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and if you want to win the impact debate, you take things one step further, like econ collapse in america kills our demand for oil
I miss the good old days when "econ collapse in America" was considered something bad in and of itself... ;)
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stupid question but how does peak oil - a supply issue, relate to the use of the econ disad. Use it as a impact multiplier or what? The articles are interesting, but what is the strategic value

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how does the link work with that brink. The econ disads I run are based on my (admittedly rudimentary) knowledge of classic macroeconomics. How does peak oil play into this, and what are the risks of reading it.

 

You say it is a brink (i'm assuming to econ collapse)...That makes sense, but it also seems like a potential impac inevitable argument - which is admittedly defensive, but defense becomes a lot better when the other team makes it for you. So to win the brink you are mitigating your own link and thus the risk you solve your terminal impact.

 

As an internal link enhancer to a US economy DA, I don't see how peak oil would work. I might be missing something as i am vastly underinformed on the topic, but it seems to me a simple IL - something like inflation, interest rates, dollar decline, etc would be massively more unique. However, peak oil, unlike the rest, cannot be solved for by the fed.

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after rereading the peak oil article, I understand how it can serve as a catalyst to drive up interest rates, thus tying the fed's hands and making our economy more volatile. But deprived thus of our control over fiscal policy, shouldn't we turn to monetary policy - i.e. Keynesian economics and government spending, to power the economy?

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Shu-

I do too. Havent you noticed I advocate a Feynman-esque complexity theory framework wherein debaters must argue probability of impacts as a part of risk management?

 

 

Bird-

Not really. I was a big fan of 'real' impacts. I have run advantages like 'cyberstalking is bad'.

 

 

Kunal-

Peak oil is the basic theory that oil production will reach a peak at some point in time. Though the price of oil may go up before this time, at all points after this time, prices will go up rapidly due to declining production. Just your basic supply/demand idea. And since the primary use for oil is transportation fuel, that leads to a broad aggregate increase in producer cost eventually pushed to consumers leading to inflation.

But the immediate non-economic impacts of peak oil are numerous. Simply think about the number of products which use oil - plastics, agriculture, chemicals, waxes, lubricants etc. There are no known economical alternatives to petroleum for many of those uses. This means that the price of many finished products also skyrockets doubly so - once because transportation of the product is pricey and twice because the alternatives are extremely expensive.

Higher rates of inflation caused by resource scarcity will be incredibly difficult to manage. As for the use of Keynesian economics... in some ways, we are already there. The continued government infrastructure expenditures, contribution to the national economy and desire to lower interest rates are Keynesian ideas. The idea of cost-pull inflation is Keynesian.

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http://biz.yahoo.com/ap/080102/oil_prices.html

 

AP

Oil Futures Rise to $100 a Barrel

Wednesday January 2, 1:02 pm ET

Crude Futures Hit Record $100 a Barrel for 1st Time on Supply Concerns

 

NEW YORK (AP) -- Oil prices soared to $100 a barrel Wednesday for the first time ever, reaching that milestone amid an unshakeable view that global demand for oil and petroleum products will continue to outstrip supplies.

 

Surging economies in China and India fed by oil and gasoline have sent prices soaring over the past year, while tensions in oil producing nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices even higher.

 

Violence in Nigeria helped give crude the final push over $100. Bands of armed men invaded Port Harcourt, the center of Nigeria's oil industry Tuesday, attacking two police stations and raiding the lobby of a major hotel. Word that several Mexican oil export ports were closed due to rough weather added to the gains, as did a report that OPEC may not be able to meet its share of global oil demand by 2024.

 

Light, sweet crude for January delivery rose $4.02 to $100 a barrel on the New York Mercantile Exchange, according to Brenda Guzman, a Nymex spokeswoman, before slipping back to $99.48.

 

Crude prices, which have flirted with $100 for months, have risen in recent days on supply concerns exacerbated by Turkish attacks on Kurdish rebels in northern Iraq and falling domestic inventories. However, post-holiday trading volumes were about 50 percent of normal Wednesday, meaning the price move was likely exaggerated by speculative buying.

 

"I would imagine the speculators are the biggest drivers today," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.

 

It's hard to say whether prices would have risen as quickly on a normal trading day, Flynn said. While crude prices have soared on mounting supply concerns in recent months, speculators have often been cited as a reason for the swiftness of oil's climb.

 

Moreover, many of the concerns about supply disruptions have yet to materialize, but that hasn't stopped buyers from driving prices higher.

 

"Although the (Nigerian) violence has not impacted oil flow out of the country, it has reignited supply concerns as militant attacks have reduced Nigeria's crude output by roughly 20 percent since 2006," said John Gerdes, an analyst at SunTrust Robinson Humphrey in a research note. Nigeria is Africa's largest oil producer.

 

Separately, the Organization of Petroleum Exporting Countries said its member nations may not be able to meet demand as early as 2024, though OPEC also said that deadline could slide for decades if members increase production more quickly. Word that several Mexican oil export ports were closed due to rough weather added to the gains.

 

On top of those concerns, investors are anticipating that crude inventories fell by 1.8 million barrels last week, which would be the 7th weekly decline in a row.

 

"(A decline) is not anything unusual for this time of year, but when it happens for 7 weeks in a row, it starts to add up," said Amanda Kurzendoerfer, an analyst at Summit Energy Services Inc. in Louisville, Ky.

 

Oil prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

 

At the pump, meanwhile, gas prices rose 0.6 cent Wednesday to a national average of $3.049 a gallon, according to AAA and the Oil Price Information Service. Gas prices, which typically lag the futures market, have edged higher in recent days, following oil's approach to $100.

 

Gas prices peaked at $3.227 a gallon in May as refiners faced unprecedented maintenance issues and struggled to produce enough gasoline to meet demand. A similar scenario is expected this spring, when gas prices could peak above $3.40 a gallon, according to the Energy Department's Energy Information Administration.

 

The EIA's inventory report, delayed until Thursday this week due to the New Year's holiday, is also expected to show gains in gasoline supplies and refinery activity, and a decline in supplies of distillates, which include heating oil and diesel.

 

In other Nymex trading Wednesday, February heating oil futures rose 9.06 cents to $2.74 a gallon while February gasoline futures climbed 7.92 cents to $2.57 a gallon. February natural gas futures advanced 26.7 cents to $7.75 per 1,000 cubic feet.

 

In London, February Brent crude rose $3.11 to $97.58 a barrel on the ICE Futures exchange.

 

Associated Press Writers George Jahn in Vienna and Gillian Wong in Singapore contributed to this report.

 

 

 

==========================================================

 

This is very signficant. We all knew it was coming for months, heck, years now. But for oil to break the 100$ mark is a very psychological moment.

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It should also be noted that after peak oil, the quality of oil will decrease. This means refinement will go up in price as well as the cost of extraction. The easiest oil to refine sits at the top of an oil deposit and is lighter and easier to extract. As a deposit is depleted, the heavier oil at the bottom is extracted which is a slower and more expensive proposition. The long-term picture isn't pretty.

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It should also be noted that after peak oil, the quality of oil will decrease. This means refinement will go up in price as well as the cost of extraction. The easiest oil to refine sits at the top of an oil deposit and is lighter and easier to extract. As a deposit is depleted, the heavier oil at the bottom is extracted which is a slower and more expensive proposition. The long-term picture isn't pretty.

Good thing Honda has that hydrogen car, isn't it?

 

Anyway, that all functions on the topic in a couple of ways.

 

On the aff, if we notice that violence in Nigeria was a factor in the upward pressure on oil price, an economy adv. can be constructed. Say there's some card somewhere that says PHA can help decrease violence there. Freeing up some oil in Nigeria, presumably, buys time for alternative fuel, efficiency standards, etc. to start working. There are plenty of oil internals (interest rates and disposable income, for example) to economy impacts. With that kind of advantage you can have a realistic, defined timeframe, threshold, and story - all of which are indispensible in the 2AR. This also works as a solid turn on the econ DA if you can't fit it in 1AC.

 

On the neg, there are a couple of ways to spin the oil business. For starters, you could argue this puts us on the brink of economic collapse due to disposable income issues, government debt, or whatever, and spending (for example) increases government debt, increases inflation (decreasing real wages, exacerbating purchasing power problems), and so forth. This is a pretty credible scenario, really, especially if aff defines normal means as deficit spending - or anything other than tradeoff.

 

Another scenario would be one which takes a bit longer to explain but has a much more realistic tie between link and I/L. It's predicated on the idea that there's a trend of curtailing (and even actually cutting, to some degree) government spending. See Bush's veto of SCHIP. This restraint is a good thing, as inflation is higher than usual - especially in the last quarter - and reduced purchasing power means reduced purchasing, which results in downturn. That downturn occurs here (see: Macro 101) as well as abroad, because we are such huge importers. Under a system where we are maintaining current levels of spending or cutting them, we are at worst standing still on the brink and at best moving away from it. New spending, or perceived new spending, however, undoes or potentially reverses that trend. Enter the peak oil brink. Prices soar first at the pump, then in the supermarket and the retail stores. That triggers the global downturn if we don't creep away from current inflationary policies.

