Bank failure tally reaches 140
Seven banks across six states were shut down on Friday, bringing the total number of failed banks this year to 140.
Friday's closures will cost the FDIC an estimated $1.7 billion.
An average of 11 banks have failed every month this year. The spike in failures has raised concerns about the FDIC's deposit insurance fund, which has slipped into the red for the first time since 1991.
This year's tally of bank failures is the highest number since 1992, when 181 banks failed. But the total is far from 1989's record high of 534 closures which took place during the savings and loan crisis, when the insurance fund also carried a negative balance.
FDIC Chair Sheila Bair told CNBC that bank failures will continue to accelerate into next year despite "some encouraging signs" that things are turning around for the battered industry.
The continuing bank failures will be driven by unusually high unemployment that is expected to lead to more foreclosures and other commercial loan failures.
So far, the total cost of these 140 failures to the FDIC fund is more than $30 billion.
Sabtu, 19 Desember 2009
Rabu, 16 Desember 2009
U.S. Debt Bomb Ticking Away
According to Morgan Stanley, total U.S. credit market debt as a percentage of GDP is higher now than at the peak of the Great Depression.
Now, as then, the government and financial sector are attempting to stave off the economic contraction through debt-financed spending.
But, at present, the collateral supporting much of our public and private debt is worth less than the debt it is supposed to be supporting.
The U.S. is by far the world's biggest debtor nation. US private sector debt is now 350 percent of GDP.
Currently, there is about $3.75 in debt for every $1 in national income. Yet, the national economy can normally support around $1.50 in debt for every dollar of income.
The fact that U.S. and global debt levels are higher now than during in the 1930s leads to the conclusion that the current deleveraging will likely be a staggering economic event.
The dollar has declined 40 percent in value in the last seven years.
Meanwhile, the national debt is soaring and the monetary base has increased by 142 percent over the past two years.
Yet, government spending continues, unabated. Our national debt now exceeds $12 trillion. Military and war spending are a significant aspect of our excess.
In real dollars, defense spending in both the Korean war and the Vietnam conflict, was not as high as it is today. According to Lawrence Korb, the former assistant secretary of defense in the Reagan administration, the indirect costs of our two current wars — veterans benefits, long-term care of the physically and mentally wounded, and interest on the national debt — could bring their total cost to $5 trillion.
President Obama's latest Afghanistan troop increase will bring total forces to nearly 100,000 — at a cost of $100 billion a year. That's nearly $1 million per soldier.
The U.S. dedicates more money to military spending each year than the rest of the world combined. That kind of spending has unintended consequences.
This week, the House will vote to raise the U.S. debt limit by as much as $1.9 trillion. This will raise the cap on government borrowing to about $14 trillion, or equal the size of our nation's GDP.
It will be the ninth hike since 2002, and the fourth in just 18 months. The government has raised the debt limit more than 90 times since 1940.
Such an increase would be more than twice the size of each of the past three debt limit increases. The move will allow lawmakers to avoid having to raise the limit again before next year’s midterm elections.
A surging budget deficit has pushed US government debt to nearly 98 percent of the gross domestic product. If the U.S. was forced to conduct its finances like a corporation, it would be nearly insolvent.
About 46 percent of America’s debt is held overseas by countries such as China and Japan. Interest payments on those debts consume about a tenth of the United States budget.
Remarkably, that percentage is actually down from recent years as interest rates have dropped. When rates eventually go back up, as they inevitably will, the interest payments will rise in response.
Debt payments are already larger than the budgets for NASA ($19 Billion), the Department of Energy ($25.5 billion), the Department of Education ($53 Billion), and Department of Transportation ($73 Billion).
To fund this overspending (aka federal budget deficits), the U.S. Treasury makes and sells a fresh batch of IOUs every quarter. It then uses the cash from these sales to pay off old Treasury debt that has come due, while also maintaining the interest payments on the rest of the paper that is still outstanding.
