Obama Planning "Big Bang" Economic Intervention

This is very scary. FT reports:

US President-elect Barack Obama intends to push a comprehensive programme of social and economic reform beyond an immediate emergency stimulus package, Rahm Emanuel, the next White House chief of staff, indicated on Sunday.

Mr Emanuel brushed aside concerns that an Obama administration would risk taking on too much when it takes office in January. He said Mr Obama saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.

Tackling the meltdown would not entail delays in plans for far-reaching energy, healthcare and education reforms when all three were also in crisis, he said. “These are crises you can no longer afford to postpone [addressing].”...

Sunday’s comments also reinforce the impression that Mr Obama’s transition economic advisory board – which includes leading lights of the Clinton era, such as Lawrence Summers and Robert Rubin – is tilting heavily towards a “big bang” approach that would combine a short-term stimulus with large public investments to raise the longer-term US growth rate..

In contrast to 1992, when Mr Clinton postponed longer-term investments in favour of urgent budget deficit reduction, advisers to Mr Obama, including Mr Summers, who is tipped by some as his first Treasury secretary, are tilting towards investments. They emphasise that Mr Obama will stick to a medium-term goal of restoring fiscal discipline.

Since basic economics teaches that none of Obama's healthcare, energy and energy interventions will work, Obama is about to further muck up three key areas of the economy.

As for the calling an expanded government bureaucracy "investment", and then calling for "large scale investments", I wonder just how much of a private economy will be left.

Nothing comes for free. Again there is little to no talk about how these "investments" will be paid for. If Obama thinks he his just going to borrow the money and expand the deficit, he is counting on the Asians to be saps and buy the paper. Note to Obama, Asia is trying to figure out how to offload US paper.

Thus, it appears that in the first 100 days, Obama plans to muck up as many sectors of the economy as he can. He will crowd out the private sector with new government borrowing. This will result in much higher interest rates, higher inflation and a resumption of the collapse of the dollar.

Dell Sees Further Signs of Weak Tech Spending

Dell's customers are cutting back further on technology spending, the company said Tuesday.

"The company is seeing further softening in global end-user demand in the current quarter," it said.

-EPJ Newsdesk

Unemployment Rate Rises to 6.1%

The unemployment rate rose from 5.7 to 6.1 percent in August, and non- farm payroll employment continued to trend down (-84,000), according to the Labor Department.

In August, employment fell in manufacturing and employment services, while mining and
health care continued to add jobs. Average hourly earnings rose by 7 cents,
or 0.4 percent, over the month.

Over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points, with most of the increase occurring over the past 4 months. Which happens to coincide with the period of Fed slowing of the money supply.

The job losses in August came in every sector, with manufacturing and business services the hardest hit.

In August, the unemployment rates for adult men (5.6 percent), adult women
(5.3 percent), whites (5.4 percent), blacks (10.6 percent), and Hispanics
(8.0 percent) rose, while the jobless rate for teenagers was little changed
at 18.9 percent. The unemployment rate for Asians was 4.4 percent in August,
not seasonally adjusted.

Conclusion: If the Fed continues its tight money policy, the unemployment number is lkely to continue to climb, perhaps to double digit levels.

Crashing Money Supply Numbers Signal Depression

It is now clear that Ben Bernanke has no clue as to how to control the money supply.

We have been commenting in recent weeks regarding the slowdown in money supply. It has been growing at approximately 2.5% (M2SA) over the last three months on an annualized basis, earlier this year it was growing at double digit rates. This is a dramatic downturn. The numbers out yesterday show no end to the money growth slowdown, in fact, three month annualized growth (M2SA) has dipped further to 2.2.%.

While there is a lot to be said for a no growth money supply that results in a recession to clear the system, the Fed doesn't believe this and neither does Bernanke. They are eternal money pumpers, who consistently want to prop up the economy and never have a recession. Thus, it is truly bizarre that they would allow money growth to collapse. They simply have their eye on the wrong ball. They are watching the Fed Funds rate and believe they are providing huge amounts of liquidity to the system because of the 2.0% Fed Funds target. But the fact that money supply at this target rate is not climbing suggests that the real interest rates must be lower.