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sry to be a pain but could you point me in the right direction to these internals. i don't have lexis or other academic database access currently, but you know any alt energy think tanks and whatnot that would talk about this?

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Good thing Honda has that hydrogen car, isn't it?

 

Anyway, that all functions on the topic in a couple of ways.

 

On the aff, if we notice that violence in Nigeria was a factor in the upward pressure on oil price, an economy adv. can be constructed. Say there's some card somewhere that says PHA can help decrease violence there. Freeing up some oil in Nigeria, presumably, buys time for alternative fuel, efficiency standards, etc. to start working. There are plenty of oil internals (interest rates and disposable income, for example) to economy impacts. With that kind of advantage you can have a realistic, defined timeframe, threshold, and story - all of which are indispensible in the 2AR. This also works as a solid turn on the econ DA if you can't fit it in 1AC.

 

On the neg, there are a couple of ways to spin the oil business. For starters, you could argue this puts us on the brink of economic collapse due to disposable income issues, government debt, or whatever, and spending (for example) increases government debt, increases inflation (decreasing real wages, exacerbating purchasing power problems), and so forth. This is a pretty credible scenario, really, especially if aff defines normal means as deficit spending - or anything other than tradeoff.

 

Another scenario would be one which takes a bit longer to explain but has a much more realistic tie between link and I/L. It's predicated on the idea that there's a trend of curtailing (and even actually cutting, to some degree) government spending. See Bush's veto of SCHIP. This restraint is a good thing, as inflation is higher than usual - especially in the last quarter - and reduced purchasing power means reduced purchasing, which results in downturn. That downturn occurs here (see: Macro 101) as well as abroad, because we are such huge importers. Under a system where we are maintaining current levels of spending or cutting them, we are at worst standing still on the brink and at best moving away from it. New spending, or perceived new spending, however, undoes or potentially reverses that trend. Enter the peak oil brink. Prices soar first at the pump, then in the supermarket and the retail stores. That triggers the global downturn if we don't creep away from current inflationary policies.

 

so oil peak --> cost push inflation further tying up our monetary policy, meaning any new gov spending is sure to raise interest rates internationally and domestically - which will effect both exchange rates and domestic growth...

 

incidentally, deficit spending increases the account deficit which pushes up foreign interest rates right? Which would then cause the dollar to fall as demand for it decreases relative to foreign currency? I just want to make sure I'm doing this right

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sry to be a pain but could you point me in the right direction to these internals. i don't have lexis or other academic database access currently, but you know any alt energy think tanks and whatnot that would talk about this?

Not off the top of my head, no. And for some reason my school's website isn't letting me on to Lexis right now...

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so oil peak --> cost push inflation further tying up our monetary policy, meaning any new gov spending is sure to raise interest rates internationally and domestically - which will effect both exchange rates and domestic growth...

 

incidentally, deficit spending increases the account deficit which pushes up foreign interest rates right? Which would then cause the dollar to fall as demand for it decreases relative to foreign currency? I just want to make sure I'm doing this right

 

correct on the first paragraph, and you're confused in the second.

 

if the deficit goes higher, this forces higher interest rates in order to get foreign investors to pony up the cash to cover our deficits. higher interest rates push the dollar higher because demand for the dollar increases (the same way that if ingdirect offers a 7% interest rate on a savings account right now, people will abandon their current savings accounts and sign up at ingdirect). but higher interest rates slow the economy significantly (read about the economy in the late 70's/early 80's) and have the ability to slow economic activity to a trickle - at that point, almost anything can push the country into a recession or worse because its like walking on eggshells.

 

more importantly, you could make the argument that mere spending alone isnt capable of pushing us to the brink because the fed retains options with a reasonable level of government spending... but coupled with peak oil theory, the fed's hands are tied, inflation goes up, economy goes down. hell, if you can link the aff case to nigerian oil or sudan oil crisis scenarios, then you may have enough to procude a cost-push/inflation/interest rate spiral.

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side note:

 

jobless numbers came in today... the unemployment rate jumped from 4.7% to 5%. speculation on wall street suggests that the fed will decrease the interest rate by 25 to 50 basis points to help avert or soften a recession (one which is inevitable imo). if this happens, especially if the rate is cut by 50 points, the dollar will tank. every time the dollar tanks and we cut the rates, less investors want dollars making the deficit all that much more significant, and proportionately, making any widening of the deficit that much more significant.

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not necessarily... in theory, this is true... but in the current economic climate, the fed's idea is that cutting rates might allow us to tread water until some traction is gained. with the jobless numbers increasing, thats a deflationary pressure, so there is some wiggle room with cutting rates (people without jobs dont spend as much money, therefore less demand for products and thus lower prices) they are currently thinking that its better to allow some inflation, modest though it probably is, to try and jumpstart the economy needing defibrillation.

 

the real inflationary pressure at the moment IMHO, is cost-push. rate cuts, though symbolic to wall street, is a pandering to the short term desires of equities investors. the real move should be keeping rates the same to bolster the dollar. the weakening dollar is causing all manner of products to jump in price because we are such huge importers... and our exports havent kept pace because we dont actually make very much anymore! american industry abandoning manufacturing in america was one of the worst strategies ever pursued.

 

i think one could use rate cuts as an internal to relations disads. our rapidly falling dollar is pissing off the europeans and our friends in the middle east.

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but economically it might be. they get mad enough, the europeans cut their own interest rates, dollar goes back up, problem solved

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no. because their economy is chugging along quite nicely. cutting rates in europe would be inflationary. :)

 

i love how everything is interlocking and constantly changing... its like tix... only miles beyond ordinary.

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Todays feature lesson is going back to employment and inflation, the Phillips curve and stagflation, since that has become a topic of late.

 

What does the unemployment number represent?

The unemployment rate, as publicized in the news, is defined as the number of unemployed persons actively seeking a job divided by the number of people holding and seeking a job. This means that retirees, disabled persons, children, etc are not accounted for in the unemployment figure because they are not actively seeking a job nor do they hold one.

 

How does employment affect the general economy with respect to employment?

This is very simple - if more people are employed, then there is more money circulating in the economy. People with money spend that money. If you are employed, you buy more clothes, more burgers, more everything. When you buy more clothes, that means the clothing store needs to hire someone else to help out with restocking the shelves and helping customers and running the register. And that shop clerk needs to be paid too. So money filters through the economy like that.

Unemployment, on the other hand, does the exact opposite. If a lot of people are laid off in Detroit (lets say an auto plant shuts down), then those people are not going to be spending their discretionary income because they dont have any income. [side note: if you have forgotten the difference between discretionary and disposable income, click here] If they arent buying luxury items, then other stores start closing down because they arent getting enough customers to make a profit and more people are out of work.

The major takeaway from this is that both employment and unemployment accelerate with each successive movement - employment leads to more employment and unemployment leads to more unemployment.

 

So how does employment/unemployment affect the rest of the economy?

If people have money to spend, then they create a greater demand for a product X. If demand for X goes up and supply stays the same, then the price of X will go up. (inflation)

Alternatively, if people stop buying product X because they have no money to spend, then the price will go down. (deflation)

 

What does historical data tell us?

One of the periods of record levels of employment were in the late 90's under the Clinton administration. The tech boom fueled jobs everywhere. As a result, people were buying anything and everything within their means - houses, cars, boats, jewelry, clothes, etc. But this also meant inflation. Because inflation was rearing its ugly head, the Federal Reserve began a series of rate hikes. As I mentioned previously, the Fed uses their control over interest rates to jumpstart or cool the economy. By increasing rates, the Fed was trying to put the brakes on an economy threatening to go on hyperdrive (and thus rampant inflation).

Once 9/11 happened, the impact on the economy was enormous. Many people were laid off during the stock market crash in 2000. 9/11 provided further catalyst to a slowing economy and higher unemployment - it was a punctuation mark in a gloom and doom sentence. To provide a jump to the economy, the Fed started cutting rates drastically. This is what spawned the housing boom and subsequently created the sub-prime mess. [side note: it is incorrect to blame sub-prime on Greenspan. Sub-prime is a result of poor regulatory, corporate management and investor oversight of lending organizations.].

 

So what does the Phillips curve tell us?

The Phillips curve is a relationship between unemployment and inflation and pictorally describes what I have examined above. Unemployment is plotted as the independent variable on the x-axis.

phillips_curve_clip_image003.gif

If we have the initial unemployment rate and inflation rate at point B, and unemployment increases, we move to point A. On the other hand, if you create a new economic policy, you draw a new curve (new on the chart). Lets pretend that this economic policy had the effect of cutting taxes, this is positive for the economy because people have more money to spend. Thus the new curve is drawn. Now, if you look at the curve, with the new policy, at the same level of unemployment, inflation is now higher. Thus, in order to bring inflation under control, you need more unemployment.

