Austerity-hit Spain also falls back into recession

The other day it was the UK falling back into recession and now Spain, another country that implemented harsh austerity. Anyone else seeing a trend here? More on the latest bad news for Spain from Reuters via CNBC:

Spain's economy slipped into recession in the first quarter as domestic demand shrank, data showed on Monday, with deep government spending cuts in an uphill battle to trim the public deficit likely to delay any return to growth. Gross domestic product shrank 0.3 percent in January-March from the previous quarter according to preliminary National Statistics Institute data, unchanged from October-December and compared to a Reuters poll expecting a 0.4 percent contraction.

Who will be the first country in the EU to tell the bankers to pound go pound salt? Read the rest of this post...

UK probably back in recession

This is not the way anyone wants to start a new year. This year was going to be difficult for the UK no matter who was in power, but the Cameron austerity program is not helping. 2012 will be the year when the pain of austerity really starts to hit families, so the generally kind approval for Cameron is likely to start slipping as the year goes on. The Guardian:

Professor Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said: "Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it's not going to be a repeat of 2009 – we are not going to see a serious double dip." The ITEM Club report forecasts GDP growth of just 0.2% this year before increasing to 1.8% in 2013 and 2.8% in 2014. The ITEM Club said deteriorating levels of confidence will see business investment stagnate in 2012, while export prospects have already slowed.

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SF Fed: Over 50% chance of a recession early in 2012

It's a complicated little paper from the SF Fed, so I'm happy for someone to tell me I'm reading this paragraph wrong. But I don't think so.

The combination of these two recession coins, shown in the combined risks line of Figure 2, is quite disconcerting. It indicates that the odds are greater than 50% that we will experience a recession sometime early in 2012. Because the international odds of recession are more imprecisely estimated, one must be careful with a strict interpretation of this result. But the message is clear. Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession. However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.

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Stiglitz on pharmaceutical prices; and the four major causes of the worsening of the national debt

In this latest installment of Chris' and my interview with Nobel economist Joe Stiglitz this past Sunday, August 28, 2011 in Paris, Stiglitz talks about the four major causes of the deficit.

STIGLITZ: I try to remind people that just ten years ago we had a very large surplus, 2% of GDP, so big that Greenspan said that if we didn't do something about the surplus, we would entirely pay down the national debt, and it would be difficult for him to conduct monetary policy. An important reminder of why we should be skeptical of the Federal Reserve -- that it is a political institution, not just an economic institution. It has a political agenda, or it had in the past.

Four things brought us from where we were then, huge surpluses, to where we are now. And those things were:

First, the tax cut for the rich that we couldn't afford.

Two very expensive wars.... The budgetary cost so far have been around $2 trillion, but we were, in our book, underestimate the future cost, almost one out of 2 people coming back form Iraq and Afghanistan are disabled. And we've estimated that the cost of paying for health and disability for these may be approaching $1 trillion. So this is not even reflected in the official account, these are our estimates, corroborated by others, of what these future costs are likely to be.

The third is, a very good thing that we did, which was to provide prescription benefits under Medicare for the aged. But we made again a mistake, Bush made a mistake, and that was to say that even though the government is the largest buyer of prescription drugs, it could not negotiate with the drug companies, and that led to those high costs that you were referring to, estimated by some people over a period of ten years, about a trillion dollars extra given to the drug companies. That's another major source of our deficit.

The banks were very good at making political investments, and the same thing was true of the drug industry. They've been very hard pressed to come up with new drugs, but the money they're spending in Washington is yielding high dividends, and this is an example of those high dividends.

The final cause of the change of our framework from the surplus that we had ten years ago, just ten years ago, to where we are today, is the economic downturn. And that's why the most important thing for dealing with the deficit is putting America back to work. And that's where a stimulus package is absolutely essential. Proposals for more austerity cutbacks are going to make that even worse, and prospects of a real significant reduction in the deficit not very good.

