■FDIC to vote on how to liquidate firms

Europe Fears Motives Of Chinese Super-Creditor  – Herman Van Rompuy, Europe’s president, said during a visit to Downing Street that the Chinese may have "political" thoughts in the back of their minds for coming to Europe’s help, and gave a strong hint that they are also engaging in currency manipulation.  "When they buy euros, the euro becomes stronger and their currency a little bit weaker. That is not neutral in regard to their competitive position. But I go no further in this topic. It could be too delicate," he said.  Mr Van Rompuy nevertheless welcomed the latest purchases of bonds from the eurozone periphery as a valuable gesture of support. "They invested even in some weak countries, so they are very confident in the solvency of some countries," he said. China has emerged as the transforming force in the eurozone debt crisis over recent days, pledging to use part of its €2.87 trillion (£1.82 trillion) reserves to safeguard global stability. The question is whether the Communist regime is hoping to extract strategic concessions in exchange.

Core measures of inflation increase in December – The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:  According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.7% annualized rate) in December. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.6% annualized rate) during the month. … Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.5% (6.2% annualized rate) in December. The CPI less food and energy increased 0.1% (1.1% annualized rate) on a seasonally adjusted basis.  Over the last 12 months, the median CPI rose 0.6%, the trimmed-mean CPI rose 0.8%, the CPI rose 1.5%, and the CPI less food and energy rose 0.8%  So these three measures: core CPI, median CPI and trimmed-mean CPI, all increased less than 1% over the last 12 months.

Capacity Utilization and Unemployment – According to the latest data released by the Fed, both capacity utilization and industrial production increased in December: Industrial production increased 0.8 percent in December after having risen 0.3 percent in November. … At 94.9 percent of its 2007 average, total industrial production in December was 5.9 percent above its level of a year earlier. The capacity utilization rate for total industry rose to 76.0 percent, a rate 4.6 percentage points below its average from 1972 to 2009. I had graphed the relationship between unemployment and capacity utilization in the past, and there was a fairly close relationship between the two series, so I was about to write that this is good news for unemployment. But when I updated the graph with the latest data, the relationship appears to have broken down to some degree:

 

Fed officials joking about Bear Stearns and Lehman Brothers long before the crisis, November 1, 2005

‘Europe Has to Stop Appearing Like a Headless Chicken’ – There was a small glimmer of hope amidst Europe’s economic gloom this week as first Portugal and then Spain managed to sell bonds at lower than expected interest rates. Yet uncertainty over the extent of the euro zone’s debt crisis and division within the currency union’s leadership about how to address it means that investors are still nervous.  Europe has failed to forge a common stance on whether or not its massive rescue fund needs to be increased, despite the fact that so far only Ireland has availed itself of the loans. While Brussels wants to expand the mandate and lending capacity of the fund, European Union leaders, particularly in Berlin and Paris, are balking at contributing even more to bailing out struggling euro-zone partners.

…abandon claims that they had been sold trash – Via Benzinga, L. Randall Wray notes more of the same for socializing the costs of our financial woes: In truly depressing news, Secretary Treasury Geithner announced he was funneling $2.8 billion more bail-out funds to Bank of America. In the deal, Fannie and Freddie would agree to abandon claims that they had been sold trash in fraudulent “mortgage backed securities” by the BofA. (A similar deal was provided to Ally Financial.)  As I have written, holders of the securities have gradually realized that the securitizations did not meet the “reps and warranties” asserted by the banks that pooled mortgages. A growing number of investors have demanded that the originating banks take back the fraudulent securities, including Fannie and Freddie, as well as the NYFed and PIMCO. But true to form, Timmy prefers to backstop the control fraud banks rather than forcing them to bear the costs of their frauds.
Many Sources Misreporting Illinois Corporate Tax Rate – This week, Illinois raised its corporate income tax from 7.3% to 9.5%. Many media sources have gotten this right, but many (unfortunately including the Associated Press and the Christian Science Monitor) have erroneously reported that the tax changed from a much lower 4.8% to a modest 7.0%. This misreporting comes from counting only one part of the corporate income tax, which officials do because the revenue goes to two different places. Illinois has two components to its corporate income tax: one where revenue goes to the general fund, and one that was enacted to phase out another tax (hence the name, "personal property replacement tax"), with revenues going to local governments. They both tax the same thing and experts treat it as one combined tax. (See Illinois Department of Revenue (PDF, line 2), Federation of Tax Administrators (PDF), the Financial Times, BNA, many media sources, and of course, the Tax Foundation.) That first tax is the 4.8% one that was raised to 7.0%. The second one, the personal property replacement tax, stayed at 2.5%. The combined tax, therefore, went from 7.3% to 9.5%
 