(please let me know if you cant follow this chart)

 

So whats this business of stagflation?

The Phillips curve has a limitation - it doesnt always hold true. The wisdom of the curve dictates that higher unemployment leads to lower inflation and lower unemployment leads to higher inflation. But what about the case when there is higher unemployment AND higher inflation? Dont think thats possible? Just last week the unemployment figures came in at 5.0% (up from 4.7% on the previous month) and inflation is growing (see the prices at the gas pump).

Stagflation is an economic period marked by high inflation, low economic growth (if not a contraction) and high unemployment. Stagflation is notoriously hard to escape because the Federal Reserve loses control of the situation.

Case 1: The Fed increases rates - if the Fed increases rates to thwart inflation, the economy grows even less (or shrinks even more) leading to more unemployment and a slower economy still.

Case 2: The Fed lowers rates - if the Fed lowers rates to combat the economic contraction and encourage job growth, then inflation gets worse still.

While the Fed has a lot of options during normal economic expansions and contractions, during stagflation, its very difficult for the government to do much of anything. The irony of the situation is that many people think that the best way out of stagflation is deficit spending!

If the government spends more money and thus widens the deficit, they are essentially helping to expand the economy (people get hired, people spend money etc). At the same time, more government deficit spending means that interest rates need to increase (thus putting a thumb down on inflation). Alternatively, tax cuts would technically do the same (put more money in the economy and widen the deficit).

 

 

Currently, with unemployment numbers rising, holiday sales showing no growth, profits getting squeezed, pressure is on the Fed to cut rates. Cutting rates will tank the dollar (even more so because of our deficit). A lower dollar speeds up inflation making the situation worse. But on the other hand, the economy seems to be accelerating towards freefall, in which case should the Fed risk inflation to prevent economic recession and perhaps a depression? I'll let you mull over the impossible task the Fed has right now.

 

 

 

 

 

==========================================================

Years of Crisis Ahead

by J. R. Nyquist

Weekly Column Published: 01.04.2008

http://www.financialsense.com/stormwatch/geo/pastanalysis/2008/0104.html

 

On December 23 the Telegraph (UK) published an article by Ambrose Evans-Pritchard with the headline, “Crisis may make 1929 look like a ‘walk in the park.’ The article begins, “Twenty billion dollars here, $20 billion there…. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meager or fleeting effects.” Large banks are in trouble. Huge sums of money are disappearing. The capitalist system is faltering. At the same time, the “former” center of global communism is brimming with new confidence. Russia is deploying warships to the Eastern Mediterranean, building and testing new intercontinental missiles and submarines. The rhetoric of Russia’s president, Vladimir Putin, has a “neo-Soviet” ring to it. When visiting Cuba a few years back, a journalist asked Putin about his ideological loyalties. Was he a communist? “Call me a pot,” he said cryptically, “but heat me not.” Like Stalin after the New Economic Policy of the 1920s, Putin has nationalized major Russian industries. He has curtailed press freedom. He has reversed the process that dismantled the Soviet Union. He is taking up the pieces of the old communist empire, and putting them back into place.

 

Vladimir Putin knows that defeat may be a temporary expedient. A broken nation can bounce back. The tables can be turned on old enemies who believe they’ve won. He knows, as well, that history is cyclical; that peace leads to war and boom leads to bust. While Western businessmen and politicians have implicitly denied (in their rhetoric) the inevitability of war and financial catastrophe, there is a longstanding political movement firmly based on the expectation of both. I am referring to the political movement founded by Karl Marx and continued by Lenin, which has existed in many countries under various names and guises. Marx taught his followers to expect a future financial crash. This crash, said Marx, would discredit capitalism and open the door to global revolution. After Marx came Lenin, who taught that a future “imperialist war” would contribute to the destabilization of capitalism, discredit the leadership of the developed countries, and enable a worldwide workers’ revolution. The shrewdness of Marx and Lenin may be found in their prediction of what was always inevitable, making themselves appear more authoritative than other would-be revolutionaries.

 

Marx and Lenin have followers throughout the world. And these followers are organized. They also have Islamic imitators. The specifics of doctrine are unimportant when studying totalitarian countries. What matters is the ever-present hatred of Western civilization, mass-murder, oppression, and an obsession with destructive war. These are the common elements. These are the tags that give away the game and tell the observer what he is looking at. The Islamist and the Communist seek to undermine the West economically, socially, demographically and politically. The military balance also plays into their calculations. This is why the acquisition of nuclear weapons by communist and Islamist countries is a top priority. The policies of Hugo Chavez, Vladimir Putin, the Chinese communists and the clerical regime in Iran are all coordinated at the highest levels. Economic warfare is also a consideration, especially when it comes to oil and currency manipulation.

 

It is in this context we should consider the statements of leading economists and financial experts today. We are told that financial dominoes are tilting. If the fear of widespread bankruptcy cannot be contained, if banks and hedge funds are about to collapse, if lenders are hoarding cash and borrowers suffering the pangs of unsatisfied addiction, if the money screw has become a thumbscrew and the tortured victim is forced to yell out his bankruptcy, then the Marxist party is about to see the fulfillment of the old prophecies and promises. The expected revolution is about to come. It will come on the heels of capitalism’s crisis.

 

In the Telegraph article Evans-Pritchard quotes Professor Peter Spencer as saying, “The central banks are rapidly losing control.” He also quotes British and American experts who agree that “the crisis” has moved beyond collapsing mortgage securities and now threatens the entire financial system. On Dec. 12 the Wall Street Journal ran a piece titled, “Banks Sound Grim Notes.” According to this article, some of the “biggest U.S. commercial banks” have been issuing warnings that “underlying business fundamentals are continuing to deteriorate.” Many banks are predicting that 2008 will be a year of “mounting loan defaults” and heavy losses on all sides. Last month, Merrill Lynch advised investors to stay away from Bank of America and J.P. Morgan.

 

The great economists taught us what to expect from irresponsible credit expansion. But when the generation that experienced the Great Depression had passed from power, the rising generation did not believe a Great Depression could happen to them. Turning their back on history, they imagined themselves superior to those who came before. The great sociologists and historians taught us that the mistakes of previous generations would be made again and again, despite warnings from the wise. And so they are proved right. We are human, and we are fated to err. The boomer generation is not immune to the laws of economics. Furthermore, the “end of history” did not occur, as alleged by Francis Fukuyama. Even now, at this very moment, we are up to our necks in history. Ours is not a “more perfect world” than our forefathers. The world is still the same world, with the same problems as before. If our grandparents had to contend with Hitler and Imperial Japan, we must contend with Putin and the Chinese communists.

 

Last month Russia successfully test-fired a multiple-warhead road-mobile ICBM. It is a type of weapon the United States doesn’t have and doesn’t plan to develop. The RS-24 can carry up to three warheads, using technology from the advanced Topol-M system (already deployed). As a mobile platform the RS-24 can hide almost anywhere, so the United States cannot determine if it is falling behind in a new arms race. The Russian navy has also test-fired a new submarine launched ballistic missile called the Sineva. Those who laugh at Russia’s meager economy will be baffled by the regeneration of Russia’s armed forces, based as they are on a strategy of “leveling the playing field” (literally) with missiles.

 

The year 2008 will clarify the position of the United States as a great power in relation to the emerging power of China and the supposedly defunct power of Russia. If the financial crisis worsens (as it is likely to do), a political crisis is bound to follow. Few dare talk about this crisis (even now), although communists have been discussing it for many decades. Mainly, they have been considering how they will exploit a major economic crisis. With the Western intelligentsia sunk in the mire of political correctness, and the stupefaction of a television-besotted public, they are the only party on Earth that is psychologically ready with answers and slogans. Their political powder is dry, and they are well stocked. There is every reason to believe that the public will be confused, that the politicians will be knocked off balance.

 

The year 2008 may be a year of decision, not because it is a presidential election year, but because the West may be shaken to its foundations.

 

 

 

 

 

U.S. Economy: Job Growth at Weakest Pace Since 2003 (Update3)

By Bob Willis and Joe Richter

Jan. 4 (Bloomberg) -- Hiring in the U.S. slowed more than forecast in December and unemployment jumped to a two-year high, raising the odds that the Federal Reserve will cut interest rates by half a point this month to ward off a recession.

 

Payrolls rose by 18,000, capping the worst year for job creation since 2003, the Labor Department said today in Washington. The jobless rate increased to 5 percent from 4.7 percent in November, while the Institute for Supply Management said growth in U.S. service industries cooled last month.