Indeed, the actions of M1 suggest this is exactly the case. Since what is climbing is M1. Three month annualized M1SA is growing at 5.8%. And what is exploding is demand deposit money (a part of M1). Three month annualized demand deposits are growing at 9.5%. This suggests there is huge fear in the system, and depositors prefer keeping their money in demand deposits as opposed to M2 components such as saving accounts and retail money market funds, which are displaying no growth. Clearly, this situation tells you that depositors prefer what they perceive is safety over yield.

Only a much lower interest rate would reverse the current situation, or perhaps non-sterilized loans and purchases of bank collateral provided by those using the Term Auction Facility. If this isn't done soon then the economy and stock market will worsen by leaps and bounds, including a major eye opening stock market crash.

Q2 Growth Revised Upward to 3.3 Percent

The U.S. GDP grew at a solid 3.3 percent annual rate in the second quarter. This strong number won't last if the Fed keeps money growth in the 2.5% range.

GDP grew at a sluggish 0.9 percent rate in the first quarter after a 0.2 percent contraction in the final three months of 2007. The fourth quarter of last year was the weakest since July-September 2001, when the economy was in recession.

Bankruptcy Filings Surge 29%

Bankruptcy filings surged 29% in the 12 months that ended June 30, according to government figures released today.

Total filings rose to 967,831 from 751,056 a year earlier.

Business filings jumped more than 41% to 33,822 from 23,889 in the year-ago period. Personal filings totaled 934,009, up 28% from last year.

The data also showed that filings for Chapter 7 rose 36% to 615,748 in the 12 months that ended June 30.

Chapter 13 filings, which requires debtors to pay back their debts over time, rose 17% to 344,421 from 294,693 a year earlier.

Filings for Chapter 11 bankruptcy, which is designed for corporations or partnerships, rose more than 30% to 7,293.

Money Supply Watch: Moving Closer to Recession

After growng at near double digit rates, Fed money supply growth over recent months has slowed dramatically. Three month annualized M2NSA money growth is at 2.8%. If money growth remains this low we will be in a recession in no time.

How Are Interest Rates Going Down, While Money Supply Isn't Expanding?

Money market funds, the short-term cash alternatives, grew to $2.9 trillion in June, up from $2.1 trillion a year ago, according to Crane Data. Further, those funds, in turn, have more than tripled their holdings of Treasuries and other government debt while reducing the share of their portfolios invested in somewhat riskier corporate notes, according to Vikas Bajaj .

Felix Salmon notes:

Money-market funds have gone up by eight hundred billion dollars over the past year? Yikes. To put this in perspective, the total amount of Treasury bills outstanding, according to the most recent schedule of Federal debt, is $1.13 trillion. If the money-market funds are massively overweight Treasury bills, there can't be very many left over for anybody else.

Bernanke is in kind of a Catch-22 here. Because of the fear in the markets, the real short-term rates for safe paper are below the Fed Funds rate. Thus banks do no money borrowing from the Fed to put the money in T-Bills, since it is currently unprofitable. Thus, no money supply growth. At the same time, the lack of money supply growth weakens the economy even further, creating even more fear in the markets and pushing T-Bill rates even lower.

What Recession? Part 2

New orders at U.S. factories increased by 1.7 percent in June, according to the Commerce Department.

Further, factory orders in May were revised higher to show a 0.9 percent rise, previously reported as a 0.6 percent advance.

Orders for nondurable goods were up 2.5 percent in June. Non-defense capital goods orders excluding aircraft, viewed as a good proxy for business investment, rose 1.2 percent in June. Durable goods orders for costlier items meant to last three years or longer like washing machines and refrigerators rose 0.8 percent.

U.S. June Durable Goods Orders Up 0.8%

It continues to be a housing and banking crisis, not a full fledged recession.

Orders for U.S.-made durable goods surged in June, rising 0.8% on stronger demand for primary metals, machinery and electronics, the Commerce Department reported Friday. Excluding the 2.6% decrease in transportation goods, orders rose 2.0%, the sharpest gain since last December.

What happens from here will depend on Federal Reserve monetary policy. If the Fed adopts the stance of double digit money printing, as they did earlier this year, the economy will turn strong and inflation will soar. If the Fed continues on its no growth policy of the last two months, we are headed towards a depression.