Was It As Bad As They Said?

It has been a year since the massacre of last October, economic massacre that is…..but was it as bad as they all said it was?

The AP has piublished a pretty good list of thewn and now sort of stuff:

• $11.2 trillion: Total losses in the stock market from the Dow’s peak in October 2007 to the March 2009 bottom.

• $4.6 trillion: Total gains in the stock market since March 9.

• 6: The number of the 10 worst point drops in the 113-year history of the Dow that occurred in 2008. The 777-point drop on Sept. 29, 2008, ranks No. 1.

• 3: The number of the 10 worst percentage drops that occurred in 2008. The Sept. 29 decline of 9 percent is the third-biggest behind 22.6 percent on Oct. 19, 1987, and 10 percent on April 14, 2000.

• 92 percent: Decrease in Citigroup Inc.’s share price from Oct. 10, 2008, ($13.90) to March 9 ($1.05).

• 341 percent: Increase in Citigroup’s share price from March 9 to Friday’s close of $4.63.

• 18-20: The historical average for the Volatility Index of the Chicago Board Options Exchange, also known as the VIX, or “Fear Index.”

• 89: Where the VIX peaked last October.

• 23: Where the VIX was on Friday.

• 16 percent: The amount by which the Dow’s closing level on Friday was higher than its average close the previous 200 days. Earlier this month the number hit 20 percent, the highest since the early 1980s.

• $6.5 trillion: Value of assets in stock mutual funds at end of 2007.

• $3.7 trillion: Value at the end of 2008.

• $4.5 trillion: Value at the end of August.

• -$72 billion: Net cash flow (money put in minus money taken out) for stock mutual funds in October 2008.

• -$25 billion: Net cash flow in March.

• $4 billion: Net cash flow in August.

• $9: The amount, out of every $10 investors put into mutual funds in August, that went into bond funds.

• $855.40: The price of an ounce of gold on Oct. 10, 2008.

• $1,048.60: The price of an ounce of gold on Friday.

• 6.2 percent: Unemployment rate a year ago.

• 9.8 percent: Unemployment rate today.

• 95.2: Consumer confidence two years ago. Reading above 90 means the economy is on solid footing; above 100 signals strong growth.

• 25.3: Consumer confidence in February — record low.

• 53.1: Consumer confidence today.

• 2.8 percent: Decline in retail sales in October and December 2008.

• 2.7 percent: Increase in retail sales in August.

• 4.75 percent: Federal funds rate two years ago.

• 1 percent: Fed funds rate last October.

• 0 – 0.25 percent: Fed funds rate today.

• 4.81 percent: London interbank offered rate (LIBOR), the amount banks charge each other to borrow money for three months, at its peak, on Oct. 10, 2008.

_0.28 percent: Three-month LIBOR rate Friday.

• -0.5 percent: Personal savings rate in 2005 as home prices were soaring.

• 6.9 percent: Personal savings rate in May.

• $975 billion: Credit card debt held by Americans last September.

• $899 billion: Credit card debt held at the end of August, down 8 percent.

• 7 million: Home resales in 2005, a record year.

• 4.5 million: Home resales in January at annual rate.

• 5.1 million: Home resales in August at annual rate.

• $245,000: Median price of homes sold in 2006 — record high.

• $213,000: Median price of homes sold last October.

• $195,000: Median price of homes sold in August.

Like I said a pretty good list….but what does it all mean?  If you are rolling in money then all this means that you will probably make more money to bath in….but if you are human and have lost your job or are worried about your job then none of this means CRAP!  So they make the news for people with money….the rest of us know that it is unrealistic to say the recession is over…..go shopping and tell the world just how much you appreciate all the good economic news….

Ten Thousand People Apply for 90 jobs in Kentucky

from the World Socialist Web Site

The enormous response came within the space of just three days. GE had announced its intentions to add a second shift to its plant manufacturing washing machines in Appliance Park last Friday and began accepting applications on Monday. An earlier announcement by the GE plant calling for 13 maintenance workers who would receive $23 per hour drew 700 applicants.