 

Treasuries rallied, the dollar fell and stocks slid after the jobs report indicated more damage to the economy from the housing slump and reduced access to credit. The figures may also strengthen calls for President George W. Bush to stimulate the economy during his final year in office.

 

``It's time for the Fed to step up to the plate and let the public know how they're going to play this,'' said Maury Harris, chief economist at UBS Securities LLC in New York. ``This is a very vulnerable economy right now.''

 

Excluding a gain in government jobs, payrolls fell last month for the first time since July 2003, hurt by losses in manufacturing, construction and the retail industry.

 

``This tells you that the strains from credit problems and so forth that have been developing the last six months are starting to bite and they're biting in a way that now finally draws consumption into question,'' said Neal Soss, chief economist at Credit Suisse Group Inc. in New York.

 

Markets React

 

Yields on benchmark 10-year Treasury notes fell to 3.86 percent at 4:11 p.m. in New York from 3.89 percent late yesterday. The dollar fell 0.7 percent to 108.52 yen, while closing little changed against the euro. The Standard & Poor's 500 Index lost 2.5 percent to 1,411.6.

 

Shares of retailers, homebuilders and automakers in the S&P 500 are down 6.1 percent in the first three days of 2008. The group fell 14 percent last year, trailing only financial companies, which lost 21 percent.

 

``Today's unemployment numbers are discouraging, and they undoubtedly raise the possibility of a fiscal-stimulus package,'' said Douglas Elmendorf, a former Treasury and Federal Reserve Board official, and now a senior fellow at the Brookings Institution in Washington.

 

Edward Lazear, chairman of the White House Council of Economic Advisers, said the Bush administration will consider measures to stoke the economy.

 

More `Steps'

 

``We have pushed economic growth policies throughout this administration and we're not going to stop doing that now,'' Lazear said in a Bloomberg Television interview in Washington. ``If there are necessary steps that need to be taken, the president will be considering those over the next few weeks.''

 

The ISM index of non-manufacturing businesses, which make up almost 90 percent of the economy, fell to 53.9 from 54.1 the prior month, the Tempe, Arizona-based ISM said. Readings above 50 signal growth.

 

Economists surveyed by Bloomberg News had forecast a gain of 70,000 in payrolls, according to the median estimate, from an originally reported gain of 94,000 for November. The November job increase was revised up to 115,000 today.

 

The December job gain puts the total payroll increase for 2007 at 1.33 million, the fewest in four years. The unemployment rate for 2007 averaged 4.6 percent. The last time the jobless rate rose more in a single month was April 1995.

 

`Close' to Recession

 

``It's not a done deal, but if we're going to have a recession, it's too late to do anything about it,'' said Stuart Schweitzer, global markets strategist at JPMorgan Wealth & Asset Management in New York. ``The Fed can't prevent a recession if one's in the making, and we're pretty close.''

 

Traders increased bets the Fed will lower its benchmark rate by a half-point to 3.75 percent at the next meeting, on Jan. 29-30. The odds of such a move rose to 42 percent today from 34 percent yesterday and zero at the start of the week, futures prices show.

 

Today's figures were even worse than a private survey yesterday that indicated a cooling job market. Companies hired 40,000 workers in December, according to data compiled by ADP Employer Services. The figures include only private employment and don't take into account hiring by government agencies.

 

Service industries, which include banks, insurance companies and restaurants, added 93,000 workers last month after gaining 160,000 jobs in November. Retail employment declined by 24,300 after increasing 32,000 in November.

 

Factories, Builders

 

Factory payrolls decreased by 31,000 after falling 13,000 a month earlier. Economists had forecast a drop of 15,000 in manufacturing employment. Builders reduced payrolls by 49,000 after cutting 37,000 jobs in November.

 

Government payrolls increased by 31,000 during the month, indicating private payrolls declined by 13,000.

 

Residential construction started dropping at the start of 2006, weakening job growth as builders, mortgage companies and manufacturers reduced staff.

 

The collapse of the subprime mortgage market in July and August hastened firings at financial companies. National City Corp., Ohio's largest bank, said this week it would eliminate another 900 jobs, bringing total cuts to 3,400, or about 10 percent of its workforce, in one year.

 

The housing market ``corrected with a high degree of suddenness,'' Chief Executive Officer Peter Raskind said in an interview on Jan. 2.

 

Cutbacks

 

Manufacturers are also cutting back as sales of building materials, appliances and furniture weaken, reflecting a 34 percent slump in combined new and existing home sales from their July 2005 peak.

 

Factories have already slowed. ISM's manufacturing index for last month fell to 47.7, the lowest since April 2003, the purchasers group said this week.

 

Today's report showed hourly wages rose 7 cents, or 0.4 percent, on average to $17.71 in December and were up 3.7 percent from a year earlier. Economists had expected a 0.3 percent increase for the month and 3.6 percent for the 12-month period.

 

Average weekly hours worked by production workers were unchanged at 33.8. Average weekly earnings rose to $598.60 last month from $596.23 the prior month.

 

The world's largest economy grew at a 1 percent pace in the fourth quarter after expanding at a 4.9 percent rate the previous three months that was the strongest since 2003, according to the median estimate of economists surveyed last month. Growth for all 2008 was projected at 2.3 percent.

 

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

 

Last Updated: January 4, 2008 16:34 EST

 

 

 

 

 

 

 

AP

Wall Street Falls on Iran Worries

Monday January 7, 10:43 am ET

By Joe Bel Bruno, AP Business Writer

Stocks Move Lower After White House Warns Iran About Provocation in the Strait of Hormuz

http://biz.yahoo.com/ap/080107/wall_street.html

 

NEW YORK (AP) -- Wall Street pulled back Monday after the Bush administration warned Iran following an incident involving that country's forces and three U.S. Navy ships in the Strait of Hormuz.

Stocks, which had opened higher amid speculation about future interest rate cuts, turned lower after reports of the administration's comments appeared on news services .

 

U.S. forces were on the verge of firing on the Iranian boats in the early Sunday incident, when the boats ended the incident. The U.S. government "will confront Iranian behavior" if it threatens the U.S. or its allies, the State Department said Monday.

 

In midmorning trading, the Dow Jones industrial average fell 47.97, or 0.37 percent, to 12,752.21.

 

Broader stock indicators also tumbled. The Standard & Poor's 500 index dropped 5.31, or 0.38 percent, to 1,406.32, and the tech-heavy Nasdaq composite index fell 23.04, or 0.92 percent, to 2,481.61.

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Trade deficit surged in November By MARTIN CRUTSINGER, AP Economics Writer

1 hour, 12 minutes ago

http://news.yahoo.com/s/ap/20080111/ap_on_bi_go_ec_fi/economy

 

WASHINGTON - The U.S. trade deficit in November surged to the highest level in 14 months, reflecting record foreign crude oil prices. The deficit with China declined slightly while the weak dollar boosted exports to another record high.

 

The Commerce Department reported that the trade deficit, the gap between imports and exports, jumped by 9.3 percent, to $63.1 billion. The imbalance was much larger than the $60 billion that had been expected.

 

The increase was driven by a 16.3 percent surge in America's foreign oil bill, which climbed to an all-time high of $34.4 billion as the per barrel price of imported crude reached new records while the volume of shipments declined slightly. With oil prices last week touching $100 per barrel, analysts are forecasting higher oil bills in future months.

 

Ian Shepherdson, an analyst at High Frequency Economics, noted that the deficit was also pushed higher by a big drop in exports of commercial aircraft. He said that setback is likely to be only temporary given the orders backlog that Boeing must fill to meet global demand.

 

The big surge in oil pushed total imports of goods and services up by 3 percent to a record $205.4 billion. Exports also set another record, rising by a smaller 0.4 percent to $142.3 billion. Export demand has been growing significantly over the past two years as U.S. manufacturers and farmers have gotten a boost from a weaker dollar against many other currencies. That makes U.S. goods cheaper on overseas markets.

 

Through the first 11 months of 2007, the deficit is running at an annual rate of $709.1 billion, down 6.5 percent from last year's all-time high of $758.5 billion. Analysts believe that the export boom will finally result in a drop in the trade deficit in 2007 after it set consecutive records for five years.

 

Critics of President Bush's trade policies, however, say the declining deficits will still leave the imbalance at a painfully high level, which they contend reflects unfair trade practices of other nations that have contributed to the loss of more than 3 million U.S. manufacturing jobs since 2000. Trade is expected to be a key issue in this year's presidential campaign, with many Democrats charging that the Bush administration has not fought hard enough to protect American workers and keep companies from shipping jobs overseas.

 

Much of their unhappiness is focused on China, where the U.S. trade deficit through the first 11 months of this year totals $237.5 billion, the highest annual imbalance ever recorded with a single country — with December still left to tally. The November deficit with China dipped slightly to $24 billion, but that was down from a record high of $25.9 billion set in October, when retailers were boosting orders for toys, games and video equipment to stock their shelves for Christmas.

