James Pethokoukis

Politics and policy from inside Washington

Is unemployment finally biting consumer confidence?

May 22, 2009 14:23 UTC

Consumer confidence has strengthened as the prospects of a Great Depression 2.0 have seemingly subsided. But it’s out of the frying pan and into the fire thanks to rising unemployment.  And maybe that explains these plunging consumer confidence numbers from Rasmussen:

The Rasmussen Investor Index dropped 15 points on Friday, the largest single day decline ever recorded in its seven-year history. The drop caps a week of extreme volatility for the Index and now shows investor confidence at the lowest level in two months. The culprit—both for the volatility and the current low level of confidence—is shifting perceptions on where the economy is heading next. Today, just 24% of investors say the economy is getting better while 47% say it is getting worse. A couple of days ago, the outlook was much less pessimistic: 34% better and 40% worse.

Another mustard seed

May 22, 2009 14:13 UTC

The Cleveland Fed likes what it sees in the steepening yield curve, but no guarantees:

More generally, a flat curve indicates weak growth, and conversely, a steep curve indicates strong growth. One measure of slope, the spread between ten-year Treasury bonds and three-month Treasury bills, bears out this relation, particularly when real GDP growth is lagged a year to line up growth with the spread that predicts it.

Cap-and trade? Call me in 2010. Maybe 2011

May 22, 2009 14:07 UTC

I think political analyst Dan Clifton of Strategas, an institutional research firm, has it about right concerning the prospects for a cap-and-trade climate bill passing Congress this year:

We do not believe the cap and trade bill being shepherded through the House Energy and Commerce Committee by Rep. Waxman will be signed into law this year, or even next year. Although the bill is expected to make it through the Energy and Commerce Committee Thursday night, after recess Waxman will begin talks with Ways and Means Chair Rangel, who does not see climate change legislation as a priority and is reportedly not convinced that cap and trade is the best option. We note there are 8 committees with jurisdiction over the bill, including Agriculture, chaired by Rep. Peterson who is insisting on his own mark up and has concerns about the proposal. That being said, with international climate talks slated for through the summer leading up to December’s Copenhagen meeting, it will remain a hot topic through the recess as members defend their positions to voters that in many cases lack clarity on the issue, the costs and the emission permit allocation politics.

Me: For Republicans, this is the ideal scenario. The bill doesn’t pass but it remains alive as an election issue in the 2010 congressional midterm elections.  From my conversations with folks over there, it is clear to me that they think it is a HUGE winner for them. And the Dems might not disagree.

COMMENT

With reference to the above article, the short article below explains the scenario in the Asian Climate Change context.

“Green Energy : A Paradigm Shift in Sustainability”

Green energy is not something new since the discovery of the depletion of the ozone layer and global climate change as a direct impact of green house effect on a worldwide scale.

Various international conventions/agreements on the reduction of green house effect will remain forever on glossy papers if countries around the world are not serious in committing themselves towards real implementation within national boundary.

Political will power, or even real politics for that matter alone, is insufficient in promoting green energy as attested by the economics of reality in both developed and developing countries.

A paradigm shift is needed in forging a new instrument of international co-operation within the wider framework of Free Trade Agreements and joint conviction shared by stakeholders such as the OECD, major banking bodies(i.e. IMF, World bank, ADB) and leading industrial/corporate entities.

……………………………….
Jeong Chun-phuoc
lecturer-in-law
[an an advocate of Competitive & Strategic Environmenting]
Jeongphu@yahoo.com

Posted by JEONG CHUN PHUOC | Report as abusive

China: U.S. climate bill too wimpy

May 22, 2009 13:55 UTC

I will admit that when I read the headline “China Looks for Big Cuts in Emissions” in the WSJ today, I thought the country had radically shifted policy and was joining the cap-and-trade crowd. My bad. The Reuters hed is more accurate: “China tells rich nations to cut emissions by 40 percent.” (Read the story.) I think it is more likely that the U.S. will eventually slap a carbon emissions tafiff on Chinese goods than it will accede to such demands, not that I think the former is too likely either.

