June 2009

Continuing unemployment claims decline for 1st time in months

There is an important nugget of information in today's BLS report of weekly new jobless claims.

The weekly claims themselves are stagnating at about 625,000. But the important nugget is about continuing claims which for the first time in months have not increased, but instead declined slightly to 6.73 million.

Knights of Labor

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The reason Labor Day exists is because of a long-defunct labor union known as the Noble and Holy Order of the Knights of Labor. This labor union didn't allow bankers to join. It also excluded doctors, lawyers, gamblers, stockholders, and liquor manufacturers because they were considered "unproductive members of society".
Considering the insane amounts of money that investment bankers get paid to move other people's money around, the Knights of Labor may have had a point.

U.S. export business lost today because of the VAT

Cross posted from TradeReform.org

For those of you who say there is no trade impact resulting from foreign Value Added Taxes, please read this.

I Squared R Element Company is in Akron, New York. It makes industrial heating elements which are used for many processes to make other things, including glass and computer chips. The company was the low bidder on a contract to export to China.

However, the company lost the bid. Why?

I squared R was told it did not include, in its bid, China's 10% customs duty or the 17% value added tax(VAT) that must be paid at the border.

All our goods pay a 17% VAT at the Chinese border. And the uninformed say we are a high cost producer. Chinese exporters also get a 17% VAT rebate, i.e. they get paid to export.

What are potential solutions?

Federal Reseve - Deficit Unsustainable (alternative title: zombies ate the money!)

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The House Budget Committee held a hearing today with just one witness, Federal Reserve Chair Ben Bernanke.

As a consequence of this elevated level of borrowing, the ratio of federal debt held by the public to nominal GDP is likely to move up from about 40 percent before the onset of the financial crisis to about 70 percent in 2011.

A Bloomberg analysis

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability.

ADP Employment Report - Another Yellow Weed

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ADP is the largest private payroll, outsourced HR company and they have been so gracious to tabulate up employment estimates from being in this business.

Their May employment report has some not so great news.

Nonfarm private employment decreased 532,000 from April to May 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of
employment from March to April was revised by 54,000, from a decline of 491,000 to a decline of 545,000.

Monthly employment losses in April and May averaged 539,000. This is a notable improvement over the first three months of the year, when monthly losses averaged 691,000.

Economic Espionage Trial in U.S.

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Finally a prosecution of industrial espionage in the United States.

A Chinese-born engineer stole trade secrets critical to the U.S. space program and passed them to China for three decades without detection, prosecutors said Tuesday in the first economic espionage case to reach trial in the United States.

Prosecutors laid out their case against Dongfan "Greg" Chung, 73, in U.S. District Court in Santa Ana. The Chinese-born engineer has pleaded not guilty to charges of conspiracy, economic espionage, lying to federal agents, obstruction of justice and acting as a foreign agent.

The FBI has economic espionage has their #2 priority.

Gold is going mainstream

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If you said back in 2001 that a major insurance company would buy hundreds of millions of dollars worth of gold bullion to "hedge against asset declines", you would have been laughed at. The idea was inconceivable.
Yet today, there was this news article.

(Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

What is the Fed Worried About?

I could not resist saying something about this Bloomberg article: Fed Said to Raise Standards for Banks' TARP Repayment. In May, the Fed released the results of the not too stressful 'stress tests'. The 'stress tests' concluded that JP Morgan Chase and American Express Co. didn't have to raise any additional capital. Apparently, the Fed has changed its mind.

JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told only yesterday, people with direct knowledge said.

GAO to audit Federal Reserve's Role in AIG Bail Out - Thanks Congress!

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You might remember this post:

Senator Chuck Grassley (R-IA) submitted an amendment (amending Section 714 of the United States Code) that would have given significant auditing authority to Comptroller General/Government Accountability Office (GAO) over the Board of Governors of the Federal Reserve System.

Which managed to slip past the lobbyists and God knows who else in the Helping Families Save Their Homes Act of 2009, which was just signed into law.

Now Bloomberg reports Fed’s Role in AIG May Be First Target of GAO Audit:

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