 

Analysts predict further increases in the deficit with China in the months to come as U.S. demand has been unfazed by a string of high-profile recalls of a number of Chinese products, everything from tainted toothpaste to toys with lead paint. China reported Thursday that its trade surplus through December with the world rose by 47.7 percent to a record of $262.2 billion with the December surplus coming in at $22.7 billion, up 9.5 percent from a year ago.

 

Congress is considering bills that would clear the way for economic sanctions on China if it does not allow its currency to rise in value more rapidly against the U.S. dollar. American manufacturers contend the Chinese are manipulating their currency by keeping it undervalued by as much as 40 percent to gain price advantages against U.S. firms.

 

The Chinese warned last month during high-level economic talks that U.S. sanctions could spark retaliation by China. The administration argues that its approach of emphasizing dialogue along with filing trade cases against China at the World Trade Organization represents a better chance of resolving contentious trade issues between the two nations.

 

The growth in exports has been a major factor cushioning the blow to the economy from the slump in housing and a severe credit crunch. However, with oil pushing imports up sharply, analysts believe the help from trade in the final three months of last year will be shown to have been significantly smaller.

 

Many economists believe overall economic growth slowed to a barely discernible 1 percent annual rate in the October-December period and will likely weaken even further in the current quarter, raising fears of a possible recession.

 

The administration and Democrats in Congress are considering putting forward economic stimulus packages to ward off a downturn, and on Thursday Federal Reserve Chairman Ben Bernanke said the Fed was prepared to act in a "decisive" manner to protect the economy, comments viewed as a strong signal of further Fed rate cuts.

 

By country, the deficit with Canada, America's largest trading partner, dropped by 12.1 percent to $4.7 billion in November while the imbalance with Mexico rose by 1.4 percent to $7.6 billion. The imbalance with the European Union fell by 12.6 percent to $10.4 billion.

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Trade deficit is defined as the summed net value of exports minus imports (deficit is always negative).

 

The general theory of exports and the dollar is that if the dollar is strong compared to other currencies, then our exports are expensive for people in other countries. But right now, with the dollar devaluing rapidly, the argument is that our products become cheaper for someone outside the US because they need to pay less of their own currency for our products. Initially, the signs were positive this summer with the big ticket item (airplanes) being a big seller. This was coupled with the repeated Airbus (EU company) delays to launch its new airplanes for sale, so the American company Boeing benefitted greatly.

 

However, this new data suggests that all is not honky-dory with the weak dollar-increased exports theory.

 

Although the author suggests that the uptick in trade deficit is due to a delay by Boeing, the big take away is that the trade deficit is not going down rapidly and debunking the prevailing theory. Although the dollar has been devaluing over a period of five years and has lost nearly 40% of its value against the Euro in that time, our currency has been relatively stable against the Yen (Japan) and the Yuan (China).

 

The bulk of our consumer goods imports are from East Asia and with our currency not falling against those currencies, importing from East Asia has not become a more expensive proposition for American consumers, thus no significant changes in American consumer spending behavior. Additionally, our biggest importing expense (oil) is becoming pricier as the dollar falls and widens our trade deficit.

 

In the meanwhile, Europe has been happy to start snapping up American equities and not buying significantly more American goods which are increasingly affordable for them.

 

The net result, at the end of the day, is that despite a weaker dollar, the trade deficit isnt narrowing because our spending habits havent changed (and is getting more expensive to import) and others arent buying more American products.

 

The interesting thing is that the trade deficit is about 700 billion dollars a year and over half of that is a product of our oil imports. By eliminating oil imports, it would be a broad stroke towards cutting global demand (thus collapsing the price of oil), helping to significantly narrow the annual trade deficit, and counteract the cost-push inflation that we are currently experiencing as a product of the fact that energy is at the root of all economic cost.

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UBS admits that it still cannot quantify its exposure to sub-prime crisis

Miles Costello

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3174685.ece

 

The cloud of uncertainty hanging over the credit markets was thrown into sharp relief yesterday as UBS told investors that it still could not be sure about the full financial impact of the credit crunch.

 

UBS is preparing for writedowns of $13.4 billion (£6.8 billion) against its exposure to the downturn in American sub-prime mortgages.

 

The Swiss bank wrote to investors yesterday telling them that it could not rule out having to record further losses. “We cannot, at this time, accurately predict the future development of US residential mortgage markets and therefore the ultimate impact on our positions in sub-prime mortgage related securities,” the bank told investors in a letter signed by Marcel Ospel, the chairman, and Marcel Rohner, the chief executive.

 

Analysts said that UBS’s uncertainty about its financial position underscored the wider nervousness about the credit markets, amid predictions of a fresh round of losses when banks begin to report full-year results in coming weeks.

 

Alex Potter, at Collins Stewart, said: “I think in general terms that it is still clear that it will get worse before it gets better. In short: expect more writedowns.”

 

UBS was writing to shareholders to try to secure support for a SwFr13 billion (£6 billion) capital injection from a Singapore sovereign wealth fund and a mystery Middle East investor. Late last year the bank said that the Government of Singapore Investment Corporation would inject SwFr11 billion for a stake of about 9 per cent. An unnamed investor from the Middle East, thought to be the Saudi Arabian Monetary Agency, would contribute a further SwFr2 billion for an additional small shareholding, it said.

 

Some shareholders objected to the terms of the financing, which involves the issuance of securities convertible into UBS shares. They threatened to vote down the deal at a special meeting next month unless they were given more details.

 

Stating its case for the investment, UBS admitted in its letter that it had considered a rights issue to stabilise the balance sheet when it realised it was heading for heavy losses. It rejected this on the grounds of “cost, complication and time”.

 

The bank said that it also feared international credit agencies might down-grade its ratings as a result of the losses. This would weaken its funding position and drive up its cost of borrowing on wholesale money markets.

 

UBS acknowledged that it had concerns about the possibility of “unease” among clients and stakeholders because of the extent of its suffering at the hands of the market turbulence.

 

“In view of these adverse market developments, it became increasingly evident that substantial additional writedowns would be required,” the bank wrote, in reference to the sustained money market liquidity crisis in October, November and December. “We then knew that we faced the risk that the sheer size of these numbers, the resulting reduction in our capital ratios and any remaining uncertainty about the ultimate value of our positions could lead to an increased unease for clients and other stakeholders.”

 

UBS has been among the investment banks hardest hit by the credit crunch and has maintained that it needs the capital injection to shore up its financial strength. “During 2008, the environment for financial markets, especially in the US, is uncertain, and we need to manage through this period from a position of financial strength,” it said.

 

A spokesman for the bank said it was not concerned about the possibility of a shareholder rebellion. He said that UBS was updating investors about the terms of the financing and the letter was in line with its desire to be transparent. Investors accounting for two thirds of the share capital need to approve a capital issue in order for the funding to go ahead.

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The article above could be used to answer any evidence saying the subprime mess is over, that the banks have taken writedowns, time to move on. This evidence clearly points out that subprime isnt over, that big banks have no way of determining whether they have taken the correct write downs and that the future is still unsure.

 

 

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Retail in a state of "anarchy" as consumers retreat By Martinne Geller

Sun Jan 13, 4:29 PM ET

http://news.yahoo.com/s/nm/20080113/bs_nm/usa_retail_outlook_dc_1

 

NEW YORK (Reuters) - U.S. chain stores, reeling from the slowest holiday shopping season in five years, got some more bad news on Sunday: 2008 will not be any better and could see changes that may shift the retail playing field forever.

 

As the National Retail Federation kicked off its annual convention in New York, two retail consultants offered negative outlooks for the U.S. retail industry, which has seen consumers pull back amid higher gasoline and food prices, a credit crunch and a prolonged housing market decline.

 

"It's anarchy," said Wendy Liebmann, chief executive of WSL Strategic Retail, frequently repeating the word she used to sum up the latest results of her company's bi-annual shopper study.

 

"Americans cannot control the big things such as oil prices, falling home values, mortgage costs and rising property taxes, so they want to control the small things," Liebmann said. "They are watching what they spend on everything."

 

Liebmann said most shoppers were making fewer weekly shopping trips and spending significantly less on discretionary items such as home appliances and decor, fashion accessories, electronics, perfume, computers and software.

 

The only two categories getting a larger share of consumers' wallets are food and pet supplies, Liebmann said, noting however, that food prices have increased.

 

But with shoppers changing their habits, opportunities also emerge, she noted.

 

Liebmann projected this year's winning retail sectors will be department stores such as Saks Inc (SKS.N) and J.C. Penney Co Inc (JCP.N), in part because they have improved their offerings, and drug stores such as CVS Caremark Corp (CVS.N), that have added things such as better brands of beauty products and in-store health clinics.