Previous interview snipets:

* Stiglitz: Probabilities of a double dip recession "certainly have increased significantly" (3:17 long)

* Stiglitz: Obama administration and the Fed have demonstrated an "inability to make economic judgements." (1:09 long)

* Stiglitz: "The Fed is very good at creating problems, not so good at resolving them.... QE3 won’t help" (6:46 long)

* Stiglitz: "The only thing that can be done (to help the economy in the near term) is fiscal stimulus, spending more money." (1:01 long)

* Stiglitz: We are bearing the consequences of Obama/Congress not pushing state/local aid in 1st stimulus. (2:05)

* Stiglitz on Dodd-Frank: "We are once again at risk of a freezing of the credit system" (4:04) Read the rest of this post...

Stiglitz: Probabilities of a double dip recession "certainly have increased significantly"

During our interview in Paris on Sunday, Nobel economist Joseph Stiglitz told Chris and me that the probabilities of a double dip recession "certainly have increased significantly."

But Stiglitz made an interesting point.  It doesn't really matter if we "officially" enter recession territory again or not - things are bad, especially in terms of jobs, and not improving, no matter what term we use to describe the current situation. So, to some degree, by saying "thank God we've avoided a double dip" (if in fact we do avoid one) we're ignoring the fact that things are still horrible and not getting better.

Stiglitz also pointed out that the economy needs to grow by 3% to 4% to get us out of the current "jobs deficit."  And that, he says, isn't going to happen any time soon - at most growth will be 1% this year.



See our earlier excerpt of the interview in which Stiglitz says the Obama administration and the Fed have demonstrated an inability to make economic judgments.
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Roubini: "capitalism could self destruct"

If you have a spare 22 minutes it's well worth it. Roubini believes that the chances for a double dip are above 50%. Read the rest of this post...

Econ recovery is weakest since Depression

So let's focus on the deficit instead.  Sigh.  It's just what the Republicans want.  They'd like nothing better than to get one of their lifelong dreams - gutting the federal budget - and at the same time sink the economy and send Barack Obama packing in 2012.

AP:

This is one anniversary few feel like celebrating.

Two years after economists say the Great Recession ended, the recovery has been the weakest and most lopsided of any since the 1930s.

Unemployment has never been so high - 9.1 percent - this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

- The average worker's hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

- The jobs that are being created pay less than the ones that vanished in the recession.

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We soon should know whether we're double-dipping into recession or not

Wash Post:

The recovery faces a crucial test over the next couple of months: Either it will pick up vital momentum from increased consumer spending and investment or stall out, dipping into a period of anemic growth -- or perhaps even another recession.

Forecasters knew this inflection point would arrive, a moment when consumers and businesses must take over for government stimulus spending and the rebuilding of inventories.

On Friday, the government will offer crucial evidence when it reports on second-quarter economic growth. This will be the first in a series of indicators in the coming weeks that could help answer whether the economy has achieved cruising speed, in particular whether the private sector is growing fast enough to put unemployed Americans back to work. Forecasters are expecting that gross domestic product rose at a rate of 2 to 2.5 percent rate in the April-through-June quarter, which would be too slow to drive down the jobless rate.

Just Wednesday, the government announced a surprising 1 percent drop in June orders for durable goods and a compilation of anecdotal reports from around the country by the Federal Reserve showed a recovery that is increasingly uneven. This fit into the pattern of recent economic indicators showing that the transition to a self-sustaining recovery has been rocky.

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Recession now arriving in US courts

And it's probably not going to ease up any time soon. The story focuses the most on the state of New York though other states are seeing comparable increases as well. NY Times:

Contract disputes statewide in 2009 are projected to be up 9 percent from the year before. Statewide home foreclosure filings increased 17 percent, to 48,127 filings. Cases involving charges like assault by family members were up 18 percent statewide. While serious crime remains low, misdemeanor charges in New York City were up 7 percent and lesser violations were up 18 percent in 2009.