The government cannot raise enough revenue through taxation to satiate its unwavering desire for rampant spending. The public wouldn't tolerate it and would vote incumbents out of office. So, the Fed prints money (backed by nothing) and then buys Treasuries to finance our government's relentless deficit spending.
And even if the government tried to raise taxes (largely on the highest income earners), it might forestall any potential recovery.
These record deficits have arrived just as the long-feared explosion in spending on Medicare and Social Security begins. As a result, the hole we're in will just keep getting deeper.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
The Treasury Department’s private-sector advisory committee on debt management has warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee in November.
In essence, we've been warned.
"Right now, this year, we have 1.6 trillion in debt coming due. That's roughly twice individual income-tax revenue. Our only plausible strategy for paying that back is to borrow more money." – Leonard Burman, an economist at Syracuse University
Bank Failures Reach 133
Three more U.S. banks were closed on Friday, bringing the total number of bank failures this year to 133.
Apparently, things will get worse in 2010.
FDIC Chair Sheila Bair told CNBC that bank failures will continue to accelerate into next year despite "some encouraging signs" that things are turning around for the battered industry. Bair did not quantify how bad the failures would get, but said the worst isn't over yet for institutions that will suffer even as the economy improves:
The continuing bank failures will be driven by unusually high unemployment that is expected to lead to more foreclosures and other commercial loan failures.
So far, the total cost of the 133 failures to the FDIC fund is more than $28 billion.
The FDIC recently announced that 552 banks are at risk of going under.
Three more U.S. banks were closed on Friday, bringing the total number of bank failures this year to 133.
Apparently, things will get worse in 2010.
FDIC Chair Sheila Bair told CNBC that bank failures will continue to accelerate into next year despite "some encouraging signs" that things are turning around for the battered industry. Bair did not quantify how bad the failures would get, but said the worst isn't over yet for institutions that will suffer even as the economy improves:
The continuing bank failures will be driven by unusually high unemployment that is expected to lead to more foreclosures and other commercial loan failures.
So far, the total cost of the 133 failures to the FDIC fund is more than $28 billion.
The FDIC recently announced that 552 banks are at risk of going under.
Selasa, 08 Desember 2009
Horizontal Drilling Expands Natural Gas Reserves
Using a relatively new new technique, oil engineers and geologist are now able to drill horizontally to extract natural gas from shale.
The technique has been used across Texas, Oklahoma, Louisiana and Pennsylvania for the past decade, resulting in a 40 percent increase in U.S. natural gas supplies in recent years.
The increased production has created a glut of the gas in the U.S., helping to drive down gas prices and utility costs.
Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, calls the new method of producing gas “is the biggest energy innovation of the decade.”
Natural gas produces fewer emissions of greenhouse gases than either oil or coal, making it a favorable alternative.
Now Europe is seeking to expand in its reserves of the cleanest fossil fuel. The hope is that the continent can reduce its dependence on Russian natural gas.
Initial estimates of recoverable shale gas in Europe range up to 400 trillion cubic feet. Though that is less than half the industry’s estimates of what is recoverable in the United States, it could eventually drive down prices, which are sometimes twice as high as those in the U.S.
By some estimates, the horizontal drilling technique could result in at least a 20 percent increase in the world’s known reserves of natural gas.
One recent study by the Cambridge consulting group, calculated that the recoverable shale gas outside of North America could turn out to be equivalent to 211 years’ worth of natural gas consumption in the United States at the present level of demand, and maybe as much as 690 years. The low figure would represent a 50 percent increase in the world’s known gas reserves, and the high figure, a 160 percent increase.
If the U.S. can convert more of its transportation fleets to use natural gas rather than gasoline, it would increase energy independence and security, as well as reducing costs and carbon emissions.
On a global scale, those benefits would obviously be greatly magnified.
Amidst all the dire peak oil news, this at least provides us with some semblance of hope.