France says EU pondering larger bailout fund (Reuters) – Germany faced mounting pressure from its euro zone partners on Friday to boost a rescue fund for troubled member states after French Economy Minister Christine Lagarde said governments were considering expanding it. In a sign of significant differences within the currency bloc in the runup to a meeting of its finance ministers next week, Chancellor Angela Merkel’s spokesman said the fund set up in May was big enough and sources told Reuters that Berlin was determined to resist increasing it unless the crisis worsened. Lagarde told a news conference: "The increase in the European Financial Stability Facility (EFSF) is one option which we are looking at, of course." In response, the German government reiterated that it saw no need to commit more funds to the 440 billion euro ($590 billion) facility, which has so far been tapped only by Ireland.

Italy: Public debt reaches record level in November – Italy’s public debt rose to a record 1.869 trillion euros in November from 1.867 trillion euros in October, the Bank of Italy said. The figure is equivalent to almost 120% of gross domestic product. Italy sold 3 billion euros of five-year bond at a yield of 3.67 percent, the Treasury said on Thursday. That was the highest yield for the securities since a January 2009 auction and more than the 3.24 percent the last time the debt was sold on 12 November 2010.  Italy’s November public debt was equivalent to 31,165 euros for person living in the country and 89,440 euros for every one of its families, Italian consumer groups Adusbef and Federconsumatori noted.

Markets Shrug Off Fresh Warnings About US Sovereign Debt – TOP credit-rating firms have cautioned the US on its rating, pointing to a deteriorating fiscal situation that they say needs correction.  The warnings echoed previous statements by the companies, however, and financial markets largely ignored them. Treasury yields, which move in the opposite direction as prices, were lower in late-morning New York trade and the cost of insuring US debt against the risk of default, already below that of Germany, the euro-zone benchmark, barely budged. "My traders are shrugging it off as stuff we’ve heard before," said Tom Di Galoma, head of interest-rate trading at Guggenheim.

10 Things That Would Be Different If The Federal Reserve Had Never Been Created The vast majority of Americans, including many of those who believe that they are "educated" about the Federal Reserve, do not really understand how the Federal Reserve really makes money for the international banking elite.  Many of those opposed to the Federal Reserve will point to the record $80.9 billion in profits that the Federal Reserve made last year as evidence that they are robbing the American people blind.  But then those defending the Federal Reserve will point out that the Fed returned $78.4 billion to the U.S. Treasury.  As a result, the Fed only made a couple billion dollars last year.  Pretty harmless, eh?  Well, actually no.  You see, the money that the Federal Reserve directly makes is not the issue.  Rather, the "magic" of the Federal Reserve system is that it took the power of money creation away from the U.S. government and gave it to the bankers. 

Gasoline’s Prepping For A Return To $4 A Gallon
- When the U.S. Energy Department mentioned in a report this week that retail gasoline prices could top $4 per gallon later this year and diesel prices may rise 14% this year, that should’ve been cause for alarm for consumers who have already seen a steady climb in fuel prices in the last three months.  “Retail gasoline and diesel prices are usually near their lowest point for the year between December and February,” said Brian Milne, refined fuels editor at Telvent DTN. But the run-up in prices started in the fourth quarter, with prices continuing to climb on expectations that “an improving U.S. and world economy will bolster demand for fuel.” See Economic Report on the impact of gasoline prices on consumer sentiment this month.. Regular gasoline reached a record high at $4.11 per gallon on July 17, 2008. As of Wednesday, the national average for regular gas stood at $3.09. That’s up nearly 4% from a month ago and more than 12% above the year-ago average, data showed

Fed Assets Rise to Record $2.47 Trillion in QE Purchase Program – The Federal Reserve’s total assets rose by $32.2 billion to $2.47 trillion, the fifth record in six weeks, as the central bank bought Treasury securities as part of the second round of its quantitative easing strategy.  Treasuries held by the Fed rose by $31.1 billion to $1.06 trillion as of yesterday, according to a weekly release by the central bank today. Mortgage-backed securities held by the Fed were unchanged at $992.1 billion, while holdings of federal agency debt fell by $1.13 billion to $146.3 billion in the week ended Jan. 12.  M2 money supply fell by $23.1 billion in the week ended Jan. 3, the Fed said. That left M2 growing at an annual rate of 3.3 percent for the past 52 weeks, below the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.  The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market.

