's box) releasing all the evils of mankind?- greed, vanity, slander, envy, pining?- leaving only hope inside once she had closed it again.

so let's hope !

Quote:

Black boxes full of bad debt

ROMA LUCIW

Globe and Mail Update

January 15, 2008 at 2:54 PM EST

Investors are getting a taste of how just how badly the financial sector has been stung by the collapse of the U.S. mortgage industry, something analysts have been struggling in vain to nail down.

Richard Bove, an analyst with Punk Ziegel & Co. in Florida, said trying to ascertain the scope of the writedowns ?- and losses ?- facing the banks is impossible.

"It is impossible for an outsider to get any control or understanding of what these writedowns are going to be. You are dealing with blind pools [of structured debt] which operate in black boxes," he said in an interview. "All we can do is take our Excel spread sheets and throw a dart."

Forecasting earnings is likewise extremely difficult, Mr. Bove said. "Everyone who thinks they know with any precision what any of these earnings are going to be is just kidding themselves. It would just be a guesstimate."

Citigroup Inc. kicked things off on Tuesday, writing down a stunning $18.1-billion (U.S.) linked to subprime-related loans. The largest U.S. bank by assets unveiled a fourth-quarter loss of $9.83-billion or $1.99 a share ?- the biggest in its 196-year history ?- that was roughly double analyst consensus expectations for a loss of 97 cents a share.

Citigroup also slashed its dividend by 41 per cent, cut 4,200 jobs and said it has lined up $12.5-billion in new investments from sovereign wealth funds and existing shareholders.

Meanwhile, Merrill Lynch & Co. Inc., which is slated to release earnings on Thursday, raised another $6.6-billion to deal with its own credit woes.

The U.S. developments come one day after Canadian Imperial Bank of Commerce undertook a $2.75-billion (Canadian) stock offering that will help it cope with about $3.4-billion (U.S.) in pretax writedowns for its exposure to U.S. subprime loans.

Gerry Brockelsby, partner and chief investment officer at Marquest Asset Management Inc. in Toronto, said the uncertainty surrounding the financial sector has been weighing on equities since August.

"The markets hate the unknown and it is the fear of the unknown that the market has been dealing with for months," he said. "All the market really needs is the news, whether it is the good, bad or the ugly. Once it has the news, it can discount it and build that into its pricing."

The current steps financial institutions are taking are "all part and parcel of righting the wrongs," Mr. Brockelsby said. "The pain has got to be evenly spread so investors are being hit with a reduction in the dividend, like in the case of Citigroup, and they are being diluted with equity, like in the case of CIBC."

Nevertheless, the banking woes are far from over, Mr. Brockelsby said: "The fallout is simultaneously happening in the U.S. and in Canada ?- Commerce is our Citigroup."

The U.S. banking woes are not confined to Citigroup. Merill Lynch is expected to post a loss of $3.32-billion on Thursday, wider than the $2.24-billion loss it reported in the third quarter. The investment bank will post a writedown of as much as $15-billion from soured investments, almost double its original estimate, according to a report published last week in the New York Times.

Merrill, which said Tuesday it reached agreements with three foreign investment funds to raise $6.6-billion, replaced CEO Stan O'Neal with John Thain in December.

Mr. Bove said he is not surprised that the forecasts for Merrill's writedown have doubled and tripled in recent weeks. "What you do know is that Thain has an enormous incentive to make this number as big as possible," he said.

Mr. Thain will write down as much as possible for three reasons, Mr. Bove said: In order to make Mr. O'Neal look bad, to ensure he does not have to deal with further problems in 2008 and in order for next year's earnings to look stellar when compared with the excessive problems of this year.

"My guess is that he will write off more than needs to be written off," he said.

source :
WHAT'S IN THE BLACK BOXES ?

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hbg, This statement, "Richard Bove, an analyst with Punk Ziegel & Co. in Florida, said trying to ascertain the scope of the writedowns ?- and losses ?- facing the banks is impossible" is precisely what our economy is facing; a money crisis never seen in the history of the US. There are no more money in home equities, consumers are drowning in debt, and their pay has not kept up with their lifestyles or living expenses. They borrowed and borrowed until they have now hit a cement wall that cannot be penetrated. No more money, no more credit, and the banks are now writing off billions in bad mortgage and credit card loans.

The beginning of the end.

Some pundits are saying that the banks will recover from this debacle by the end of this summer, because foreigners will inject some badly needed cash; they all have their heads in the sand.

Call me a pessimist.

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cicerone imposter wrote:

Call me a pessimist.

I have been for a long time, ci.

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Michigan is clearly no poster child for a vibrant US economy, and yet when polled (within the last 48 hours) about 80% of respondents said their economic situations were getting better or remain steady.

When these folks were asked what they thought the economic situations of their neighbors were, a plurality responded that their neighbors were worse off than before.

Similar polling results can be found throughout the country.

How to explain?

I'm sure there is more than one explanation, but I am also sure that the main reason is that these folks have been bombarded by a liberal biased media's message that the economy is bad.

So the average Joe looks to his own economic situation and says "I'm doing OK," but since the media is constantly telling him the economy is going to hell in a handbasket he figures, "I must be the exception. My poor neighbors are taking it in the shorts."

Unfortunately, the message of a bad economy is now also being spread by some greedy bastards on Wall Street who stand to gain big from reduced interest rates.

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FinndA wrote: I'm sure there is more than one explanation, but I am also sure that the main reason is that these folks have been bombarded by a liberal biased media's message that the economy is bad.

It's not the "liberal biased media's message" when seven million more Americans are without health insurance, more middle-class families have fallen into poverty, their source of money (credit card debt) has dried up, and their home value is dropping for most. You don't need to read the media to know what's happening to our economy.

FYI, Michigan has the highest unemployment rate in the nation. That some still feels that their situation is getting better or remain steady doesn't help those without jobs. Banks will be laying off by the thousands very soon; and they're not going to find replacement jobs when they are jobless. That's the reality; no polls need be taken.

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Good point, Finn. I am tired of pessimists. One of the reasons America loved Ronald Reagan was he was an optimist and beleived in the country and its citizens. I am sick and tired of the Dems telling us how bad off we all are and telling us we can't do diddly without Washington.

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Where is the US economy headed?

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