Using a relatively new new technique, oil engineers and geologist are now able to drill horizontally to extract natural gas from shale.
The technique has been used across Texas, Oklahoma, Louisiana and Pennsylvania for the past decade, resulting in a 40 percent increase in U.S. natural gas supplies in recent years.
The increased production has created a glut of the gas in the U.S., helping to drive down gas prices and utility costs.
Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, calls the new method of producing gas “is the biggest energy innovation of the decade.”
Natural gas produces fewer emissions of greenhouse gases than either oil or coal, making it a favorable alternative.
Now Europe is seeking to expand in its reserves of the cleanest fossil fuel. The hope is that the continent can reduce its dependence on Russian natural gas.
Initial estimates of recoverable shale gas in Europe range up to 400 trillion cubic feet. Though that is less than half the industry’s estimates of what is recoverable in the United States, it could eventually drive down prices, which are sometimes twice as high as those in the U.S.
By some estimates, the horizontal drilling technique could result in at least a 20 percent increase in the world’s known reserves of natural gas.
One recent study by the Cambridge consulting group, calculated that the recoverable shale gas outside of North America could turn out to be equivalent to 211 years’ worth of natural gas consumption in the United States at the present level of demand, and maybe as much as 690 years. The low figure would represent a 50 percent increase in the world’s known gas reserves, and the high figure, a 160 percent increase.
If the U.S. can convert more of its transportation fleets to use natural gas rather than gasoline, it would increase energy independence and security, as well as reducing costs and carbon emissions.
On a global scale, those benefits would obviously be greatly magnified.
Amidst all the dire peak oil news, this at least provides us with some semblance of hope.
Senin, 07 Desember 2009
Number of Failed U.S. Banks Reaches 130, and Counting
Six more U.S. banks were closed on Friday. These latest failures are expected to cost the FDIC's insurance fund at least $2.3 billion.
A total of 130 U.S. banks have now failed this year. The cumulative cost of all these failures to the federal deposit insurance fund is more than $28 billion, and counting.
The problem is that this fund has been in the red for over two months.
Last week, the FDIC announced that 552 banks are at risk of going under.
This begs the question: Is your bank safe?
The FDIC is counting on struggling banks to pay three years worth of insurance fund fees (amounting to $45 billion) to help offset the continuing losses.
Yes, the FDIC is relying on insolvent banks to come up with money they don't have, in order to save themselves.
It boggles the mind.
Six more U.S. banks were closed on Friday. These latest failures are expected to cost the FDIC's insurance fund at least $2.3 billion.
A total of 130 U.S. banks have now failed this year. The cumulative cost of all these failures to the federal deposit insurance fund is more than $28 billion, and counting.
The problem is that this fund has been in the red for over two months.
Last week, the FDIC announced that 552 banks are at risk of going under.
This begs the question: Is your bank safe?
The FDIC is counting on struggling banks to pay three years worth of insurance fund fees (amounting to $45 billion) to help offset the continuing losses.
Yes, the FDIC is relying on insolvent banks to come up with money they don't have, in order to save themselves.
It boggles the mind.
Jumat, 04 Desember 2009
Declining Job Losses Nothing to Celebrate
The good economic news today was that the economy only shed 11,000 jobs in November, giving Wall St. cause for celebration.
However, it was the 23rd consecutive month of job losses – the longest losing streak since the 1930s.
Indeed, jobs losses must decelerate before ceasing, and losses must cease before net job creation is realized. But amid all this hubbub, one thing cannot be overlooked: the U.S. economy is still losing jobs every month.
Two years since the start of the Great Recession, nearly 8 million jobs have been lost. In fact, all job creation for the entire decade has been destroyed and is now negative. That hasn't happened since the Great Depression of the 1930s.
The fact is, there are twice as many unemployed people today as there were two years ago at his time.