Judges and lawyers say the tales behind any number of cases, including low-level offenses like turnstile jumping and petty theft, are often a barometer of bad times. And they said that the data showed that courts nationally would be working through the recession’s consequences for years, much as they did with the flood of cases stemming from the crack cocaine epidemic of the 1980s, even after the epidemic had slowed.

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Housing data suggests bumpy times ahead

Some are suggesting the housing data is pointing towards a double dip recession. As the tax credit disappears, so may the housing market.

Construction of homes unexpectedly plunged last month to its lowest point since April, the Commerce Department said Wednesday. The weak figures show that builders fear there aren't enough buyers to soak up the glut of unsold homes already on the market — a supply magnified by record-high foreclosures.

They also illustrate how much the fledgling recovery depends on government aid. Builders held back in part because of uncertainty in October about whether Congress would extend a tax credit for homebuyers. Earlier this month, lawmakers renewed the credit and extended it to more buyers.

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Top UK CEO pay barely scratched by recession

And remember, CEO's in the UK and Europe are paid much less than US executives. Despite the stock free fall in the market (which has brutalized retirement plans) corporate leaders are hardly sharing in the pain. Bonuses have come down a bit though offsets in salary increases have made the differences hard to detect. The bankers have (fairly) received the bulk of public anger for excessive pay but it doesn't take long to see too many other unacceptable examples. The Independent:

The typical boss of a FTSE 100 company pocketed a bonus of £502,000 for the financial year to April, a survey by Incomes Data Services reveals today. Though the figure was 29 per cent lower than the year before – the first time in a decade that chief executives' bonuses have fallen – IDS said the size of the pay-outs would still surprise many people.

It also pointed out that at many companies, chief executives were compensated for smaller bonus payments by much higher basic salaries, with the typical boss given a 7.4 per cent rise. As a result, the average FTSE 100 director's total remuneration package last year was just 1.5 per cent lower. Chief executives are still earning just as much as they did in 2006, when the economy was still strong.

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Wealthy Germans want to pay more taxes to help recovery

Let's just say you don't see petitions like this ever day. They are taking their petition which has been signed by a few dozen wealthy Germans and will deliver it to Chancellor Angela Merkel. Whether you agree or disagree, it's a rare example of unity of a nation to pull through a tough situation. You really have to read the whole story because it's really amazing. BBC:

The group say the financial crisis is leading to an increase in unemployment, poverty and social inequality.

Simply donating money to deal with the problems is not enough, they want a change in the whole approach.

"The path out of the crisis must be paved with massive investment in ecology, education and social justice," they say in the petition.

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7,000 a day running out of unemployment benefits

At least the bank bonuses are flowing. Maybe some are going retro in DC and think that trickle down economics is back in style. Looking at how bizarre many are treating the banks (and allowing them to go back to their old ways) anything is possible. For those not working in the upper echelons of banking, life is different.

Another day, another 7,000 people run out of unemployment benefits.

One month after the House passed a bill extending unemployment benefits, the issue is still being debated in the Senate.

Democratic leaders in the Senate introduced a bill two weeks ago to lengthen benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks.

Meanwhile, Orrin Hatch wants everyone to focus on college football. How clueless could he be? Read the rest of this post...

Hopefully this is not in our future

The UK left and right are competing with each other to see who can cut more. It may be necessary to avoid even worse financial problems (along with much higher taxes) but it's ugly. The left is promoting a freeze on pay for government workers while the right wants to raise the age of retirement. Meanwhile, the bankers are still doing just fine. What a fair system. For the US, it's going to be very difficult not to start having the same discussions sooner or later, though higher taxes surely will be kicked around soon enough. Well, definitely sooner than asking Wall Street to pay its fair share. Read the rest of this post...

Layoffs stabilizing but few new jobs

As with many of the jobs updates lately, it's not the best of news but it could be much worse. It's doubtful much will change in 2009 though perhaps in 2010 we will start to see more positive change. Reuters:

Employers have sharply cut back on layoffs but hiring has yet to take off, putting a damper on domestic demand. That has left many analysts doubting the economy's recovery from its worst recession in 70 years will be sustainable once the government's various spending programs end.