The GE jobs promised a mere $13 per hour, plus benefits including dental coverage and eye care. The same jobs had previously paid $19 per hour until the decision by the IUE-CWA Local 761 to accept concessions in May, which included cutting wages for new workers and future hires.

Unemployment in Kentucky reached 11.1 percent in August. A total of 3,200 manufacturing jobs were lost in the state in the same month. Over the year ending in August, some 35,300 manufacturing jobs were lost in Kentucky.

Which is why this graph from Calculated Risk BlogSpot is unbelievable but not surprising.

From CalculatedRiskBlog.com: Comparing Employment Recessions

Indonesia's mining industry could recieve $6 billion investment.

Dingxin, Bintangdelapan set up nickel joint venture The Jakarta Post , Jakarta | Thu, 10/08/2009 11:54 AM | Business

Stainless steel producer Dingxin Group of China and nickel mining company PT. Bintangdelapan Mineral of Indonesia have agreed to form a joint venture company in Central Sulawesi to mine and process nickel. The company, PT Sulawesi Mining Investment (SMI), will begin producing ferro nickel after next year, Bintangdelapan president director Halim Mina said Wednesday. SMI will be 55 percent owned by Dingxin and 45 percent by Bintangdelapan. “We won’t be just a sleeping partner like many Indonesian firms in the mining sector,” Halim said. “We have received financing from them and we’ll do the management of the nickel mining. “I think this is the first time a local company is playing a bigger role in such a mining joint venture,” he said. SMI has a nickel mining con-cession covering 47,000 hectares of land in Morowali regency, Central Sulawesi province, and will produce 2.4 million tons of nickel ore next year. “We’ve been producing nickel ore, but not yet to the targeted capacity *of 2.4 million tons per year*. Hopefully we can produce nickel ore to that capacity next year. And after one year of operation we’ll also start processing the ore into ferro nickel,” Halim said. “We need to make some preparations to reach the target. Part of the preparations will be developing our infrastructure; our own power plant with a capacity of at least 100 MW. We don’t know yet whether we’ll build a coal-fired power plant or hydropower plant or something else,” he said.

The joint venture firm will invest US$20 million in its initial stages to develop the nickel business, Halim added. “We’ll increase the investments in stages because we also need to establish a stainless steel plant within five years of operation, as required by the new government regulation on mining.” According to Bloomberg, the investment could eventually reach $1 billion, including for building a nickel processing plant with a capacity of 30,000 tons a month. The Dingxin Group had extensive experience in stainless steel production in China, Halim said. “So we’ll make the stainless steel here, but export it to China,” he said. Nickel futures have gained 58 percent this year in London, recovering from a 56 percent drop, as the end of the global recession spurs demand for metals. The Investment Coordinating Board (BKPM) said Wednesday that Indonesia’s mining sector could expect investment of up to $6 billion in the 2010-2012 period.

'The myth of green jobs'

Lexington’s notebook blog at The Economist has a short post titled ‘The myth of green jobs:’

We need to do something about global warming. The most straightforward and effective way to reduce carbon emissions would be to tax them. But taxes are bad, and voters don’t like bad things.

This, I think, is why politicians waffle and obfuscate so much about energy policy. John Kerry, who is neither stupid nor ignorant, claims not to know what “cap and trade” means.

And Barbara Boxer, asked what the government should do to create jobs, said we should pass an energy bill, ie, the cap and trade bill that dare not speak its name. This, she said, would “allow this economy to take off“.

For heaven’s sake. The point of putting a cap or a tax on carbon emissions is to curb carbon emissions, thereby saving the planet from cooking. It is not about creating jobs. It will certainly create some, but it will destroy plenty, too.

I’ve quoted this before, but here is Henry Hazlitt’s response to those who think government can create jobs:

For every public job created by a bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work…But there are other things that we do not see, because, alas, they have never been permitted to come into existence.

If the government believes green jobs can be created without the loss of non-green jobs, they are living in a dream. If the issue is the environment, leave it at that and accept that there will be a cost.

Debt, a Modern Giffen Good?

In economics and consumer theory, a Giffen good is one which people consume more of as price rises, violating the law of demand. In normal situations, as the price of such a good rises, the substitution effect causes people to purchase less of it and more of substitute goods. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.

