HSBC to Announce 10,000 Job Cuts -Sky News

by Insider Scoop - July 30th, 2011 8:43 pm

HSBC (NYSE: HBC) will announce on Monday August 1, it will cut at least 10,000 jobs over the next year, according to Sky News sources. The majority of these job cuts will be outside the UK.

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Policy for a Balance Sheet Recession

by Zero Hedge - July 30th, 2011 7:53 pm

Courtesy of ZeroHedge. View original post here.

Submitted by Luc Vallee.

The Cul de sac of Our Current Policy

The standard tools of stabilization policy are countercyclical monetary and fiscal policy. Both approaches seek to offset fluctuations in spending and income and each derives from the observed correlation between money income and expenditure. These approaches reflect two possible interpretations of the causes of economic downturns: Either it is caused by a drop in spending (which precipitates a decline in money income), or it is caused by a drop in money income (which precipitates a decline in spending).Keynesians view recessions as caused by autonomous declines in private spending (usually investment), interacting with market frictions that impede speedy adjustment; the cure is to raise public spending and deficits to increase aggregate demand.

Monetarist policy derives from Milton Friedman’s observation that nominal income has historically correlated with the broad money supply; the approach is to offset a reduction in the velocity of money – which accompanies all recessions – with an increase of base money. Probably because it is so difficult to disentangle causality between variables that are so highly correlated, neither view has been able to conclusively prevail over the other. It is therefore not surprising the US government reacted to the recent threat of economic meltdown with massive injections of both monetary and fiscal stimulus.

Economists will long debate the efficacy of this policy response but, whatever the results so far, there are constraints that place severe limitations on the effectiveness of traditional policy going forward. The US deficit and the trajectory of US spending is unsustainably high and, as the late economist Herbert Stein famously observed, “what cannot last, will not do so”. Any further fiscal stimulus risks pushing US finances past the tipping point, which would be a reckless gamble. At near zero short term interest rates, traditional monetary policy has become impotent, QE has been ineffective and the Fed has entered uncharted waters with its massive increase in the monetary base, risking inflation once private sector deleveraging ceases and velocity picks up. So neither traditional remedy is available any longer.

Turning to a Neglected Tradition: Irving Fisher and ‘Debt-Deflation’ Dynamics

With US unemployment lodged stubbornly above 9%, what is to be done? Our policymakers, economists and commentators appear trapped in the confines of a paradigm that is no longer

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Guest Post: White House Playbook: Arbitrary Numbers and Financially Ignorant Sloganeering

by Zero Hedge - July 30th, 2011 7:48 pm

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Submitted by Brad Schaeffer

White House Playbook: Arbitrary Numbers and Financially Ignorant Sloganeering

President Obama this Tuesday stated his case for increased taxes on “the rich” as part of his solution to balance the deficit. “Keep in mind,” he assured the American people, “that under a balanced approach, the 98% of Americans who make under $250,000 would see no tax increases at all.”

I have a very basic question that I am not sure anyone has pressed Mr. Obama to answer: Where did this figure of 250k, north of which one is considered by him to be among “the rich” even come from? Its very roundness tells me that it was the result not of a detailed actuarial analysis but rather some sort of arbitrary caprice that only those completely isolated from any private sector experience can conjure up. I almost get the feeling it was something as off-hand as: “Hey 250k sounds right to me. Nice number. So whattya think?” Sure write it in there.

Consider: if you are living in Little Rock, Arkansas and make $249,000 according to the president you are not “rich” and thus do not need to kick in more. Yet if you live in, say, New York City and make $251,000 you are “rich” and so it’s time to ante up. Is that how it works? Again I ask: what is so magical about $250,000? Why is the cut-off not $246,500 or $310,231? Isn’t anyone curious about how this man creates economic policy?

Let’s look at it this way. Someone in the New York metro area making $251,000 need only make $100,000 to garner the same standard of living in Little Rock, Arkansas. For instance, a family of four searching for a two-bedroom apartment in Manhattan can expect to pay anywhere from the low end of $2,100/mo in Harlem to $6,700/mo+ in Tribeca. (That of course makes the two kiddies double up in one room). In Little Rock you can find a comparable apartment for an average of $700/mo. New York’s low end is three times Little Rock’s average. (This standard of living discrpency, in fact, serves as an indictment of the unfairness of our entire messed up tax code but I digress.)