The survey of 77 economists forecast employers cut 180,000 jobs in September, which would be the smallest amount for any month since August 2008. Payrolls declined 216,000 in August.

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Income gap widens during recession

Talk about redistributing wealth. The Republicans are masters of the game. What's worse are the number of Democrats who buy into this scheme. Even worse, some of them are hired to run the US economy in a Democratic administration.

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.

The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003.

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US airlines adding fees for international luggage

Americans could stand to travel with less luggage but still, this is a move in the wrong direction. So many of these extra fees were slapped together when the cost of fuel went through the roof and as expected, now that fuel prices are lower the fees are not going away. If anything, there are now more of them. The airlines want to nickle and dime customers to death and the routine is getting old. It's also encouraging more people to drag even more into the cabin which is going to make for even longer (and more miserable) boarding.

Squeezing more out of fewer customers is now the approach by the consultants in this industry but hopefully someone out there will eventually tap into customer anger and think about winning over customers again instead of kicking them. Finding a pricey business consultant that has an ounce of common sense might be asking for too much though.

Fees to check bags on international flights are creeping in and may be here to stay. In the past three months, all the big U.S. carriers have added $50 fees to check a second bag on flights to Europe. Delta and Continental are charging second-bag fees for flights to Latin America, too.

We've flown this route before, with domestic bag fees. United Airlines started with a fee to check a second bag last year, and other carriers followed. The wave of international bag fees got started July 1 when Delta began charging to check a second bag between the U.S. and Europe.

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CNBC declares "Mission Accomplished" for EU economy

Uh huh. Next to Larry Kudlow, Kudlow's Mini-Me is my favorite wingnut over at CNBC. He's such an avid follower of all things Europe which is why he's now declaring EU victory over the US. See, the stimulus was a complete waste of money according to Mini-Me. Despite new polling in the US that suggests Americans are finally seeing the benefit, it didn't help at all according to CNBC. Somehow an even higher unemployment rate would have been better for Mini-Me and we all know how little the unemployment rate impacts the rest of the economy.

Turning to Europe, yes, France *technically* moved out of recession. As someone who is maybe just a little more familiar with the business world in Europe than Mini-Me, it will be a shock if the growth trend advantage continues over here. All signs on the ground point towards increasing unemployment and a very shaky 2010. Considering how many people are concerned about a double dip recession, it's strange to read about the big victory. Before anyone declares "Mission Accomplished" maybe they should pause for a moment and watch the rest of the program.

Putting aside any technical definitions this recession and its near term problems has yet to fully play out. (One could also argue that the technical terms are meaningless anyway. Americans felt the recession well before the recession technically arrived.) Mini-Me and the Republicans always love waving the banner too soon. The system over here moves much slower both going into recession and coming out of recession. It remains possible that Europe will emerge first and stronger from this recession but somehow it doesn't look likely from what I see and hear. Forget about any short term spikes and let's see how it all plays out over the next 12-36 months. If anyone wants to declare victory at that point, fine, but before then it's all a bit silly. Read the rest of this post...

British royals untouchable in budget cut debate

Worthless and so damned expensive. At least everyone else who is facing cutbacks knows that everyone is in it together. Almost.

The Royal Family is to be exempt from any cuts in public spending next year when its civil list funding is settled for the next 10 years.

Although all of the major political parties are vying to demonstrate their willingness to wield the axe on public spending, MPs will be powerless to reduce the £7.9m a year paid under the civil list because of an obscure deal struck between Buckingham Palace and the Treasury in 1972 when the current legislation governing royal finances was drawn up.

Palace officials made clear earlier this summer that they are actually seeking a rise in the annual civil list payment to cover "increased costs" despite the fact that they currently have a £21m surplus in the reserves on the civil list account.

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What do pink ties, wine auctions and restaurant garbage have in common?

They are supposed to be signs of economic recovery but it sounds like a stretch. Read the rest of this post...