C&L Opening Bell, 11-24-10
enlarge Another day, another round of crappy economic news. Anyone surprised? Let’s git ‘er started! The Fed says we’re going to experience more crappy growth and Top Federal Reserve officials expect the unemployment rate to remain around nine percent at the end of next year and eight percent at the end of 2012, according to internal forecasts that drove the central bank to take new efforts to boost the economy three weeks ago. The 18 top leaders of the central bank expect the U.S. economy to grow at a 3 to 3.6 percent pace next year, which by their calculations will be enough to bring joblessness, currently at 9.6 percent, down to the 8.9 to 9.1 percent range in late 2011. In projections made in June, the same officials had been more optimistic, forecasting 3.5 to 4.2 percent growth in 2011 and an unemployment rate that would decline to the 8.3 to 8.7 percent range. Sadly, my experience with watching forecasts is that they’re rarely gloomy enough. So based on that I’d actually expect unemployment to remain close to double digits well into 2012. How does Obama think he’s going to get reelected with that sort of record on jobs again? One of the most baffling aspects of this administration has been its seeming total obliviousness to the economic fundamentals that drive people to vote in different ways. As in, “When there’s 10% unemployment and a quarter of mortgages are underwater, voters are very likely to vote our sorry butts out of power.” It’s not too hard to understand. Top o’ the mornin’ to ye! Ireland is still an unholy mess! And the International Monetary Fund, which has traditionally done bang-up work in places like Argentina , are urging the Irish to slash its social safety net even more to pay for massive bank bailouts: Ireland should gradually lower unemployment benefits and cut the level of its minimum wage in order to boost employment, the International Monetary Fund said in a paper released on Monday. The paper, approved by Ajai Chopra, the IMF’s mission chief negotiating terms of a joint rescue package with the EU in Dublin, said Ireland should introduce stricter job search requirements, give more resources to unemployment agencies to promote job search assistance, and review the level of minimum wage to make it consistent with a general fall in wages. This sort of report makes me wish that The Leprechaun really existed so he could jump out of the shadows and bite the IMF economists in their faces while saying, “You’ll never give me pot o’ gold to Deutsche Bank, ye scumbag!” Nouriel “Dr. Doom” Roubini is probably right that Greece, Ireland, Portugal and maybe even Spain and Italy might have to leave the Eurozone after they restructure (i.e., default on) their debts: “We started with private debt, we socialized it and it became public debt. Now we have sovereigns in trouble being bailed out by essentially super sovereigns, IMF, euro zone, EU,” Roubini told Reuters Insider. “But there’s not going to be anybody coming from Mars or the moon to bail out the IMF or the euro zone.” Asked if the 16-nation euro zone would eventually disintegrate, with some of the more debt-ridden members dropping out, Roubini, head of RGE Global Economics, said: “Eventually that’s likely, but before some of the weaker members exit the monetary union, the more likely scenario that’s going to affect the markets is a corrosive but orderly restructuring of their public debts.” He said that process would not be painless. “The risk is that you start with one and it unravels,” he warned. The reason the bond vigilantes have been circling Greece, Ireland and the other PIIGS countries is because of the Eurozone’s poorly-designed currency regime. If you can issue your own debt but not your own currency, well, that makes it very tough to devalue your currency to increase your exports’ competitiveness during a brutal recession. It also makes it impossible to monetize your debt (i.e., print a bunch of money and shovel it to your creditors) while implementing austerity measures. Turning back to the States, Greg Sargent reports that some recently-elected Tea Party candidates might actually be working on something useful by eliminating some of the government’s truly wasteful farm subsidies for Ethanol: DeMint and Coburn, two leading conservatives, are calling on fellow Republicans to support letting the subidies expire as a way to prove the GOP is serious about reining in government spending. Just as the battle over earmarks did, ethanol subsidies could put GOP Senators who have supported them in the past — such as Grassley and Orrin Hatch — in an awkward spot, driving a wedge between them and conservatives who want a harder line on spending. Now Grassley has responded to our story, firing off an angry Tweet at DeMint and Coburn, asking them rhetorically if they’re also willing to back the expiration of tax subsidies for the oil and gas industry. Coburn, however, appears ready to accept Grassley’s challenge. With Coburn throwing down the gauntlet and saying not even subsidies for the oil and gas industries should be off the table, it seems like there’s a clear opening here for an unorthodox alliance between conservatives like DeMint and Coburn and green groups who also condemn such subsidies. It’s unclear as of yet how hard DeMint and Coburn will push this crusade, but Coburn in particular does seem pretty serious. Can I just say that if Coburn and DeMint are really, truly serious about this that they deserve a round of applause? One of the hallmarks of the Banana Republicanism that ran our country into the ground over the past decade was the horrifying way the GOP let Corporate America use the federal government as its personal ATM machine. I’ll be watching closely to see if they stick to their promises, but if they follow through they deserve a thumbs-up. Media Matters has a pretty hilarious rundown of various Fox News personalities attacking Warren Buffett for daring to suggest that the richest people in America should pay more in taxes. My favorite reaction was Greta’s: I always thought it was sort of appalling when they said to the rich, ‘the rich need to pay their fair share,’ as though they weren’t paying their fair share — although maybe Warren Buffett isn’t paying his fair share — that it was designed to create class warfare. I do love this sort of construction. “Class warfare,” you’ll notice, is always seemingly waged by the poor and middle class against the wealthy. Rich people would never, ever dream of waging class warfare themselves by, say, clamoring for more tax cuts while demanding cuts to Social Security and Medicare. And finally, your Daily Doom Index : – Ten-year treasury yields closed up by 1.46% – Gold futures finished up 1.5% on the day and closed at $1,377.60. You gold bugs are going to feel really, really foolish paying that much for gold if the world doesn’t end. Unfortunately, I’m somewhat reluctant to take the other side of the bet you’re making… – Bonus doom metric : The North Koreans are acting like a-holes yet again. That makes the world feel a little more doom-ier than most days.
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on November 24, 2010. Filed under