 

Losers are likely to be mass merchants like Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N), and specialty stores such as Barnes & Noble (BKS.N), Liebmann said, citing the impact of shoppers making fewer trips and spending more prudently.

 

Yet retailers with exposure to emerging markets such as China and India may be able to offset the weakness in the United States, according to a report by Deloitte Research.

 

REBALANCE OF POWER

 

As consumer spending slows in the United States, it is speeding up in Asia, said Ira Kalish, global director of Deloitte Research. He said the global economy is transforming from how it was over the last decade.

 

"U.S. consumes, China produces and everyone's happy -- that ... can't last forever," Kalish said, adding that the imbalance is "starting to unwind and will impact where spending growth takes place.

 

"Global economic growth in 2008 is likely to be slow," Kalish said, citing a slowdown in U.S. consumer spending and modest decelerations in Europe and Japan as well.

 

"The main engine of global growth will continue to be China and, to a lesser extent, India and the major oil producing countries," in the Persian Gulf and Russia, Kalish said.

 

Aside from that geographic shift, other trends in global retailing include increased focus on added services, such as Best Buy Co Inc's (BBY.N) Geek Squad, social responsibility, improving customers' shopping experiences and retailers aggressively improving their marketing messages, Kalish said.

 

(Editing by Maureen Bavdek)

 

 

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Two interesting things exist in the article above:

1) That American spending will be anemic in 2008, and we all know now that leads to a recession and

2) The global trend in consumer spending will shift from Americans to elsewhere, notably China and India. If you can link an aff case into hurting the Chinese economy, then you can try and use that as a seperate catalyst for bringing the world to its economic knees. Hint: Sudan & softpower.

 

 

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No Quick Fix to Downturn

By PETER S. GOODMAN and FLOYD NORRIS

Published: January 13, 2008

http://www.nytimes.com/2008/01/13/business/13econ.html?_r=2&hp=&pagewanted=all

 

As leaders in Washington turn their attention to efforts to avert a looming downturn, many economists suggest that it may already be too late to change the course of the economy over the first half of the year, if not longer.

 

With a wave of negative signs gathering force, economists, policy makers and investors are debating just how much the economy could be damaged in 2008. Huge and complex, the American economy has in recent years been aided by a global web of finance so elaborate that no one seems capable of fully comprehending it. That makes it all but impossible to predict how much the economy can be expected to fall before it stabilizes.

 

The answer could be a defining factor in the outcome of the fiercely contested presidential election. Not long ago, the race centered on the war in Iraq.

 

But now, as candidates fan out across the country, visiting places as varied as the factory towns of Michigan and streets lined with unsold condominiums in Las Vegas, voters are increasingly demanding that they focus on the best way to keep the economy from slipping off the tracks.

 

The measures now being debated in Washington and on the campaign trail — tax rebates, added help for the unemployed and those facing sharply higher heating bills and, most immediately, a move by the Federal Reserve to further cut interest rates — could certainly moderate the severity of a downturn. Democrats and the Bush administration are considering a package of such measures that could reach $100 billion.

 

But the forces menacing the economy, like the unraveling of the real estate market and high oil prices, are too entrenched to be swiftly dispatched by government largess or cheaper credit, some economists say.

 

“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”

 

In the view of many analysts, the economy is now in a downward spiral, with each piece of negative news setting off the next. Falling housing prices have eroded the ability of homeowners to borrow against their property, threatening their ability to spend freely. Concerns about tightening consumer spending have prompted businesses to slow hiring, limiting wage increases and in turn applying the brakes anew to consumer spending.

 

Not everyone is convinced that the American economy is headed for a recession, defined as six months of economic contraction. The economy often serves up indications of distress that later turn out to be false warnings.

 

But some economists think a recession may have begun in December. In the last two weeks, there have been signs that a substantial downturn may already be unfolding. The Labor Department reported a sharp slowdown in job creation in December. Retailers said that sales last month were extremely disappointing, capping the worst gain for a holiday season in five years. A widely watched index showed manufacturing slowing, despite a weak American dollar that has encouraged growth in exports.

 

The construction of new homes has already fallen by some 40 percent since the peak in 2006. The sales of new homes have fallen even faster, suggesting that a large oversupply of places to live will continue to drag down prices.

 

Home prices have dropped by about 7 percent since the peak in 2006, but some experts suggest they could fall by another 15 to 20 percent before hitting bottom.

 

“There is still a long way to go,” said Nouriel Roubini, an economist at the Stern School of Business at New York University and chairman of the research firm RGE Monitor.

 

Mr. Roubini has long predicted the real estate downturn would cause a severe recession. He envisions foreclosures accelerating this year, and banks counting fresh losses. That could make them less able to lend and further slow economic activity, not just in the United States but around the world.

 

“We’re facing the risk of a systemic financial crisis,” Mr. Roubini said. “It’s not just subprime mortgages. The same kind of reckless lending has been occurring throughout the financial system. And it’s not only mortgages: Now it’s credit cards and auto loans, where we see problems increasing. The toxic junk is popping up everywhere.”

 

Banks, including commercial banks and investment banks, have so far acknowledged losses of some $100 billion, yet anxiety persists that more large write-offs are coming.

 

“Firms will go to great lengths to hide or delay reporting losses,” said Paul Ashworth of Capital Economics. “What we know now therefore might only be the tip of the iceberg.”

 

In a speech on Thursday, the Federal Reserve chairman, Ben S. Bernanke, zeroed in on the nervousness of bankers as a prime factor slowing the economy, even as the Fed tries to stimulate it with cheaper credit.

 

“Developments have prompted banks to become protective of their liquidity and balance sheet capacity and thus to become less willing to provide funding to other market participants,” he said. His comments were widely construed as an assurance that the Fed would soon cut rates again. The Fed already dropped rates three times during the last four months of 2007.

 

Wall Street has clamored for the Fed to keep lowering rates, cognizant that cheaper credit is generally good not just for encouraging borrowing and spending but also for corporate profits.

 

But some economists fear that lower rates will simply provide a short-lived boost at the expense of the economy’s longer-term health: Cheap money encourages foolish investments, they say, which is precisely how Americans came to experience the evaporation of wealth in the Internet era, followed by housing prices rising beyond any reasonable connection to incomes.

 

“This appears to be a panic on the part of the Fed,” said Michael T. Darda, chief economist at MKM Partners, a research and trading firm. “The housing bubble was a reaction from the effort to protect us from the collapse of the tech bubble. What’s the next bubble going to be as a consequence of trying to protect us against this?”

 

Mr. Darda asserts that the economy would be fine if left to its own devices, maintaining that the job market is healthier than most economists think. He contends that the December jobs report is likely to be revised to show that far more jobs were created than the 18,000 reported by the Labor Department.

 

“That could be important in terms of reversing the direction,” Mr. Darda said. “We need to see evidence that the labor market isn’t falling apart. That’s critical.”

 

But most economists seem convinced that the economy has slowed significantly, and say it is the severity of a downturn that is in doubt, not the existence of one.

 

“If we have a recession with a modest consumer retrenchment, and the rest of the world holds up, this could be three quarters of disappointment,” said Robert Barbera, the chief economist of ITG. “The risk is a more dramatic decline for the consumer.”

 

There is little doubt that the Fed will lower its benchmark rate later this month, making it cheaper for banks to lend money to one another. But there is more doubt whether Washington can quickly agree on fiscal policy moves — that is, raising spending or cutting taxes — in an election year in which the White House and Congress are controlled by different parties.

 

A recession could pack enormous political consequences. Over the last century, the economy has been in a recession four times in the early part of a presidential election year, according to the National Bureau of Economic Research. In each of those years — 1920, 1932, 1960 and 1980 — the party of the incumbent president lost the election.

 

Much discussed now in Washington and on the campaign trail is a potential rebate for taxpayers, similar to one that seemed to lubricate spending during the last recession six years ago. But worries remain over whether such a move could exacerbate inflation, and some doubt that the benefits would be felt rapidly enough to justify the risks.

 

While tax rebates can encourage spending and generate jobs, Mr. Roubini said, the government cannot afford to unleash the significant amounts — $300 billion or $400 billion — that he believes would be required to ensure a substantial rebound in economic growth.

 

“Whatever they’re going to do,” he said, “it’s going to be cosmetic.”

 

And most economists concur that even meaningful policies will probably take several months to filter through such an enormous economy. By the time they take effect, the country could already be in a recession.

 

 

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This evidence can be looked at in several ways:

1) the aff advantage of helping the economy may not come in time

2) the neg has greater uniqueness on the recession threshold - the aff could more likely cause depression from a recession

3) the impending slowdown requires a greater finesse than political promises of tax cuts which wouldnt filter through the economy for another year - something more immediate is necessary.

 

This can work for the aff and neg depending on the argument you want to make.

 

 

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GLOBAL INVESTOR

Passing The Devalued Buck

Bush's mortgage-freeze plan sets a disturbing precedent. What's next, a moratorium on car payments?

