Are The Banks Insolvent? Fair Question, Given This…. I‘ve been going through The Fed’s "data dump" that the WSJ has linked and made "easier" for us. And I’ve got lots of questions. Let’s, for example, look at "Bank of Amer NA", otherwise known as BAC. They used the TAF a lot.  Here’s a snapshot: Pay particular attention to that pink column I highlighted. Why? Well, BAC borrowed $15 billion an awful lot.  Maybe the same $15 billion.   Look at the face value of what they posted as collateral. $127 billion – or in one case $185 billion – to borrow $15 billion? What was being posted there – that’s a more than 90% haircut! That’s a fairly clear declaration by The Fed that these "Assets" were worth no more than $15 billion, right?  After all, that’s all they got credit for when posting their collateral. Ok, two immediate questions:

  • •What was that, and at what value was that carried on their balance sheet at the time?
  • •Where is it now and what value is it being carried at TODAY on their balance sheet?

Wealthy people hire people? I didn’t know that. "Unemployed people hire people? Really? I didn’t know that. The truth is the unemployed will spend as little of that money as they possibly can."(here) Rep. John Shadegg of Arizona and Economics Nobel Prize laureate Actually, of course, since Shadegg is right that the unemployed will spend as little of that money as they possibly can, and since as little of that money as they possibly can is, for most of the unemployed, all of the unemployment compensation they receive, unemployed people who receive unemployment compensation, unlike unemployed people who don’t, do hire people. Or at least prevent the layoffs of people.
Shadegg might want to consult the waitress at the coffee shop he stops at in the morning. Or better yet, the real estate agent who’s trying to sell that house down the street from his that isn’t quite yet in foreclosure. Shadegg’s economics theory, of course, would make a perfect subject for our president to use as an object lesson for the public about the Republicans—and as a call to action, or rather anger, by the public. But then, he’d have to actually speak to the public about policy. And since that’s not in his repertoire of things he thinks a president should do, or is not in his repertoire of things he’ll trouble himself to do, Shadegg & Friends will win, on the policy itself and politically; when the economy begins to collapse again, no one will know why, and even then Obama won’t explain or remind them.

If Germany left the eurozone – It may be unthinkable, but I’m not the only one thinking about it. Since my last post, both Capital Economics and Graham Turner of GFC Economics have independently put some numbers together to see what we’d be talking about if Germany took the high road out of the euro. The results are suggestive, to say the least. As I discussed before, there would be a big upfront financial and an economic cost of Germany leaving the single currency – not to mention an enormous political price for walking away from a project in which so much has been invested. The major economic cost would be the hit to competitiveness, because the new German currency would surely go up. Listening to Germany’s politicians and industrialists, you would expect it to have very little impact: in the world market, they tend to argue, German companies compete on quality, not price. But there is no debate about what a revaluation against the rest of the world would do to Germany’s national balance sheet. It would hurt. Capital Economics has come up with a back-of-the-envelope calculation – with a fairly sophisticated envelope.
S&P puts Greece on downgrade watch – says ESM will damage bondholders – Overnight, S&P issued a downgrade watch for Greece on the grounds that the new bailout mechanism will discriminate against private bond holders; the news is a bombshell because it provides evidence that the new EMS will lead to a generalised credit downgrade for the European periphery; Jean Claude Trichet did not announce a monetisation strategy, but the ECB upped its bond purchase operations; the market reacted euphorically, spreads down, euro up; FT Deutschland says Axel Weber really does not care whether he gets the job; Portugal agreed new budget process rules; Wolfgang Munchau writes in the Irish Times that Ireland should renege on the EFSF agreement; Simon Johnson and Peter Boone, meanwhile, argue that the ESM will be ultra-tough. [more]
November Employment Report: 39,000 Jobs, 9.8% Unemployment Rate – From the BLSThe unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today.  The following graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate increased to 9.8% (red line). The Employment-Population ratio declined to 58.2% in November matching the cycle low set in 2009 (black line).  The Labor Force Participation Rate was steady at 64.5% in November (blue line). This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years.  The second graph shows the job losses from the start of the employment recession, in percentage terms aligned at maximum job losses. For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early ’80s recession with a peak of 10.8 percent was worse).

Bridges to Growth, Not Roads to Nowhere: Scaling Up Infrastructure Investment in Low-Income Countries – iMFdirect – For low-income countries, the absence of reliable infrastructure—roads, railways, ports, but also power supply—has become an increasingly binding constraint on growth. And we know that investment in infrastructure can raise productivity, boost growth, and help reduce poverty. But as straightforward as it sounds, getting investment decisions right is no easy feat. For starters, low-income countries have massive investment needs. The World Bank has estimated that, in sub-Saharan Africa alone, the total financing need is around $93 billion per year. And one third of this still unfunded. Even when financing is available, there’s a raft of other issues to tackle. What investments offer the biggest boost to growth? How much investment is needed and by whom? How to finance this investment without taking on too much debt?

Spain and Ireland turn to privatisation –Spain and Ireland are set to launch large-scale privatisation programmes as they fight to preserve market faith in their turnaround plans. The Spanish government is looking at auctioning stakes in its national lottery operator and airports, while Ireland will look at privatisations in its electricity and gas sectors as part of a joint European Union and IMF bail-out package agreed on Sunday.  News of the privatisation plans came as it emerged that the eurozone bail-out fund will next month begin issuing debt on behalf of embattled member states. Any bonds sold would be the first issued in the name of all currency pact members.  Speculation had grown over the last week that the European Central Bank (ECB) was considering taking drastic steps to shore up market confidence in the single currency, with rumours spreading on Wednesday that the ECB had already begun buying Irish bonds to stabilise what had looked to be weakening faith in their value.

CEA Assessment of the the Impact of Letting UI Extensions Expire – From the CEA’s report "The Economic Impact of Recent Temporary Unemployment Insurance Extensions" released earlier today. These conclusions are depicted in Figure 5 from the report. …CEA estimates that in December 2011, without a year-long extension:
  • Employment would be 593,000 lower than if there were an extension; and
  • GDP would be 0.6 percent lower than if there were an extension.
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