So again I ask where does this $250,000 level come from?

Am I the only one…

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The Empty Bully Pulpit

by ilene - July 30th, 2011 6:01 pm

Courtesy of Robert Reich

How did we get into this mess?

I thought I’d seen Washington at its worst. I was there just after Watergate. I was there when Jimmy Carter imploded. I was there during the government shut-down of 1995.

But I hadn’t seen the worst. This is the worst.

How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?

Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed.

Part of the answer is the continuing gravitational pull of the Great Recession.

But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.

Barack Obama is one of the most eloquent and intelligent people ever to grace the White House, which makes his failure to tell the story of our era all the more disappointing and puzzling. Many who were drawn to him in 2008 (including me) were dazzled by the power of his words and insights — his speech at the 2004 Democratic convention, his autobiography and subsequent policy book, his talks about race and other divisive issues during the campaign.

We were excited by the prospect of a leader who could educate — an “educator in chief” who would use the bully pulpit to explain what has happened to the United States in recent decades, where we must go, and why.

But the man who has occupied the Oval Office since January, 2009 is someone entirely different — a man seemingly without a compass, a tactician who veers rightward one day and leftward the next, an inside-the Beltway dealmaker who doesn’t explain his comprises in light of larger goals.

In his inaugural address, Obama warned that “the nation cannot prosper long when it favors only the prosperous.” In private, he professes to understand that the growing concentration of income and wealth at the top has robbed the middle class of the purchasing power it needs to keep the economy going. And it has distorted our politics.

He is well aware that the Great Recession wiped out $7.8 trillion of home values, crushing the nest…

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On More QE and the Recession that won’t end

by Zero Hedge - July 30th, 2011 5:51 pm

Courtesy of ZeroHedge. View original post here.

Submitted by Bruce Krasting.

Boy does the economy stink! The GDP report from the BEA was about as bad as it could get. I think the economy is rapidly approaching stall speed. The insanity in D.C. has already put an additional damper on the prospects for the future.

Many places that I read jumped on the BEA data and concluded that QE3 is imminent. I think that is all wrong. From the BEA report:

The price index for gross domestic purchases increased 3.2 percent in the second quarter, following an increase of 4.0 percent in the first. Excluding food and energy, the price index for gross domestic purchases increased 2.6 percent in the second quarter, following an increase of 2.4 percent in the first.

In the past six months core inflation has been rising at an annual rate GREATER than 2%. What does Ben Bernanke say about core inflation? When does the Fed get nervous about this measure of price change?

Bernanke has said a half dozen times that he felt that core inflation “around 2%” would be the upper bounds the Fed would tolerate. Anything beyond the 2% level and easy monetary policy would no longer be justified.

In his June 22 press conference he underscored that with this:

We do have to pay adequate attention to our dual mandate.

And this:

It’s not clear we can get substantial improvement without inflation risk.

Yes, it’s correct that Bernanke’s definition of inflation covers a longer period of time than six months, and yes, the last six months is not what he is focusing on. But it is also correct that neither he not his cohorts can ignore what is happening on the inflation front. We are already running a rate of core inflation that is hotter than Bernanke has promised to deliver.

My conclusion is that monetary policy is on hold. The economy would have to be evidencing negative growth for the Fed to act. That is unlikely to happen before 2012. If you’re waiting for a QE3 miracle, you’ll be disappointed.

Change direction back to how very bad the economy is. It’s worse than we thought it was. (At least it’s worse than those…

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Bush vs Obama: Facts And Observations

by Zero Hedge - July 30th, 2011 5:45 pm

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Even as the political posturing over who spent what, how much and when reaches ridiculous levels, courtesy of the St. Louis Fed it is a short 5 minute process to fact check (thanks to the St Louis Fed’s Fred) what the average annual federal expenditures, investment and consumption were/are under the regimes of Bush and Obama respectively. It also allows us to see what the average government saving, or rather, borrowing has been under the two administrations. The result, or rather the step function contained therein, may surprise some. Furthermore, we present a few observations from Sean Corrigan’s latest later on the proclivity of the Obama administration to spend…. and spend… and spend… which demonstrates that while there certainly may be carryover from the previous administration, the eagerness of the current one to fund a record amount of disposable income via state transfer funding can not be blamed on the Bush by any sane person.

