The price of oil, which is rising too fast, and long-term interest rates that are beginning to creep up are likely to suppress a budding recovery, famous economist Nouriel Roubini, also dubbed "Dr. Doom," told CNBC Monday. "I see even the risk of a double-dip, W-shaped recession… towards the end of next year," Roubini told "Squawk Box Europe." "Oil could be closer to $100 a barrel towards the end of this year, this could be a negative shock to the economy," he said, adding that other dangers come from long-term interest rates and big budget deficits. In the next few months, unemployment may reach 11 percent in the US and around 10 percent in Europe.
Because of bad macroeconomic data and poor earnings prospects as companies have weak pricing power and demand is still subdued, the surprises will be on the downside, he said. "That's why I believe there's going to be a significant market correction for equities, for commodities and even for credit," Roubini added. He said recovery signs should come from unemployment, housing, industrial production, sales and consumption data. "When I look at them I see so far still more yellow weeds than green shoots. They have to bottom out, in my view they haven't bottomed out. This recovery, unfortunately, because of the debt overhang… is going to be a very weak economic recovery, in my view," he added.
The large budget deficits caused by government stimulus packages and bailouts make the work of central banks harder, as they now have to be cautious regarding inflation. In Europe, the dangers came both from its weak economy and from exposure of Western European banks to Eastern European economies, he said. But protectionism is not an answer, Roubini warned. "The reality is that too much protection would be dangerous," he said. "In Europe there is a risk that even the single market is breaking down because of protectionism, let alone the rest of the world," Roubini added.
CNBC VIDEO LINK HERE
The Inevitable Reducing Federal, State And Municipal Revenues!
By Ian R. Campbell
An article titled ‘Belt-Tightening by States Squeezes Cities and Towns’ says that in a recent survey 18 U.S. States reported cutting local aid. The Executive Director of the National Association of State Budget Officers is quoted as saying “we think that’s going to grow”. The article also says U.S. “cities and towns are bracing for more big reductions in local aid and revenue-sharing from their state governments”, that “the cuts are forcing belt-tightening moves that are very visible to voters”, and in my view importantly that “for many cities, state-aid cuts come on top of falling local revenue” – all this at a time when States are running record budget gaps as their tax revenue plunges while expenses increase.
In the past I have commented frequently on this Blog about what I have said ‘Must be reducing revenues at all U.S. Government levels’, and continually address macro-issues at the U.S. Federal Government level. At Federal and State levels it seems to me some of the more important things that need to be considered are infrastructure deterioration (particularly roads and bridges), and health/school/prison systems. At the municipal level important ‘maintenance-type’ issues have to include municipal services including sanitary systems and waste disposal, policing, water purification, delivery systems, and so on.
If the current recession does not turn around in the near term it seems to me these and similar services will have to be reduced from prior levels and then maintained at those reduced levels – all of which will result in possible (or in some cases likely) reductions in safety, education, and - importantly - the general standard of living of the average citizen. Since typically you can’t take things away from people and leave them happy, if these things occur it seems to me unhappy consequences may be a reduction in youth employment (since ‘family providers’ sensibly would be employed first) and a general increase in crime rates.
Uncle Sam’s Dirty Little Secret
by Larry Doyle
If a tree falls in the forest and nobody is there to hear it, does it make any noise? If an agency is sitting on billions in losses but nobody asks about it, can we forget about it? If an entire group of banks is sitting on hundreds of billions more in losses, and the media is not even aware of this banking system, can we pretend they don’t exist? Oh, if only we could, perhaps our economic life would be so much simpler. While Uncle Sam and the media can choose to overlook these institutions, the losses are real and will serve as a drag on our economy and nation for the foreseeable future. Yet, they receive very little attention.
Fortunately, Bloomberg shed a hint of light on part of this problem today in writing, Fannie Mae, Freddie Mac in Limbo as Geithner Seeks More Time:
- Fannie Mae and Freddie Mac will remain in limbo as the U.S. Treasury secretary said the government doesn’t have time now to deal with the future of the two mortgage-finance companies it seized in September.
