recession

Fed’s “Beige Book” paints a bleak picture

by Fran Smith on March 4, 2009

in Economy

The “Beige Book” is out, and the news is dismal. This afternoon the Federal Reserve released its summary of economic conditions in the 12 Federal Reserve Districts (see map above). Based on anecdotal information, reports, and interviews with key sources, the report is issued eight times per year.

The key adjectives used to describe recent economic conditions in those districts were “bleak,” “stagnant,” “dismal,” “sluggish,” “slow,” “dropping,” “falling” and other descriptors for a sharp decline in economic activity across almost all areas and sectors of the economy.

One exception was the manufacture of pharmaceuticals and biotechnology products, where there was continued demand. Also, basic food production was stable.

Here’s the report’s opening paragraph:

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies “remained weak.” The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.

Guess it’s encouraging the Fed didn’t change the name to the “Black Book.”

LibertyWeek 31: What in Dodd’s Name?

by Richard Morrison on February 23, 2009

in CEI Projects, Podcast

This week, host Cord Blomquist and co-host William Yeatman, along with guest commentator Ryan Young (Richard Morrison is off this week) take a whiff of the bank nationalizations floating through the air, and say they stink. Sen. Chris Dodd’s dodgy dealings in real estate come under scrutiny. Rep. John Murtha has a few multi-million dollar skeletons hiding in his own, heavily gilded, closet. Climate czar Carol Browner declares war on the economy. While favoring immigration in general, our hosts question the wisdom of “eco-migration.” Finally, we wish double-amputee Olympic hopeful Oscar Pistorius a speedy recovery.

Listen to Episode 31 of the LibertyWeek podcast here.

Gold is King Among Investors

by Silvia Santacruz on February 20, 2009 · 1 comment

in Economy, Energy, International, Odds & Ends, Stimulus to Nowhere

Gold prices are skyrocketing—recently closing at over $1,000 an ounce, the highest in almost a year—while inflation fears continue rising and the dollar weakens.  This is the news that the media is echoing, quoting several analysts.  Many are blaming President Obama’s stimulus package for amplifying investors’ fears that his spending plan will only push the country deeper into recession.

Analysts’ forecasts, nonetheless, are a mixed bag.  Some analysts are calling the gold rush a bubble that can burst, as the dot-com and housing bubbles did, while others believe it can continue upward.

“Currencies are losing value and holders of currencies are losing confidence.  Gold may break through $1,000 and not look back,” says Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey, according to Bloomberg.  Read Gold Tops $1,000, Highest Since March, as Global Equities Slide

On the other hand, Przemyslaw Radomski, editor of Sunshine Profits, warns that Precious Metals and Corresponding Stocks may Fall in a Few Days.

“Since my previous essay on market timing was posted [Feb. 11], gold gained over $100 and silver gained over $2. These levels are substantially higher than when I suggested getting back on the long side of the precious metals market.  This rally has taken gold almost $200 higher within one month, so it is natural for one to expect at least a modest pullback from here,” Radomski said.

But as everything in economics, gold prices in a free market follow the forces of supply and demand.

“In a free market, increasing demand and rising prices provide a significant incentive for producers to increase the supply of an item.  And that’s usually how it works.  But that’s not what is happening in the gold market.  Demand is certainly increasing.  According to the United States Geological Survey, the demand for gold reached 1,133 tons in 2008, an 18% increase from the previous year.  In dollar terms, this represented a 51% increase to an all-time record $31.8 billion, “writes Jon Herring in his article Peak Oil… What About Peak Gold?

Meanwhile, the global supply is limited.  The industry has only discovered one significant deposit in the last 15 years: that of Aurelian Resources—now owned by Kinross Gold Corporation (NYSE:KGC, TSX:K)—with its Fruta del Norte gold-silver discovery in the Cordillera del Condor, in Ecuador, also known as the “gold dinosaur.”  If investors deem gold to be king in this environment, then Ecuador may provide them with their T. Rex.