10.8 percent of Clark County homes in foreclosure last year – More than 9 percent of Nevada’s households had a foreclosure filing in 2010 as the state held its nation-leading ranking for the fourth consecutive year, despite a drop from 2009, according to statistics released Thursday. That equates to one in every 11 households with a notice of default or in some other stage of the foreclosure process, California-based RealtyTrac reported. Clark County recorded 88,198 foreclosure filings in 2010, which represents 10.8 percent of its units, or about one filing for every nine households. That’s a 7 percent decline from 2009 but 31 percent higher than 2008, RealtyTrac reported. Nevada’s 106,100 filings represented a 5.3 percent decline from 2009, despite an 18 percent rise in filings in December over November and 14 percent over December 2009, the firm reported.

Consumer Sentiment declines in January – The preliminary Reuters / University of Michigan consumer sentiment index declined to 72.7 in January from 75.2 in December. This was below the consensus forecast of 75.5.  (chart) Sentiment is still at levels usually associated with a recession – and sentiment is well below the pre-recession levels. In general consumer sentiment is a coincident indicator, and this suggests the recovery is still relatively sluggish.
 
Retail Sales increased 0.6% in December – On a monthly basis, retail sales increased 0.6% from November to December(seasonally adjusted, after revisions), and sales were up 7.9% from December 2009.This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline). Retail sales are up 13.5% from the bottom, and now 0.2% above the pre-recession peak.  The second graph shows the year-over-year change in retail sales (ex-gasoline) since 1993. Retail sales ex-gasoline increased by 7.4% on a YoY basis (7.9% for all retail sales).  Here is the Census Bureau report:
 

 Texas May Cut 8000 State Jobs to Avert Tax Rise, Dewhurst Says — Texas, facing a budget deficit of as much as $27 billion over the next two fiscal years, will propose a budget that cuts 8,000 state positions, according to Lieutenant Governor David Dewhurst. Cutting the workforce will help the state avoid a tax increase, Dewhurst spokeswoman Lauren Thurston said today in a telephone interview. Dewhurst, Governor Rick Perry and Speaker Joe Straus, of the House of Representatives, all said this week that the next state budget wouldn’t raise taxes. "This past election showed people do not want their government, ours or the federal government, to be spending more money than they take in,”The state won’t spend more than $77.3 billion in general- fund revenue projected for 2012-2013, Perry said today in a speech in Austin. Maintaining its current service level, adjusting for inflation and population growth, would cost the state $99 billion for the coming fiscal biennium, according to the Center for Public Policy Priorities in Austin. The group advocates for low-income and middle-income citizens.

China has $1.5 trillion in hidden debt: Lawmaker – Billions of dollars of debt racked up by local Chinese governments during their investment sprees are likely to sour as the projects they finance near completion, Yin Zhongqing, a prominent Chinese lawmaker, said this week.  In an interview with Reuters Insider, Yin said local governments had incurred at least 10 trillion yuan ($1.5 trillion) of "hidden" debt, which they have concealed by creating thousands of investment vehicles that serve as borrowers.  Yin said it is not yet clear which loans will sour because they do not have to be repaid until the projects are completed.  "The large amount of debt that local governments took on since the end of 2008 to battle the impact of the global financial crisis will become a heavy burden for our development going forward," said Yin, who is a member of the finance and economic affairs committee in China’s parliament.

China Overtakes US as Biggest Economy When Measured by Purchasing Power – China overtook the U.S. last year as the world’s biggest economy when measured in terms of purchasing power, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington.  The size of China’s economy in 2010 was $14.8 trillion, compared with the U.S.’s $14.6 trillion, when accounting for the countries’ differing costs of living, Subramanian wrote in a note published yesterday, a week before President Hu Jintao visits Washington. So-called purchasing power parity calculates gross domestic product using exchange rates that adjusts for price differences of the same goods between nations.  Growth in the world’s most populous nation has averaged 10.3 percent a year over the past decade, nearly six times faster than the U.S. China was the biggest auto market for the second year running, created the world’s fastest supercomputer and was ranked the biggest user of energy in 2010.

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