- Thanks Wikipedia

I was just reading an interesting article at Political Calculations which posed the interesting idea about debt being a giffen good. Their argument is that debt appears to be an inferior good (one which as income increases a consumers demand decreases), which could be a reasonable argument based on this leverage ratio by income graph.

The argument then is since debt is (at least for individuals) an inferior good how does the market react to an increase in the price of debt. The article examines this point via empirical data supplied by a number of newspaper articles, which offer examples of people consuming debt earlier as prices rise in order to prevent having to pay anticipated higher costs. So, the argument is as debt rises people consume more of it in order to escape later increases.

This provides an interesting thought exercise but in the end, I have to disagree with their conclusion. Debt is not a giffen good, over a year a consumer is going to consume the same amount of debt regardless of price, if they decided to consume that debt earlier in order to avoid later price increases that is consumer choice and a result of incomplete information, not a need to consume more. Further more, their are many substitutes for debt, working more or bankruptcy are two substitutes that come easily to mind. In my mind their is no doubt that debt is not a giffen good. Although, I would highly recommend reading the article atPolitical Calculations.

Does Happiness Affect Consumption and Savings Behavior?

Cahit Guven (University of Houston) has published a new study that looks into whether happiness affects consumption and saving behavior. Below is the abstract:

I examine the impact of happiness on consumption and savings behavior using data from the DNB Household Survey from the Netherlands and the German Socio-Economic Panel. Instrumenting individual happiness with regional sunshine, the results suggest that happier people save more, spend less, and have a lower marginal propensity to consume. Happier people take more time for making decisions and have more control over expenditures; they expect a longer life and (accordingly) seem more concerned about the future than the present; they also expect less inflation in the future.

Economics 10/06/2009

• Poverty Simulation

  tags: Economics

  • Come and live a month in poverty…

    One of our most powerful educational tools is the Poverty Simulation Workshop. The Poverty Simulation Workshop is a role-playing experience that offers the opportunity to learn more about the realties of living in conditions of poverty. Participants enter the workshop with a new identify and family profile. Participants experience one month of poverty compressed into the real time of the simulation (generally three hours total). Afterwards in the debriefing, they share insights of extraordinary vividness and intensity.

    
    As a result, ordinary people from all walks of life can share a very special kind of awakening. The Poverty Simulation Workshop can open people’s eyes to the human cost of poverty. The power of this unique learning resource is that it creates, like no other method, an insight into the state of chronic crisis that consumes so many working poor families.

• Ezra Klein – The Persistence of Obesity

  tags: Economics

  • If you have never participated in a poverty simulation run by qualified people, you should seek one out and do it. I thought I wouldn’t learn anything but I was floored by what I realized I would do to cope and survive – and this was a one-hour sim. I was also shocked by the assumptions that people had about the poor. I ran into a lot of deeply internalized beliefs (often to the point of subconscious acceptance) that the poor are not to be trusted, addicted to drugs and/or alcohol and are neglectful parents. If I could, I’d run poverty simulations in every high school in the country.

• Ezra Klein – Your Recession in Charts

  tags: Economics

  • Since the early 1970’s real wages have been flat to falling. Workers’ share of GDP has been falling. Management used to reinvest profits in the business, and/or pay dividends. But since the marginal tax rates came down beginning in the 1980’s, management instead pays itself ever more exorbitant compensation packages.

    To make up the difference, ordinary people stopped saving then started borrowing. The financial sector aided and abetted this by devising ever more clever means to hook people on debt.

    Now the golden goose is dying because people can’t afford to buy stuff any more. People are cutting back on credit and saving as much as they can. Business can’t get credit because the banks are hoarding the money and so no one is hiring. The gov’t is stymied by “deficit hawks” who would rather see unemployment keep rising than spend public money to make up for the decline in private demand. And the rich? The people whose share of income has more than doubled over the past few years? Don’t even think of raising their taxes back to where they were in the Clinton years. That’s Communism!

  • Mimikatz – as good a 3 paragraph summary as I have seen.

    I would add that what I find really remarkable is that many of the rich seem to be willing to allow the golden goose to die.

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