Skyrocketing gold prices have also ignited the stock values of the four largest gold producers at the time of today’s 4:00 p.m. close.  Newmont Mining Corporation (NYSE:NEM) gained 7.21%, Anglo Gold Ashanti Ltd. (NYSE:AU) was up 6.36%, Barrick Gold Corporation (NYSE:ABX) earned 1.23%, and Gold Fields Ltd. (NYSE:GFI), up 4.46%.

Another factor that can influence gold prices is that most new worldwide discoveries are made by junior exploration companies—those with funded through equity financing, sometimes with less than $50 million—that combined have poured $12.6 billion into global exploration activities in 2008, according to the Metals Economic Group.  42% of this investment was focused on gold discoveries.

More protectionism on the horizon?

by Fran Smith on February 20, 2009

in Economy, International, Trade

Good article today by Bloomberg columnist Michael Sesit, who lays out the protectionist actions many countries are taking in the midst of the worldwide economic slump and warns that accelerated trade protectionism would plunge the world into a depression.

Unless governments get serious about arresting the trend soon, the chatter about 2009 morphing into a replay of the Great Depression will become a self-fulfilling prophesy. The U.S. Smoot-Hawley Tariff Act of 1930 increased duties on more than 20,000 goods, inviting retaliation by other countries. Within two years of the law’s enactment, global trade declined 70 percent.

One of the signs of increased protectionism in the U.S. comes on the tail of the stimulus bill’s “Buy American” provisions, which mandate that public projects funded by the package must use goods, including iron and steel, manufactured in the U.S. Not satisfied with that, now the steel industry wants to protect the rest of its market by increasing tariffs on imported steel. According to today’s Wall Street Journal, expect to see steelmakers file anti-dumping complaints this spring. They’ll have to wait a bit, ‘though, because their profits during the first three-quarters of 2008 were healthy, and one can assume that wouldn’t make a strong case.

LibertyWeek 30: Whole Lott-a Love

by Richard Morrison on February 16, 2009

in CEI Projects, Podcast

Welcome to Episode 30 of everyone’s favorite podcast LibertyWeek, with your hosts Richard Morrison and Cord Blomquist and very special guest Jeremy Lott. We start with the end of the U.S. economy as we have known it: the $790 billion economic stimulus plan and its chilling consequences. We take note of Citigroup CEO Vikram Pandit’s pledge to work for $1 a year and celebrate some good news with Alabama’s plan to legalize beer with a higher alcohol content than most wines. We then enlist our listeners to defend against the War on St. Valentine’s Day and move on to Scandal Watch: Judd Gregg edition.

The highlight of our program comes with our interview with writer, raconteur and bon vivant around town Jeremy Lott. He talks about his book, The Warm Bucket Brigade: The Story of the American Vice Presidency, about Presidents’ Day and the best lunch to pack when hunting with Sarah Palin. Jeremy also takes on the much-anticipated Cool v. Drool Vice Presidential Snap Judgment Lightning Round. Finally we take some legal counsel with this week’s edition of Olympic News.

Just How Much is $13 Trillion?

by Cord Blomquist on February 12, 2009 · 7 comments

in Bailout Watch, Economy, Features, Stimulus to Nowhere, Zeitgeist

Regardless of your political party or ideological leanings, the notion of the federal government spending $2 trillion, adding to the national debt of nearly $11 trillion already, should make you stop and consider the staggering size of our national tab.

If the irony of using debt-based spending to solve a problem caused by debt-based spending has escaped you, perhaps these fun facts will put things into perspective:

  • If you spent $1 every second, you’d have to keep spending for 412,000 years to get to $13 trillion.  That means you’d have to start shortly after the time human beings first starting using stone tools and fire to get to $13 trillion today.
  • $13 trillion in one dollar bills weighs 28 million pounds.  That’s as much as 87 blue whales or 462 Statues of Liberty.
  • If you laid 13 trillion one-dollar bills end-to-end they’d reach from the earth to the sun and back…five times over.  That’s 946 million miles of greenbacks.