By Peter Schiff | NEWSWEEK

Jan 21, 2008 Issue | Updated: 12:42 p.m. ET Jan 12, 2008

http://www.newsweek.com/id/91629

 

As 2008 gets underway, the United States' dependence on foreign-supplied capital is becoming ever more apparent. The question for the New Year: how long can the taps remain open? With few big American investors able or willing to open their wallets, Morgan Stanley and Citigroup recently sold large chunks of their businesses to sovereign-wealth funds in Asia and the Middle East. The buyers were enticed with very favorable terms in the form of preferred shares with high dividend streams, plus seniority over existing shareholders, which offers greater claims on assets and profits in the event of disaster. The courting will continue; Merrill Lynch recently announced that it is still looking abroad for capital despite a recent $5 billion sale of stock to the government of Singapore.

 

While these deals are necessary, they are nothing to celebrate. After all, Americans are simply selling off assets to satisfy our debts and to fuel consumption. This is known as selling the cow to buy milk.

 

Meanwhile, foreigners investing and selling into the U.S. markets over the past year have themselves pulled a short straw. The U.S. stock market lagged behind foreign markets in 2007, as it has for much of the decade. Debt investors suffered from the implosion of securitized U.S. home mortgages, and exporters to the U.S. saw their profit margins erode with the falling dollar. Even conservative holders of U.S. cash or government bonds took it on the chin as the dollar plummeted.

 

Despite this financial train wreck, 2007 was another record year for Wall Street bonuses. Although the large investment banks lost tens of billions of dollars, and sold the world on bogus financial structures that now threaten disaster, the executives at the top U.S. firms are once again being showered with embarrassing riches. In this "heads we win, tails you lose" aspect of American finance, these firms have made it clear that their executives will not be forced to share in the misery of their shareholders.

 

Of course, none of this has stopped the foreign run on U.S. companies. The recent infusions have totaled a staggering $27 billion, and could go much higher. No doubt many see the falling dollar as an opportunity to snap up seemingly sound U.S. assets at bargain-basement prices. However, as the weakness of the American economy and the global costs of our mismanagement are becoming increasingly harder to ignore, it can only be a matter of time before the buyers become more wary.

 

In recent months, financial institutions around the world have ceased lending to one another. The freeze results from a global financial minefield seeded with exploding U.S. subprime debt. There is no certainty about who holds such debt, how much it may actually be worth and whether those holding it may be on the brink of insolvency. In an environment where invisible risk is everywhere, banks logically stop lending. The European Central Bank has responded by pumping in €350 billion ($500 billion) in short-term loans in hopes of cajoling European banks to loosen up. Although the policy seems to have generated some short-term success, this type of cavalier monetary policy does not come without inflationary consequences that will be borne by eurozone consumers.

 

Meanwhile, U.S. policymakers are mollycoddling American consumers. Of particular concern is the Bush administration's mortgage-freeze plan. By unilaterally shifting the financial pain to lenders, many of whom live overseas and don't vote in U.S. elections, politicians are making it clear that American consumers will not be allowed to suffer the ill effects of excessive indebtedness.

 

Damaging as the plan may be, it is nothing compared with what some presidential candidates and members of Congress are cooking up. As the housing crisis gets political, we can expect ideas such as a perpetual freeze on foreclosures, automatic loan reductions and enormous tax breaks financed by increased deficit spending. Delinquencies on auto loans are reaching record highs. What's next, a moratorium on car payments? In an election year, anything is possible.

 

With the U.S. economy finally stalling under its gargantuan debt burden, the rallying cries for Fed rate cuts have been deafening. Although "Helicopter" Ben Bernanke has done his part by cutting rates 100 basis points and devising new ways to shower the country in cash, his efforts have not been enough for ravenous bankers and politicians. Their zeal to keep the housing bubble from deflating, and the economy from tipping into recession, should make it clear to foreign investors that the United States will continue to rely on dollar depreciation as a blunt instrument to fight all its economic battles. As a result, America will remain a financial black hole in the coming year.

 

These are real risks that will not go unnoticed by a world already saturated with depreciating U.S.-dollar-denominated debt. Given that access to foreign savings is vital to America's economic survival, we should think twice before biting the hands that feed us.

 

Schiff is president of the brokerage firm Euro Pacific Capital and author of “Crash Proof: How to Profit From the Coming Economic Collapse.”

 

 

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The nice thing about this article is that it nicely sums up what the American Fed's strategy is: to lower the interest rate to spur the economy and let the dollar devalue against other currencies hoping that exports increase and the trade deficit shrinks. The problem is that doing so bites the hand that feeds us. Other countries keep lending us money because our interest rates are high. They measure the risk of lending to us against the amount of interest they are paid. If the dollar keeps collapsing, that means that whatever interest we pay them may not keep up with the depreciation of the dollar and the foreign investors could lose money by lending us money. Example: Lets say you loan the government $100 and the government agrees to pay you $5 in interest + the $100 in one year. So at the end of the year, you expect to have profited by $5 (or 5%). But what if the value of the dollar goes down by 10% in one year? Suddenly that $105 is worth only $94.5. Even though you earned money in interest, you actually lost money because the dollar was worth less. Thus, if investors are going to get screwed on the deal, they stop lending money to us.

 

Thus, it can be shown that the Fed's pattern of actions would be consistently predictable in the near future. If the aff plan results in economic downturn, the fed can be shown to be willing to lower rates in response and that might cause other countries to stop loaning us money, and then we default on debt, which is universally bad.

 

 

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US hit by price rises in Chinese imports

By Stephen Foley in New York

Published: 12 January 2008

http://news.independent.co.uk/business/news/article3331379.ece

 

The price of goods imported from China into the US is rising at a record pace, according to federal government figures, which suggest the American economy can no longer rely on low-cost manufacturing in the Communist state to hold down inflation.

 

The price of goods from China was up 0.1 per cent in December and up 2.4 per cent over 2007 as a whole. That record annual increase reflected the weakening of the dollar and China's own problems with inflation, which prompted the Communist government to introduce price controls on energy earlier this week.

 

Overall import prices – taking in goods from all countries outside the US – were up 10.9 per cent in 2007, the Labor Department said yesterday. That is the highest calendar-year inflation rate since the government began compiling statistics 20 years ago.

 

The figures reignited fears of inflation in the US, leading economists and investors to worry that the Federal Reserve might not have as much room to cut interest rates as hoped. On Thursday, the Federal Reserve chairman, Ben Bernanke, said that he was ready to make "substantive" interest rate cuts to ward off a recession. Yesterday, the Dow Jones Industrial Average had by lunchtime wiped out the gains his remarks had caused the day before.

 

The high price of imported oil contributed to the growth of import prices in 2007 and pushed the US trade deficit to a 14-month high of $63.1bn (£32.2bn) in November. The trade gap with China, though, fell slightly to $24.0bn from its record level of $25.9bn the previous month. Imports of cheap manufactured Chinese goods have become a mainstay of the US consumer economy, and the US trade deficit with China in the first 11 months of 2007 reached $237.5bn, taking it past the record $232.6bn set for the whole of 2006.

 

China's 2007 trade gap with the European Union, Beijing's biggest trading partner, rose even faster, expanding by 46 per cent to $134.3bn.

 

 

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This is pretty good evidence for reasons why cost push inflation is occurring - because China is experiencing inflation thus they push the costs to the consumers, the United States.

 

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Consumer confidence sinks to record low By JEANNINE AVERSA, AP Economics Writer

Fri Jan 11, 6:38 AM ET

http://news.yahoo.com/s/ap/20080111/ap_on_bi_ge/consumer_confidence_8

 

WASHINGTON - Consumer confidence fell to an all-time low as worries about jobs, energy bills and home foreclosures darkened people's feelings about the country's economic health and their own financial well-being.

 

According to the RBC Cash Index, confidence tumbled to a mark of 56.3 in early January. That compares with a reading of 65.9 in December — and a benchmark of 100 — and was the worst since the index began in 2002.

 

"People are anxious because everything sounds pretty awful these days," said Bill Cheney, chief economist at John Hancock Financial Services Group.

 

Economists cited several factors for consumers' gloomy outlook:

 

_Hiring practically stalled in December, pushing the unemployment rate to 5 percent, a two-year high, the government reported last week.

 

_The meltdown in the housing market has dragged down home values and made people feel less wealthy.

 

_Harder-to-get credit has made it difficult for some to make big-ticket purchases.

 

_High energy prices are squeezing wallets and pocketbooks.

 

_There has been much hand-wringing on Wall Street and Main Street as to whether all these problems will plunge the country into recession.

 

"Consumers are gloomy. The confidence reading suggests that people believe bad times are upon us," said Richard Yamarone, economist at Argus Research.

