May 2012

CBO Bombshell - Our Congress Will Cause a Recession in 2013

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fiscal cliffThe CBO has issued a new report on what all of those automatic budget cuts are gonna do in 2013. They will cause a recession.

Growth in real (inflation-adjusted) GDP in calendar year 2013 will be just 0.5 percent, CBO expects—with the economy projected to contract at an annual rate of 1.3 percent in the first half of the year and expand at an annual rate of 2.3 percent in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.

What the CBO is referring to is the fiscal cliff. Remember when the budget crisis happened, resulting in the United States losing it's AAA credit rating? Then, Congress and this administration just punted, didn't compromise, or better yet, base recommendations on actual economic theory, and allowed automatic spending cuts of $1.2 trillion across the board, to take place instead. These budget cuts will be dramatic and happen in 2012 and 2013.

Unemployment Claims Stagnant - 370,000 for the Week of May 19th, 2012

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Initial weekly unemployment claims for the week ending on May 19th, 2012 were 370,000. The DOL reports this as a decrease of 2,000 from last week, yet last week's initial claims were revised up, from 370,000 to 372,000. In essence, initial claims for unemployment insurance are stagnating, not declining as needed, as seen in the below chart.

 

China Mainlined Into U.S. Debt

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china currency China is now mainlined directly into U.S. debt. Reuters uncovered an astounding thing. The U.S. Treasury has literally set up a direct line for China to buy U.S. treasuries, bypassing brokers and any third party. China is the only country with this privledge. Those thinking this administration would confront China on currency manipulation, think again. Instead our government gave China real time direct access to dynamically control the value of the Yuan.

China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn't been necessary.

The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.

The change was not announced publicly or in any message to primary dealers.

Saturday Reads Around the Internets - Swear Words Are Now Appropriate

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shocknews Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made our eyes pop.

 

Corporations Park Over 60% of Their Cash Offshore

Large multinationals literally park 60% of their cash offshore. Don't let these facts argue for a corporate tax holiday. Cash would just be distributed to shareholders, not used to hire American workers or invest in America.

Large U.S. companies are holding at least 60% of their cash overseas with some keeping nearly all of their cash balances offshore, according to a study from J.P.Morgan accounting analysts published Wednesday.

In a review of disclosures, the bank’s analysts found that out of the $974 billion in cash on the balance sheets of 602 U.S. multinationals, at least $588 billion, or 60%, is sitting in foreign accounts.

“Foreign subsidiaries are becoming much more important in a lot of businesses, especially with companies that have substantial amounts of intellectual property,” JP Morgan accounting analyst Dane Mott told CFO Journal, noting that many of the companies with significant overseas cash stockpiles were in the technology and pharmaceutical industries.

J.P. Morgan found that Apple had the highest offshore corporate cash balance, with $74 billion held overseas, representing 67% of its total cash holdings. But as a percentage of total cash, J.P. Morgan said the company had a smaller amount sitting offshore than many of its tech rivals, including Microsoft, Cisco, and Hewlett-Packard, which had 89% or more of their cash overseas.

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