The amount we’re looking at now—roughly $2 trillion between the Secretary Geithner’s new bank bailout plan  and President Obama’s stimulus package—isn’t small potatoes either.  So what is $2 trillion?

  • $2 trillion is bigger than the entire Gross Domestic Product of our neighbor to the north, Canada.  In fact, according to the IMF, only Japan, Germany, China, the United Kingdom, France, and Italy have bigger total economies than the combined bailout/stimulus plan—all other countries on Earth have economies smaller than $2 trillion per year.

Then there’s the interest on this staggering debt, which isn’t exactly small.  Paying the interest on the current $10.7 trillion debt cost Americans $451.1 billion last year alone.  How big is that?

  • That’s $1478 dollars in interest for every man, woman, and child in the United States.
  • That’s bigger than the annual budgets of  New York ($121.1 billion), California ($111.1 billion) and Texas ($83.8 billion) combined.

If you’re scared, upset, or disgusted by this, you can do something.  Visit BeyondBailouts.org and tell your Congressman and the President what you think of the bank bailout and stimulus.

You can also click on the “ShareThis” button at the top of this post to forward these fun facts to your friends or share them on your favorite social network.

Correction: I originally listed the state budget of Texas as $167 billion, but that figure was not annual.  Texas budgets for two years at a time, so the figure has been cut in half.

Economic Hype We Can Believe In?

by Cord Blomquist on January 20, 2009 · 3 comments

in Economy, Features, Stimulus to Nowhere, Zeitgeist

As millions gather on the national mall today to witness the inauguration of Barack Obama, many are looking to the new president not only as a role model and the fulfillment of Martin Luther King’s dream for America, but also as a leader capable of saving us from economic disaster.

Yet, it seems that the economy may not be in as bad a shape as some would have us believe.

The Minneapolis Federal Reserve says that things aren’t that bad. In fact, they’ve made up some handy charts to prove it.

The charts place the current economic downturn into historical (post-WWII) perspective and show that currently the recession is mild.  Of course, we won’t know the length and severity of the recession until it’s over, but right now signs aren’t pointing to it being the worst economic situation since the Great Depression.

Yet that’s what we’re hearing from officials in the Obama administration.  Rahm Emmanuel said so on Meet the Press this weekend.

Even if all of this bluster were accurate and the economy were in a tailspin, there is plenty of reason not to CHANGE as Mr. Obama would have us change. In fact, many are saying that the Great Depression was extended, not curtailed, by FDR’s policies. If Mr. Obama seeks to fashion himself after Mr. Roosevelt, he may extend this recession into a depression no matter how much he “stimulates” the economy.

Hat Tip: Thanks to Bureaucrash Social member Ryan Evans for giving me the heads-up on the Minneapolis Fed charts.

D.C. Event: BB&T’s John Allison on the Financial Crisis

by Richard Morrison on January 15, 2009 · 1 comment

in Bailout Watch, Economy, Stimulus to Nowhere

Our friends at the Ayn Rand Center for Individual Rights are hosting what promises to be a fascinating public lecture on the state of the U.S. economy and what it means for the future of capitalism. Former CEO and current Board Chairman of BB&T bank, John Allison, will explain the interventionist government policies that brought us where we are today and their anti-capitalist underpinnings.

Location and Details:

The Financial Crisis: Causes and Possible Cures
Thursday, January 29, 2009

National Building Museum—Great Hall
401 F Street NW
Washington, DC 20001
Red Line Metro, Judiciary Square

Doors open: 6 PM
Lecture and Q & A: 6:30 PM

This event is FREE and open to the public.

BREAKING NEWS: Bailout Vote Fails in House

by Richard Morrison on September 29, 2008

in Bailout Watch, Economy, Precaution & Risk

The House of Representatives just voted down the $700 billion corporate finance bailout, despite earlier urging from President Bush to push the measure through. Look for in depth analysis from our very own John Berlau and the rest of the policy team as the day progresses. Read CEI’s roundup of the continuing finance crisis (and sign up for email updates) here.

NEW: John Berlau responds (and speaks!) in reaction to today’s vote. Updated post and audio clip here.

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