First, a head to head comparison of expenditures, investment and consumption. Net result: a 332% difference when it comes to net average annual savings (or rahter the opposite). Guess in whose favor.

And some follow up observations from Corrigan:

Come on, people! This is NOT the fiat money equivalent of the Cuban Missile Crisis, for goodness’ sake! We are not going to reduce the world to cinders on the morning of August 2nd if the imperial presidency actually has to hew to the Constitution for a change!

While there would no doubt be occasion for some interim difficulty in speculative markets if the US did not get to borrow even more next week, the Federal government need not actually default on that fateful day: one should not overlook that it does still face the option of simply not writing as many uncovered cheques as has been its all-too profligate wont.

Be aware that the world’s largest economy still luxuriates in a soaring deficit of over 12% of private sector net domestic product (the wealth-creating rump out of which such debt must be serviced and redeemed) despite the ostensible recovery being enjoyed there. This gap comprises no less than forty, potentially inflationary percentage points of a vast, $3.6 trillion level of annual expenditure which is not only bigger than the

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Europe’s €200 billion reverse wealth tax explained

by ilene - July 30th, 2011 5:14 pm

Courtesy of Harald Hau, writing at VoxEU

Last week, the European heads of government added €109 billion to the existing €110 billion rescue plan for Greece. As Europe’s financial sector would have otherwise taken a huge hit, this column address the question: How did the financial sector manage to negotiate such a gigantic wealth transfer from the Eurozone taxpayer and the IMF to the richest 5% of people in the world?

When the deal was announced, German Chancellor Merkel highlighted the private-sector involvement. She stressed that this was the result of German intransigence. According to the spin, private creditors have to accept a 21% write-down on their claims. This amounts to a €37 billion private-sector contribution. They also provide €12.8 billion in new loans for debt buyback. This buyback, however, should not count as a private-sector contribution as it amounts to an exchange of one debt for another.

The private creditors’ contribution is therefore extremely modest compared to the €109 billion in new public commitments. Especially given that private creditors had the most to lose. Given that the market discount was already 50% for Greek debt, giving up 21% could be viewed as a gain. This has to be qualified as a very bad negotiation outcome for the Eurozone taxpayer.

A closer look shows the deal is much worse for taxpayers

The new plan foresees so-called credit enhancement for the new debt, which means that the new Greek debt is mostly guaranteed by the European Financial Stability Facility (EFSF) – and thus by the taxpayers. Now, in the financial world, a guarantee is worth hard cash – it’s like getting automobile insurance for free.

This is no small concession given that a successful turnaround for Greece is highly uncertain. The economy still is burdened with an excessive debt of around 132% of GDP; large structural policy reforms have not yet begun and may well fail. Most creditors can foresee this and are happy to accept the public guarantees for their debt before the next and much bigger haircut comes.
We can therefore expect that they take up the debt exchange offer “voluntarily”, since it is effectively a gift to sovereign creditors and not a bailout contribution.

What about Egalité? Tax for wealth, or on wealth?

More surprising is Sarkozy’s spin on these events. He interpreted the new deal as an important step towards Europe’s economic governance. But before taking…

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The Biggest Driver in the Deficit Battle: Standard & Poor’s

by ilene - July 30th, 2011 5:08 pm

Courtesy of Robert Reich

If you think deficit-reduction is being driven by John Boehner or Harry Reid, think again. The biggest driver right now is Standard & Poor’s.

All of America’s big credit-rating agencies — Moody’s, Fitch, and Standard & Poor’s — have warned they might cut America’s credit rating if a deal isn’t reached soon to raise the debt ceiling. This isn’t surprising. A borrower that won’t pay its bills is bound to face a lower credit rating.