Though the labor market has seen a steady decline in first-time jobless claims, and Initial claims have fallen five weeks in a row, it's not the layoffs that are hurting us as much as the lack of hiring.
In essence, while fewer people are being laid off, fewer are being hired as well.
Nearly six million of the 15.7 million people officially classified as unemployed have been out of work longer than six months. And that doesn't count the part-timers who cannot find full-time work, or those who have simply given up looking.
About 2.3 million persons were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
There are 9.28 million people working part time, but who want a full time job. A year ago the number was 7.3 million. Employers will start increasing the hours of part-time workers before they start hiring full-time workers. This should give us pause.
Truthfully, all of these facts should temper some of the jubilation about a potential recovery.
The so-called U-6 unemployment figure still remains above 17%. This figure counts all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc.
Many of these job losses will be permanent. Millions of Americans will have to find new jobs or even new careers, which will be a lengthy process. The economy is both restructuring and recovering at the same time.
Service-producing industries added 58,000 jobs, while goods-producing industries cut 69,000 jobs. This is exactly the wrong kind of job creation, and the continuation of a decades-long pattern.
For far too long we've consumed too much and produced too little. We need to recover our manufacturing base in a hurry.
Unfortunately, there are continually fewer high-skill, high-paying jobs. In their place are evermore low-skill, low-paying service jobs.
"Hi, welcome to Wal-Mart," and "Hello, welcome to McDonald's, can I take your order?" have become all too common refrains for far too many educated and overqualified workers.
According to Lawrence Katz, a labor economist at Harvard, for every job that becomes available, about six people are looking. That creates an enormous amount of competition and leaves many out of luck.
Here's the reality check:
The government says that 1.3 million jobs need to be created every year from 2006-2016 just to keep up with the growing labor force. The hole we're in is very deep. Experts note that it will take years to reverse these massive losses.
Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the current jobs deficit.
Washington, Wall St. and the mainstream media should hold of on the celebrating for now. The recovery hasn't really started yet. And whenever it does, there's still a very long road ahead.
The good economic news today was that the economy only shed 11,000 jobs in November, giving Wall St. cause for celebration.
However, it was the 23rd consecutive month of job losses – the longest losing streak since the 1930s.
Indeed, jobs losses must decelerate before ceasing, and losses must cease before net job creation is realized. But amid all this hubbub, one thing cannot be overlooked: the U.S. economy is still losing jobs every month.
Two years since the start of the Great Recession, nearly 8 million jobs have been lost. In fact, all job creation for the entire decade has been destroyed and is now negative. That hasn't happened since the Great Depression of the 1930s.
The fact is, there are twice as many unemployed people today as there were two years ago at his time.
Though the labor market has seen a steady decline in first-time jobless claims, and Initial claims have fallen five weeks in a row, it's not the layoffs that are hurting us as much as the lack of hiring.
In essence, while fewer people are being laid off, fewer are being hired as well.
Nearly six million of the 15.7 million people officially classified as unemployed have been out of work longer than six months. And that doesn't count the part-timers who cannot find full-time work, or those who have simply given up looking.
About 2.3 million persons were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
There are 9.28 million people working part time, but who want a full time job. A year ago the number was 7.3 million. Employers will start increasing the hours of part-time workers before they start hiring full-time workers. This should give us pause.
Truthfully, all of these facts should temper some of the jubilation about a potential recovery.
The so-called U-6 unemployment figure still remains above 17%. This figure counts all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc.
Many of these job losses will be permanent. Millions of Americans will have to find new jobs or even new careers, which will be a lengthy process. The economy is both restructuring and recovering at the same time.
Service-producing industries added 58,000 jobs, while goods-producing industries cut 69,000 jobs. This is exactly the wrong kind of job creation, and the continuation of a decades-long pattern.
For far too long we've consumed too much and produced too little. We need to recover our manufacturing base in a hurry.