Environmentalists: Climate bill won’t work

May 22, 2009 01:23 UTC

This just arrived in my inbox from Friends of the Earth. Here is why the group says it can’t support the Waxman-Markey climate bill:

1) It sets the bar too low. It would reduce pollution, but not enough to save us from catastrophic effects of global warming. 2) Instead of being forced to pay for the transition to clean energy, corporate polluters would receive hundreds of billions of dollars in handouts, and ordinary citizens like you and me would be stuck with the costs. (That’s why Shell Oil and other corporate polluters support the bill.) 3) The bill contains massive “offset” loopholes that would delay its already-too-weak pollution reductions. 4) Despite the recent financial meltdown, the bill allows Wall Street traders to game new carbon markets, creating the potential for wild swings in energy prices that damage our economy.

COMMENT

With reference to the above article, the short article below explains the scenario in the Asian Climate Change context.

“Green Energy : A Paradigm Shift in Sustainability”

Green energy is not something new since the discovery of the depletion of the ozone layer and global climate change as a direct impact of green house effect on a worldwide scale.

Various international conventions/agreements on the reduction of green house effect will remain forever on glossy papers if countries around the world are not serious in committing themselves towards real implementation within national boundary.

Political will power, or even real politics for that matter alone, is insufficient in promoting green energy as attested by the economics of reality in both developed and developing countries.

A paradigm shift is needed in forging a new instrument of international co-operation within the wider framework of Free Trade Agreements and joint conviction shared by stakeholders such as the OECD, major banking bodies(i.e. IMF, World bank, ADB) and leading industrial/corporate entities.

……………………………….
Jeong Chun-phuoc
lecturer-in-law
[an an advocate of Competitive & Strategic Environmenting]
Jeongphu@yahoo.com

Posted by JEONG CHUN PHUOC | Report as abusive

Who’s going to default?

May 21, 2009 21:14 UTC

Here are some numbers (via The Big Picture) on how investors in credit default swaps views the odds of sovereign debt default by various nations:

In response to the S&P move on the outlook for the sovereign credit rating of the UK, its 5 yr CDS has risen today to 82 bps from 72.5 bps yesterday and is at the highest level since May 6th. For comparison, Italy is at 90 bps up from 84 yesterday, Japan is at 50, unchanged, the US is at 37 bps vs 34, France is at 37 up from 31, and Germany is at 34.5 bps vs 31.

Me: Beyond the UK’s problems, I would note that the US and France are about the same. This says a lot about the rapid decline in the American fiscal position.

CBO: Unemployment headed over 10 percent

May 21, 2009 15:14 UTC

This ugly news from the Congressional Budget Office:

In the Congressional Budget Office’s (CBO’s) judgment, the economy will stop contracting and resume growing during the second half of this year, but the hardships caused by the recession will persist for some time. The growth in output later this year and next year is likely to be sufficiently weak that the unemployment rate will probably continue to rise into the second half of next year and peak above 10 percent. Economic growth over time will ultimately bring the unemployment rate back down to the neighborhood of 5 percent seen before this downturn began, but that process is likely to take several years.

COMMENT

Perhaps the one good side to the issue of unemployment is that more people will have lots of idle time, and maybe they will pay more attention to Washington. Besides, the socialists in Washington will just keep printing money and telling us the recovery is just around the corner!

Posted by Erik Gustav | Report as abusive

The meaning of the California earthquake

May 21, 2009 15:07 UTC

I’ve talked to loads of investors, pro and amateur, who think the game is up.  They think the American economy is doomed to downshift into a permanent slow-growth mode. Massive budget deficits, more regulation, more taxes.  My standard reply points out that global current, debt and equity investors would punish, sooner rather than later, any nation that follows such a course. The financial vigilantes would prevail in the end.

Oh, and the voters might have a say, too — as they did in California, giving a thumping to tax-hiking referendums.  I mean, the common wisdom here in DC is that Americans need to pay higher taxes. And for awhile, many here believed that Americans would accept this perceived reality, despite the fact that President Obama was elected as an (overall) tax cutter. Some polls showed the same thing.