But Standard & Poor’s has gone a step further: It’s warned it might lower the nation’s credit rating even if Democrats and Republicans make a deal to raise the debt ceiling. Standard & Poor’s insists any deal must also contain a credible, bipartisan plan to reduce the nation’s long-term budget deficit by $4 trillion — something neither Harry Reid’s nor John Boehner’s plans do.

If Standard & Poor’s downgrades America’s debt, the other two big credit-raters are likely to follow. The result: You’ll be paying higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow. And many of the securities you own that you consider especially safe – Treasury bills and other highly-rated bonds – will be worth less.

In other words, Standard & Poor’s is threatening that if the ten-year budget deficit isn’t cut by $4 trillion in a credible and bipartisan way, you’ll pay more – even if the debt ceiling is lifted next week.

With Republicans in the majority in the House, there’s no way to lop $4 trillion of the budget without harming Social Security, Medicare, and Medicaid, as well as education, Pell grants, healthcare, highways and bridges, and everything else the middle class and poor rely on.

And you thought Republicans were the only extortionists around.

Who is Standard & Poor’s to tell America how much debt it has to shed in order to keep its credit rating?

Standard & Poor’s didn’t exactly distinguish itself prior to Wall Street’s financial meltdown in 2007. Until the eve of the collapse it gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.

Standard & Poor’s (along with Moody’s and Fitch) bear much of the responsibility for what happened next. Had they done their job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have…

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A U.S. Sovereign Credit Downgrade Is No Laughing Matter

by Zero Hedge - July 30th, 2011 4:43 pm

Courtesy of ZeroHedge. View original post here.

Submitted by EconMatters.

By EconMatters With a stalemate heading into the weekend, the debt drama of the United States is going down to the wire, and when the clock strikes twelve midnight on August 2 (countdown clock at our homepage), the world’s largest economy could be looking at an unprecedented technical default. The current consensus suggests that although a total default is nothing but a remote possibility, the damage is already done to the dollar, and a sovereign debt downgrade could be inevitable even after the debt ceiling deadlock is resolved.

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Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama’s Idle Threats and Fear Mongering

by ilene - July 30th, 2011 2:10 pm

Courtesy of Mish

In a nearly useless face-saving maneuver, House Speaker John Boehner managed to twist enough arms to narrowly pass his bill that was instantly rejected in the Senate.

Questions abound.

Was there any point to this? If so, what was it? Since everyone knew his plan would be rejected in the Senate, why bother?

The only conceivable answer is to save face, but how much face could possibly have been saved when Boehner had to twist the arms of every Republican to narrowly pass his gaseous proposal?

As long as his proposal was going to be rejected anyway, Boehner would have been better served to come up with a rock-solid plan that Republicans would have loved to sign.

If Boehner wanted to make a statement, that would have done it. Instead, Boehner came out looking like a limp dishrag.

Senate Quickly Kills Boehner Debt Bill

The New York Times reports Senate Quickly Kills Boehner Debt Bill

After a 24-hour delay and concessions to conservatives, the House on Friday narrowly approved a Republican fiscal plan that the Senate quickly rejected in a standoff over the federal debt ceiling that was keeping the government on a path to potential default.

Demonstrating the deep partisan divide coloring the budget fight, the House voted 218 to 210 to approve the plan endorsed by Speaker John A. Boehner to increase the federal debt ceiling in two stages. No Democrats supported the measure; 22 Republicans opposed it. The White House condemned it as a “political exercise.”

In the Senate, Democrats filed a motion on Friday that started debate, running down the procedural clock while Republicans expressed their opposition. The first vote on overcoming the procedural hurdles would come early on Sunday. Unless the Democrats can win over enough Republicans to cut off debate and move to approve the Reid bill or some variant, the Republicans would be forced to hold the floor continuously, awaiting some kind of deal.

The main legislative focus was on the search for an acceptable “trigger” that would guarantee that no second installment of a debt limit increase would be provided without consideration of further spending cuts or program policy changes. Democrats say they are willing to allow a new special committee to consider sweeping deficit reduction and tax policy changes but want the debt limit increase assured; Republicans do not want President Obama to get a second increase

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