Doesn’t have time or doesn’t want to admit that these agencies represent an ongoing and enormous drag on our economy? How so? Fannie and Freddie hold 50% of the mortgages in our country. These entities are most likely sitting on hundreds of billions in embedded losses currently with limited prospects to generate real revenue. They have no viable business model at this point in time. As a result, rather than entering into an unpleasant and economically harmful dialogue, Geithner chooses to sweep this under the rug. How can Tim do this? Because Uncle Sam has allocated, if not necessarily set aside, funds for these agencies to offset future losses.
- “We did not believe that we could at this time — in this time frame — lay out a sensible set of reforms to guide, to determine what their future role should be,” Treasury Secretary Timothy Geithner told the Senate Banking Committee in Washington today. “We’re going to begin a process of looking at broader options for what their future should be.”
As Bloomberg highlights:
The remainder of Fannie Mae and Freddie Mac’s $400 billion U.S. Treasury lifeline should still be “sufficient” until the government decides how to restructure the companies, Federal Housing Finance Agency Director James Lockhart said in June 3 testimony to a House subcommittee. Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have already requested $84.9 billion in taxpayer aid through the Treasury’s program to buy the companies’ preferred stock to keep them solvent.......
The dirtier little secret hidden by Uncle Sam is embedded within the Federal Home Loan Bank system. Why? After Uncle Sam, the FHLB system is the second largest creditor in our country with approximately $1.2 trillion in outstanding debt. While Freddie Mac and Fannie Mae’s portfolios are chock full of agency mortgage-backed securities (MBS backed by conforming size loans), the portfolios within the FHLB system (12 regional banks) are stuffed with Jumbo mortgages, Alt-A, pay-option ARMS, and sub-prime. In short, lots of toxic assets and lots of embedded losses hidden by the artful deceit of the relaxed mark-to-market accounting standard.........
Cheer Up, It's Going to Get Worse
By Alastair Bland
Three years ago, David Fridley purchased two and a half acres of land in rural Sonoma County. He planted drought-resistant blue Zuni corn, fruit trees and basic vegetables while leaving a full acre of extant forest for firewood collection. Today, Fridley and several friends and family subsist almost entirely off this small plot of land, with the surplus going to public charity. But Fridley is hardly a homegrown hippie who spends his leisure time gardening. He spent 12 years consulting for the oil industry in Asia. He is now a staff scientist at Lawrence Berkeley National Laboratory and a fellow of the Post Carbon Institute in Sebastopol, where members discuss the problems inherent to fossil-fuel dependency.
Fridley has his doubts about renewable energies, and he has grave doubts about the future of crude oil. In fact, he believes to a certainty that society is literally running out of gas and that, perhaps within years, the trucks will stop rolling into Safeway and the only reliable food available will be that grown in our backyards. .....
The sheer cost-efficiency of oil eclipses all supposed alternatives. Removed from the ground and burned, oil makes things move almost miraculously. A tank of gasoline in a sedan holds enough energy to equal approximately five years of one person's rigorous manual labor......
Put another way, societies of the pre–oil age worked their butts off. They had to. Roughly 90 percent of the population toiled in jobs that produced our energy, food and water, while just 10 percent reaped the rewards, holding soft-palmed positions in politics, the arts, begging and prostitution, to name several fields. Today, by contrast, merely 5 percent of Americans work jobs that relate to producing food and energy, while 95 percent reap the rewards, many working at abstract tasks in offices. In a world suddenly without machine labor, this top-heavy imbalance is poised to capsize......
"And I guarantee that if I was a car manufacturer and I scribbled out a letter with crayons, they would have answered me," he says with a short laugh. Fridley also believes assistance will not come from the world's leaders. Transition can only be a grass-roots revolution. He points out that Secretary of Energy Steven Chu was previously the director of Lawrence Berkeley National Laboratory, where Fridley has done much of his thinking about peak oil and Transition. "[Chu] was my boss," Fridley says. "He knows all about peak oil, but he can't talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can't say anything about it." Thus, world leaders would like to have the populace believe that this oil-age feeding frenzy will continue forever, that the economy will continue to expand and grow. At the 2008 G-8 Summit on the Japanese island of Hokkaido, for example, our leaders declared a resolution to resume economic growth. Fridley says such a goal is impossible, yet no one wants to face the fact.
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