But actual voters sent a different message. It’s the same message that is also cutting the knees out of the Obamacrats’ plans for a cap-and trade system. Americans, facing reduced net worth and a terrifying job market, don’t want government imposing higher costs whether through taxes or regulations. (Especially when the don’t think that government is particually well run or efficient.) And higher taxes for healthcare, too? Plus, if those Obama middle-class tax cuts aren’t extended, many folks will be getting a tax hike in 2011. There seems to be a complete disconnect here between the political class and the rest of the country.

COMMENT

As a California voter, I found it strange that the politicians voted these measures in with an overwhelming majority, while the voters rejected them with an overwhelming majority. That shows the disconnect between the voters and the politicians in the sunny golden state. To correct the problem with the measures at hand, we voted to punish the politicians for having poor performance in governance.

The essence of the election was the people saying (1) stop making up for your mistakes by raising my taxes and (2) how about acting like you know what the heck you’re doing for a change. Over the long haul, this simply reflects that we need a smaller and more efficient government with personnel that are reasonably paid, not overpaid. The politicians will not touch some of these hot buttons at the risk of losing the favor of their constituents. For example, too much funding goes to the Child Protective Services. Because of this, they take on too many cases, rather than limiting the cases to the ones that actually have a problem. I know of one family that has had their children taken away. In that family, there has not been a crime committed, neither is there any danger to the children. However, the cost to the state of California for the charade has run into the tens of thousands of dollars over absolutely nothing. Do you think for a minute that the politicians will reduce funding to CPS? Heck no. They want to raise more taxes on your back and mine. CPS, like any other government agency, knows that if they don’t use their funding this year they will possibly lose some of it next year. That is the essence of how government grows. Once it gets a little larger, it thinks the new size is set in concrete. Only during times like these will government cut back. They have no choice, because the populace is broke. Raising taxes will only extend the recession longer, thereby delaying higher tax revenues.

The meaning of the California earthquake is that all across the nation, the people will get the size of government reduced (a Republican platform) due to lack of tax revenues. We should have kept government smaller all along.

Posted by Braveheart | Report as abusive

Where the growth is going to be

May 21, 2009 13:48 UTC

Not in the US, Europe or Japan, says economic analyst Ed Yardeni:

The “Old World” economies (the US, the UK, the Eurozone, and Japan) are likely to remain challenged by the unwinding of the financial excesses of recent years. They all seem to have lost their entrepreneurial spirit. They all have large government deficits and aging populations. The emerging “New World” economies, particularly in Asia and Latin America, seem to be more dynamic. They certainly have tremendous growth potential by simply catching up to the standard of living of the Old World. Standards of living may grow more slowly than in the past for the roughly one billion people in the Old World as a result of tougher credit conditions.

Meanwhile, 2-3 billion people in the New World are aspiring and perspiring to achieve what we have in the Old World. They were counting on doing so by selling goods to consumers in the Old World. That business model may no longer work for them as well as in the past. So they are likely to do more business with each other. China just became Brazil’s biggest trading partner. For the past 30 years, it was the US. Petrobras, Brazil’s national oil company, is investing $130 billion to purchase drilling equipment to develop its huge offshore oil fields. China has agreed to lend $10 billion to Petrobras. In return, Petrobras is to supply China’s state-owned Sinopec with up to 200,000 barrels a day for the next 10 years. The deal was among a host of agreements signed during Brazilian President Luiz Inacio Lula da Silva’s state visit to China this week.

Unemployment and the 9-handle

May 21, 2009 13:33 UTC

The government’s nastier stress test scenario looked for U.S. unemployment to rise to 10.3 percent. Today’s weekly jobless claims report (631,000) is another indication that we are well on our way to that level. As the econ team at JPMorgan sees things:

Although payroll declines may be easing, continuing jobless claims
indicate that the unemployment rate is still rapidly increasing.
Continuing claims increased 75,000 in the week ending May 9 to 6.662
million, and the insured unemployment rate rose to 5.0% from 4.9%. The
insured unemployment rate has increased a tenth of a percent in every
week since the April household survey week. Given this pattern, the
normal unemployment rate will probably rise from 8.9% in April to at
least 9.2% in May.

  •