June 2010

Must Read Posts for June 24, 2010

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On The Economic Populist you might have noticed the right column. We try to list other sites and blogs who have exceptional insight and writing on what is happening in the U.S. economy.

Sometimes though, one cannot say it better but miss those who did.

Must Read Post #1

The Supreme Court just made it tougher to prosecute white collar crime by limiting the honest services fraud law. Anyone else notice there have been no real prosecutions for the financial meltdown yet? Use a gun, get 40 years. Use a spreadsheet, get a multimillion dollar bonus.

Must Read Post #2

More and more evidences emerges that most of our Medical Doctors are sure not following the Hippocratic Oath. The University of Michigan stops Drug and Medical companies from buying off paying for Doctor's required medical licensing education.

Must Read Post #3

Drug Trials are being offshore outsourced. Yup, let's test our drugs for peanuts in 3rd world countries where problems and side effects won't be noticed or prosecuted.

80 percent of the drugs approved for sale in 2008 had trials in foreign countries, and 78 percent of all subjects who participated in clinical trials were enrolled at foreign sites.

Federal Reserve Leaves Rate Unchanged

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The Federal Reserve leaves the federal funds rate unchanged. Kansas City Federal Reserve President Thomas M. Hoenig was the lone dissenting voice. Below is the press release along with commentary on general economic conditions.

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Suffering Ado About Oil

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Earlier today the containment cap was off the riser. Oil and gas was spewing into the gulf for a good 8 hours. One of the vents was damaged and the cap had to be removed. There were also two deaths in the oil spill recovery team. It is now back on and they are collecting and burning about 27,000 barrels of oil per day. Spill estimates currently range between 35,000 and 60,000 barrels per day.

Gas entered one of the lines which actually cools the containment cap. A robot arm from one of the ROVs accidentally bumped a vent, at which point gas went up the line. That line is used to heat the containment gap so the gas doesn't form hydrates (freeze).

Even more despairing, a boat captain working on the clean up, shot himself. From MSNBC:

The deaths reported Wednesday were not tied to the containment operation. The Coast Guard said the workers had been involved in cleanup operations did that their deaths did not appear to be work related.

One death was a boat captain who died of a gunshot wound, a Coast Guard spokesman said. Further details were not immediately available.

To watch all of the spillcams at once, click here or click here and finally here.

Here is the official coast guard website on the spill.

Rich Get Richer While Americans Lose Their Jobs, Houses, Savings and Income

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While millions of Americans lost their jobs, their homes, their savings, their retirement....the rich got richer. That's right, during 2009, millionaires increased by 17.1%.

The world’s population of high net worth individuals (HNWIs) grew 17.1% to 10.0 million in 2009.The world’s population of high net worth individuals (HNWIs) returned to 10 million in 2009, increasing by 17.1% over 2008.
HNWI financial wealth increased 18.9% from 2008 levels to $39 trillion. After losing 24.0% in 2008, Ultra-HNWIs saw wealth rebound 21.5% in 2009.Ultra-HNWIs increased their wealth by 21.5% in 2009. In terms of the total Global HNWI population remains highly concentrated with the U.S, Japan and Germany accounting for 53.5% of the world’s HNWI population, down slightly from 2008.

North America specifically, the rich got richer by 17%.

In North America, the ranks of the rich rose 17 percent and their wealth grew 18 percent to $10.7 trillion.

The United States was home to the most millionaires in 2009 -- 2.87 million -- followed by Japan with 1.65 million, Germany with 861,000, and China with 477,000.

Switzerland had the highest concentration of millionaires: nearly 35 for every 1,000 adults.

Financial Reform Declared D.O.A.

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Financial Reform Legislation is D.O.A. according to Simon Johnson, an expert and watchdog on the Financial crisis. He is not alone in assessing the health of the patient.

At the end of the day, essentially nothing in the entire legislation will reduce the potential for massive system risk as we head into the next credit cycle.

That's right. What managed to get passed is now being stripped in conference, as we warned about and updated on here.

Now lobbyists are after the very weak version of the Volcker Rule:

To secure the support needed for their bill, Senate negotiators are leaning toward creating a series of exemptions to the Volcker Rule that would allow banks to continue to operate these businesses as investment funds that hold only client money, according to several Congressional aides, industry officials and lawyers.

China Allows the Yuan to Rise

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Shockers of all shockers, China let the yuan rise against the dollar.

China's central bank, after setting the mid-point for Monday's trading range, let the yuan rise 0.42 percent to 6.7976 per dollar—both the biggest daily gain and the highest close since China revalued the currency and introduced a managed float regime in 2005.

At one point, the yuan was up as much as 0.47 percent from the day's mid-point—just shy of the currency's 0.5 percent limit, which had rarely been tested in practice in the past.

Traders said the lack of intervention by the central bank suggested it wanted the market to drive intraday trade and so underline its weekend pledge.

But it also showed it had ultimate control by setting the reference rate, around which the yuan can trade, at the same level as Friday's fixing.

While today we actually saw a rise in the yuan, don't be so convinced this was a real policy change. China may simply be trying to get international pressure off their banks in order to not be labeled a currency manipulator. China has a long way to go to let the currency re-evaluate to it's true value. Current estimates say the Renminbi is undervalued by 23% to 40%.

State budget crisis getting critical

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The 2011 fiscal year for 46 states begins in 10 days. In many cases it is a countdown to financial doom.
Despite what you may have heard from conservative sources, state and local government have been cutting and cutting. 231,000 state and local government jobs have vanished since August 2008 - 22,000 in just the past month. Most of those jobs were at the local level, such as police, firefighters, and school teachers.

The fat has already been trimmed. The muscle has been cut into. There is nothing left to cut but bone.
At least 19 states are getting the saws ready, because knives won't cut bone.

According to Mark Zandi, the chief economist at Moody’s, states are facing a budget gap of $180 billion next year. The shortfall could lead to the destruction of 900,000 jobs at the state level, an employment source that is often thought of as an economic safety net.

Up to 300,000 of those laid off will be school teachers, and some estimate the total number of government workers to be let go in the 1-to-2 million range.

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