"There Is No Economic Justification for Deficit Reduction" Galbraith to Deficit Commission

Your proceedings are clouded by illegitimacy.

The conclusion to be drawn is that Social Security should in any event be off the agenda of your Commission, as it is a transfer program and not a program of public spending in the economic sense. In particular it does not use capital resources and will not drive up interest rates. This is true whether the "Social Security System" is in internal balance or not.
--James K. Galbraith

Goolsbee to Head Obama's Council of Economic Advisers

After Christina Romer's departure, Goolsbee to Lead Council of Economic Advisers:

President Barack Obama will name Austan Goolsbee, a longtime adviser and an architect of his campaign's economic message, to be chairman of the White House Council of Economic Advisers at a White House press conference Friday, an administration official said Thursday night.

Trade Deficit for July 2010 - $42.8 billion

The July 2010 U.S. trade deficit decreased from last month's $49.8 billion to $42.8 billion. That is a 14% U.S. trade deficit decrease in one month, yet a yo-yo effect, bringing the trade deficit back about the same level as May 2010. U.S. exports increased by $2.8 billion, to $153.3 billion, while imports decreased $4.2 billion, to $196.1 billion.

Behind the lower jobless claims good news

This Bloomberg article pretty much says it all.

Applications for U.S. unemployment benefits declined more than forecast last week, easing concern that employers will accelerate firings as the world’s largest economy cools.
Initial jobless claims dropped by 27,000 to 451,000 in the week ended Sept. 4, Labor Department figures showed today in Washington.

Sounds good, right? Other than the fact that 451,000 a week is nearly recessionary levels, it's still an improvement.

Well, that's not really true for a number of reasons:

#1) the drop was almost entirely due to seasonal adjustments

#2)

Jobless benefits applications were projected to fall to 470,000 from a previously reported 472,000 for the prior week, according to the median forecast of 46 economists in a Bloomberg News survey. Estimates ranged from 460,000 to 482,000. The Labor Department revised the prior week’s figure to 478,000.

So last week was actually worse than originally reported, which is typical for the BLS.

Have we got your attention now, Wall Street!

Wall Street's troubles are compounding. It appears that small investors have waken up to the fact that the game is rigged. They are fleeing from casino capitalism in droves.

In a speech Tuesday, Mary Schapiro, chairman of the Securities and Exchange Commission, said the SEC was informed by retail brokers that the Main Street investors they cater to "have pulled back" from the stock market since the flash crash.
To buttress her point, Schapiro noted that stock funds have suffered net outflows every week since the flash crash.

When I wrote this well-received essay a week ago, the net outflows were beginning to gain attention from the media. In the past week, things have gotten much worse for Wall Street.
Because the lack of new "dumb money" flowing into Wall Street, as many as 80,000 banksters will lose their jobs.

Since Washington refuses to enact serious reforms of Wall Street, and the regulators refuse to do their jobs, it has come down to mom and pop investors to starve Wall Street into submission.

Federal Reserve Beige Book Report

The Federal Reserve Beige Book report is out and they acknowledge overall the economy is decelerating. We're in a slow down, minimum. folks. It's official.

Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods.

They also acknowledge one element we have graphed here, raw capacity in manufacturing, is down.

Reports on capacity utilization were mixed. Manufacturers of high-tech products have been operating near maximum capacity of late, although this partly reflects a substantial decline in industry-wide capacity over the past three years, as noted by Dallas. More generally, the majority of Cleveland's manufacturing contacts reported that capacity utilization remained below pre-recession levels. Capital spending plans for manufacturers and firms in other industries generally indicate little change or modest increases in coming months, based on reports from the Boston, Philadelphia, Cleveland, Chicago, Kansas City, and San Francisco Districts.

They also note the increased use of temp jobs and contract labor is repressing permanent employment.

Europe debt crisis: half-life of a bailout now only four months

Europe is in trouble again.

European Bank Stress Tests - Banks Didn't Tell the Whole Truth

What a surprise. It seems when Europe ran it's bank stress tests, they only didn't report a few billion here and there.

Market Watch:

Europe's highly touted stress tests of major banks earlier this summer understated holdings of potentially risky government debt, The Wall Street Journal reported Tuesday.

Wall Street Journal:

An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed. Some banks excluded certain bonds, and many reduced the sums to account for “short” positions they held — facts that neither regulators nor most banks disclosed when the test results were published in late July.

Because of the limited nature of most banks’ disclosures, it is impossible to gauge the number of banks that excluded portions of their sovereign portfolios from their disclosures, or the overall effect of that practice.

The original Wall Street Journal article here, requires a subscription.

Obama to Propose $50 Billion in Insfrastructure Spending

President Obama is proposing a $50 Billion Infrastructure Plan:

Part of the plan being released today calls for the funding of a permanent infrastructure bank that would invest in projects most critical to the economy. The up-front investment would go to the nation's highway system and focus on modernizing the system while providing jobs. There also would be investment in the nation's bus and rail systems, including an overhaul of Amtrak's fleet. The final cog would be the modernization of the nation's air traffic control system.

Infrastructure, which is an investment in America, is sorely needed and has the potential to create jobs. That said, last spending on infrastructure, the government did not require two conditions, hire America and buy American, thus funds flowed out of the country instead of into the pockets of Americans.

Also, the bidding procedure for contracts was the same as the one used in Iraq. It's all well and good to invest in U.S. infrastructure, this is one of the most bang for the buck stimulus proposals out there. But the devil is in the details and will we see this government do Stimulus right right this time? Democrats are bad enough, but Republicans block anything that will help the American people and this economy at every turn.

A Research Tax Credit Won't Create Jobs

President Obama is proposing a $100 Billion Research tax credit. The problem is this won't create jobs.

President Barack Obama, focusing on ways to spur economic growth with less than two months to the congressional elections, will urge Congress to permanently extend and expand a research and development tax credit for businesses.

Obama will detail the plan, which would cost about $100 billion over a decade, in an economic speech Sept. 8 in Cleveland, according to two administration officials speaking on condition of anonymity.

Once again, it is manufacturing of scale that is needed. That means curtailing offshore outsourcing, confronting China on their currency manipulation, modifying trade policy and offering tax incentives with strict conditions enforced, that companies manufacture in the United States.

R&D is all well and good. I am in R&D so a tax credit is especially nice for me. But hiring a few researchers in the U.S. is simply not going to generate 7 million jobs, especially when the results of that research, production, will be offshore outsourced to China and India.

September 2010