Unfortunately, there are continually fewer high-skill, high-paying jobs. In their place are evermore low-skill, low-paying service jobs.
"Hi, welcome to Wal-Mart," and "Hello, welcome to McDonald's, can I take your order?" have become all too common refrains for far too many educated and overqualified workers.
According to Lawrence Katz, a labor economist at Harvard, for every job that becomes available, about six people are looking. That creates an enormous amount of competition and leaves many out of luck.
Here's the reality check:
The government says that 1.3 million jobs need to be created every year from 2006-2016 just to keep up with the growing labor force. The hole we're in is very deep. Experts note that it will take years to reverse these massive losses.
Even if the nation could add 2.15 million private-sector jobs per year starting in January 2010, it would need to maintain this pace for more than 7 straight years (7.63 years), or until August 2017, to eliminate the current jobs deficit.
Washington, Wall St. and the mainstream media should hold of on the celebrating for now. The recovery hasn't really started yet. And whenever it does, there's still a very long road ahead.
Kamis, 03 Desember 2009
Worldwide Economic Instability a Major Threat
The U.S. Director of National Intelligence, Dennis Blair, has told Congress that instability in countries around the world caused by the global economic crisis and its geopolitical implications, rather than terrorism, is the primary near-term security threat to the United States.
And another leading figure on the world stage has voiced similar concerns.
In March, Dominique Strauss-Kahn, the head of the International Monetary Fund, warned that the global economic crisis threatened millions of people with being pushed into poverty.
At a meeting of the International Labour Organisation, Mr Strauss-Kahn issued this warning:
"'Bluntly the situation is dire. All this will affect dramatically unemployment. And, beyond unemployment, for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war."
He also warned governments against ploughing even more fiscal stimulus into their ailing economies.
"You can put in as much stimulus as you want. It will just melt in the sun as snow if at the same time you are not able to have a generally smaller financial sector than before, but a healthy financial sector at work."
The Federal Reserve didn't heed the warning; instead it has increased the monetary base by 142% over the last two years.
Meanwhile, bank balance sheets continue to deteriorate as home foreclosures spiral, and as the commercial real estate collapse gains momentum.
And people are noticing.
Standard & Poor’s has given warning that nearly all of the world’s big banks lack sufficient capital to cover trading and investment exposure, risking further downgrades over the next 18 months unless they move swiftly to beef up their defences.
Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.
And then there's the Dubai default / debacle, which sent a shockwaves through markets around the world. Dubai is likely the canary in the coal mine, signaling the weakness of the global financial system, and the limits of debt.
It appears that 2010 isn't shaping up to be a very happy new year.
And another leading figure on the world stage has voiced similar concerns.
In March, Dominique Strauss-Kahn, the head of the International Monetary Fund, warned that the global economic crisis threatened millions of people with being pushed into poverty.
At a meeting of the International Labour Organisation, Mr Strauss-Kahn issued this warning:
"'Bluntly the situation is dire. All this will affect dramatically unemployment. And, beyond unemployment, for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war."
He also warned governments against ploughing even more fiscal stimulus into their ailing economies.
"You can put in as much stimulus as you want. It will just melt in the sun as snow if at the same time you are not able to have a generally smaller financial sector than before, but a healthy financial sector at work."
The Federal Reserve didn't heed the warning; instead it has increased the monetary base by 142% over the last two years.
Meanwhile, bank balance sheets continue to deteriorate as home foreclosures spiral, and as the commercial real estate collapse gains momentum.
And people are noticing.
Standard & Poor’s has given warning that nearly all of the world’s big banks lack sufficient capital to cover trading and investment exposure, risking further downgrades over the next 18 months unless they move swiftly to beef up their defences.
Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.
And then there's the Dubai default / debacle, which sent a shockwaves through markets around the world. Dubai is likely the canary in the coal mine, signaling the weakness of the global financial system, and the limits of debt.
It appears that 2010 isn't shaping up to be a very happy new year.
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