 

Over the past year, consumer confidence has eroded sharply as housing and credit woes took their toll. Last January, confidence stood at a solid 95.3. The index is based on the results of the international polling firm Ipsos.

 

The White House is exploring a rescue plan, possibly including a tax cut, to aid the ailing economy. Federal Reserve Chairman Ben Bernanke, criticized for not doing enough, pledged on Thursday to keep lowering interest rates. They are expected to drop by as much as one-half of a percentage point when central bank policymakers meet later this month.

 

The public is giving President Bush low marks for his economic stewardship. His approval rating on the economy dipped slightly to 33 percent in January, from 36 percent in December, according to a separate Associated Press-Ipsos poll. His overall job-approval rating was 34 percent, compared with 36 percent last month.

 

Individuals' sentiments about the economy and their own financial fortunes over the next six months actually fell into negative territory in early January. This gauge came in at a negative 8.2 percent. That was the weakest showing since right after the Gulf Coast hurricanes in August 2005.

 

Another measure looking at current economic conditions dropped to 78.9 in January. That was the lowest reading since early March 2003, when U.S. troops invaded Iraq.

 

Oil prices recently surged past $100 a barrel, though the price has moderated somewhat. Gasoline has topped $3 a gallon. Those high energy costs for fueling cars and heating homes are leaving people with less money to spend elsewhere, analysts say. In turn, prices for some other goods and services have risen.

 

Economists keep close tabs on confidence barometers for clues about people's willingness to spend.

 

A gauge of attitudes about investing, including comfort in making major purchases, dipped to 76.3 in January. That was the lowest since May 2005.

 

The housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said Thursday.

 

Many economists believe upcoming reports will show the economy grew at a feeble pace of just 1.5 percent or less in the final three months of last year and will be weak in the first three months of this year. Major retailers reported weak sales for December.

 

Another index tracking consumers' feelings about employment conditions fell to 106.9 in January, a two-year low.

 

Government and private employers last month added the fewest new jobs to their payrolls in more than four years. In fact, employment at private companies alone actually declined. The jobless rate climbed to 5 percent in December, from 4.7 percent. The Labor Department's report, issued last week, stoked fears about a recession.

 

The RBC consumer confidence index was based on responses from 1,027 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. The survey was taken after the employment report but before Bernanke's comments Thursday signaling additional rate cuts. Results of the survey had a margin of sampling error of plus or minus 3 percentage points.

 

The overall confidence index is benchmarked to a reading of 100 in January 2002, when Ipsos started the survey.

 

 

==========================================================

This article validates the idea that consumer spending will likely slow down because the consumers do not have a favorable outlook on the economy. They are worried about their jobs and rising costs, so they are more likely to save and not spend. Not spending leads to a bigger slowdown and it spirals...

 

 

========================================================== Moody's says overspending threatens U.S. debt rating

Submitted by cpowell on Fri, 2008-01-11 17:05. Section: Daily Dispatches

By Francesco Guerrera, Aline van Duyn, and Daniel Pimlott

Financial Times, London

Thursday, January 10, 2008

http://www.gata.org/node/5919

http://www.ft.com/cms/s/40f3a2be-bfa9-11dc-8052-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F40f3a2be-bfa9-11dc-8052-0000779fd2ac.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fwww.gata.org%2Fnode%2F5919&nclick_check=1

 

NEW YORK -- The United States is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and Social Security spending, Moody's, the credit rating agency, said on Thursday.

 

The warning over the future of the triple-A rating -- granted to US government debt since it was first assessed in 1917 -- reflects growing concerns over the country's ability to retain its financial and economic supremacy.

 

It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November's presidential elections.

 

Most analysts expect future governments to deal with the costs of health care and social security and there is no reflection of any long-term concern about the US financial health in the value of its debt.

 

But Moody's warning comes at a time when US confidence in its economic prowess has been challenged by the rising threat of a recession, a weak dollar and the credit crunch.

 

In its annual report on the US, Moody's signalled increased concern that rapid rises in Medicare and Medicaid -- the government-funded health care programmes for the old and the poor -- would "cause major fiscal pressures" in years to come.

 

Unlike Moody's previous assessment of US government debt in 2005, Thursday's report specifically links rises in health care and Social Security spending to the credit rating.

 

"The combination of the medical programmes and social security is the most important threat to the triple-A rating over the long term," it said.

 

Steven Hess, Moody's lead analyst for the US, told the Financial Times that in order to protect the country's top rating, future administrations would have to rein in health care and Social Security costs.

 

"If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A credit," he said.

 

Mr Hess said any downgrade in the US rating would have serious consequences on the global economy. "The US rating is the anchor of the world's financial system. If you have a downgrade, you have a problem," he said.

 

Moody's did once threaten to cut the rating of some of the US Treasury's debt when Congress refused to pass the president's budget in the mid-1990s.

 

 

==========================================================The interesting thing about this article is that you can use small spending to precipitate an impact story. Its not the aff spending that collapses the economy in the future, its the fact that we could solve Medicare and Social Security if it werent for the fact that the aff is spending now. Since one of the core assumptions we make in debate is that fiat assumes no change in government policy other than the plan, then the aff cant have the recourse of saying 'the govt will end SS/Medicare and then we wont have to pay it' or any other change in government policy.

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Wholesale prices soared last year

By MARTIN CRUTSINGER, AP Economics Writer

24 minutes ago

http://news.yahoo.com/s/ap/20080115/ap_on_bi_go_ec_fi/economy

 

Wholesale inflation last year shot up by the largest amount in 26 years while retailers suffered their worst December shopping season in five years as mounting economic woes caused consumers to put away their wallets.

 

The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.

 

Meanwhile, retail sales fell by 0.4 percent in December, the worst showing in six months, the Commerce Department reported. Consumer confidence has plunged, reflecting the worsening housing slump and a lingering credit crisis.

 

In a third report, the government said that inventories held by businesses rose by 0.4 percent in November, reflecting big increases in stockpiles held by manufacturers and wholesalers. The 0.4 percent rise matched a similar increase in September and was in line with expectations. Inventories had risen by a much smaller 0.1 percent in October.

 

The poor showing for retail sales and a disappointing quarterly report from Citigroup Inc. renewed recession worries on Wall Street. In early morning trading, the Dow Jones industrial average was down more than 100 points.

 

"Consumers held tight to their wallets in December, raising questions about whether household spending will be enough to keep us out of a recession," said Joel Naroff, chief economist at Naroff Economic Advisors.

 

For inflation, the year ended on a more positive note with wholesale prices falling by 0.1 percent in December. That reflected decreasing costs last month for gasoline and other energy products. It was a significant slowdown after prices had soared by 3.2 percent in November, which had been the biggest one-month increase in 34 years.

 

The combination of rising inflation pressures and a weak economy represent a dilemma for the Federal Reserve over whether to cut rates to boost economic growth even at the risk of making inflation worse.

 

Federal Reserve Chairman Ben Bernanke last week sent a strong signal that the Fed is more worried at the moment about weak growth than inflation — given a series of weaker-than-expected data in recent weeks. He is certain to quizzed on those comments when he testifies Thursday before the House Budget Committee.

 

The economy skidded to a virtual standstill in the final three months of last year, raising fears the country could fall into a recession, unable to withstand the multiple blows from the prolonged downturn in housing, a severe credit crisis and soaring energy costs.

 

Already, unemployment is rising. The jobless rate jumped to 5 percent in December, up from 4.7 percent in November. That was the biggest one-month surge in unemployment since October 2001 in the wake of the 2001 terrorist attacks.

 

The various economic threats have sent consumer confidence plunging and pushed the economy to the top of voters' concerns. Political leaders have responded, with President Bush, Democrats in Congress and presidential candidates from both parties putting forward economic stimulus proposals.

 

The 6.3 percent increase in the Producer Price Index, which measures cost pressures before they reach the consumer, followed a much more moderate 1.1 percent increase in 2006.

 

It was the biggest annual price gain since a 6.3 percent rise in 1981, a year when the Federal Reserve was aggressively raising interest rates in a successful effort to combat a decade-long bout of stagflation, rising inflation in conjunction with weak economic growth.

 

The big increase last year reflected the fact that energy prices rose by 18.4 percent after having declined by 2 percent in 2006. It was the biggest annual increase in energy costs at the wholesale level since they rose by 23.9 percent in 2005.

 

However, core inflation, which excludes energy and food, was considerably more moderate, rising by 2 percent last year, the same as in 2006. The Fed is closely watching core prices for any signs that the price pressures being seen in energy and food are starting to spread to other parts of the economy.

 

For December, the 0.1 percent drop in overall prices reflected a 1.9 percent plunge in energy and a 1.3 percent rise in food costs. Outside of food and energy, core inflation posted a moderate 0.2 percent increase.

 

 

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This is big news. Wholesale inflation is speeding up. How long do you think before that rise in costs is pushed to the consumer?

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