Obamanomics: Change, From Bad To Worse

A Dreadful Jobs Report Recalls the 1980s
The share of adults who are working — 61.8 percent — is at its lowest level in 15 years. And even that, arguably, understates the depth of the problem. Fifteen years ago, women were less likely to be in the labor force than they are today.

The share of adult men with jobs, which has been gradually falling for much of the last few decades, is now at its lowest level since a two-month period in early 1983. Other than that, it’s the lowest level since the Labor Department began keeping records in 1948.

Just about every economist thinks that the labor market will continue to get worse, which means it’s on a path to be in its worst shape since the painful recession of the early 1980s.

The worst news in the report was tucked away in the details. Every month, the Labor Department releases an initial estimate of the employment change from the previous month and then updates that estimates as new data comes in over the following two months. This morning, it said that employers had cut 284,000 jobs in September — almost twice as many as initially thought. They also cut another 240,000 jobs in October. The cuts are of roughly the same scale as those in the months immediately after the Sept. 11 attacks.
http://economix.blogs.nytimes.com/2008/11/07/a-dreadful-jobs-report/

AIG reportedly near deal on new government bailout
NEW YORK (AP) -- American International Group Inc. late Sunday was reportedly near a deal for a revised bailout package from the U.S. government that would make borrowing terms easier for the troubled insurer.

A proposed $123 billion bailout package would be replaced with a new $150 billion package, according to the Wall Street Journal.

Details of the arrangement could be announced as early as Monday, when AIG is scheduled to report its third-quarter results, the Journal said. The plan reportedly would replace an $85 billion two-year loan with a $60 billion five-year loan at a lower interest rate.
The government also reportedly would inject $40 billion into AIG in exchange for preferred stock.

AIG representatives were not immediately available for comment.
The government had earmarked $85 billion in September for AIG's rescue. Another $37.8 billion was made available in October.
http://biz.yahoo.com/ap/081109/aig_bailout.html

2 more banks go belly-up
NEW YORK (CNNMoney.com) -- The tally of failed banks in 2008 rose to 19 as the government announced that a Texas and a California bank had been shuttered Friday night.
Franklin Bank, a Houston, Texas-based bank and Security Pacific Bank, a Los Angeles, Calif.-based bank were shut down by state regulators Friday, marking the 18th and 19th bank failures this year.

Franklin Bank (FBTX) had total assets of $5.1 billion and total deposits of $3.7 billion as of Sept. 30, 2008, according to a statement on the Federal Deposit Insurance Corp.'s Web site.

Ironically, Lewis Ranieri, the 61-year-old co-founder and chairman of parent Franklin Bank Corp., is credited with inventing mortgage-backed securities two decades ago, the AP reported, back when he worked at Salomon Brothers, where he is a former vice chairman.

Security Pacific Bank had total assets of $561.1 million and total deposits of $450.1 million as of October 17, 2008, according to the FDIC.
http://money.cnn.com/2008/11/07/news/companies/bank_failure/?postversion=2008110814

The Reagan Counterrevolution
In 1980, when the U.S. economy was last in serious trouble, Ronald Reagan offered the correct diagnoses that government was the problem and not the solution. His message resonated with voters, propelling him into the White House to implement an agenda of lowering marginal tax rates, reducing government spending and business regulations, restoring sound money, abolishing entire government departments, and basically allowing free market vibrancy to unshackle an economy burdened by big government. Though in practice much of the Reagan revolution never materialized, at least in theory his basic premise was sound.

In contrast, the country has now hitched its wagon to the views of Barack Obama. We don’t know much about what he truly believes about economics, but the little that we do know is not encouraging. Obama has repeatedly heaped the blame for the current crisis on the excesses of unregulated capitalism and the greed of the wealthy. For him, the free market is the problem and government is the solution.

The President-elect has promised to cage the destructive forces of capitalism, impose more regulation, raise marginal tax rates, increase government spending, and restore prosperity by redistributing wealth from those who earned it to those considered to be more deserving. Like most of his generation, Obama believes that economic growth results from consumer spending, primarily from the middle class. Any policy that keeps the consumers headed to the mall will be promoted.

Unfortunately, while Reagan had a hard time getting his full agenda through Congress, Obama will likely be much more successful. The effort to concentrate more power in Washington will be far more appealing to Congress then Reagan’s idea of restoring it to the people.
This sharp contrast in philosophy should not be taken lightly. Reagan looked to unleash the pent-up free market forces that had been smothered by a generation of Great Society reforms and uninterrupted Democratic control of Congress. Today, the public is looking for the Obama Administration to create the growth that the free market has apparently destroyed. The hope that our economy will grow as a result of government spending and micro-management is the most seminal shift in political philosophy since the New Deal.
http://news.goldseek.com/EuroCapital/1226088240.php

News agency sues Fed for look at collateral for loans to banks
NEW YORK -- Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks.

The lawsuit is based on the U.S. Freedom of Information Act, which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages.

"The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry," said Matthew Winkler, the editor-in-chief of Bloomberg News, a unit of New York-based Bloomberg LP, in an e-mail.
http://gata.org/node/6854

Bob Moriarty: Laying Out a Feast for Bears and Gold Bugs
The Gold Report: When you talked to us in early August, you correctly predicted the market crashing in October. But we’ve also seen gold go since then. When do you think gold and the market will turn around?

Bob Moriarty: In terms of the Australian dollar, the British pound and the Canadian dollar, gold has been hitting new record highs, so gold still has its function as the security of last resort. We’ve had so much deleveraging, with giant hedge funds selling everything they could sell and the only thing left was gold. But the next move in gold is going to be a major move and it’s going to be up.

TGR: When do you see that happening?

BM: October is always a really disastrous month for the market, but I think we’ve seen the bottom in the general stock market, in gold and in gold shares.

TGR: Are you saying that we’re going to see physical gold, gold shares and the market all increase simultaneously?

BM: Correct.

TGR: Wow. At the same rate?

BM: I don’t think so. There’s been something like $3.2 trillion poured into the system. When people think back—I mean, this is an absolute disaster. We have taken the entire banking system, Fannie Mae and Freddie Mac and AIG, out of the hands of the fools on Wall Street who were running them and handed control over to the fools in Washington. That’s the scariest thing I’ve ever heard. If Wall Street couldn’t run Fannie Mae, why does Washington, DC think it can?
http://www.theaureport.com/pub/na/1828

Cash or Gold?
During these times, it is understandable that the prevailing investor sentiment is fear. People
are fearful of their savings, fearful of their jobs, and especially fearful of risk, having just
witnessed how quickly a bear market can decimate portfolios. The other major factor currently affecting markets is deleveraging. As we all know by now, the 2002-2007 credit bubble was all about leverage. Leverage in housing and real estate. Leverage in the banking system. Leveraged hedge funds. As long as all asset classes continued to go up, then leverage was the winning formula. Although such a myopic strategy paid handsomely in the short run, the premise of the preceding sentence is, of course, false over the longer term. Thus, the winning strategy of yesteryear is now a ruinous one, leading to a vicious circle of deleveraging that is gutting the value of almost all assets. In this respect, gold is proving to be no exception. On the flip side of deleveraging is the frenetic buying of what was on the short side of the leveraged trade, namely, US dollars and Japanese yen. As currencies with low interest rates, they were borrowed to effect the leverage and are now benefiting from what is essentially short covering as leverage is unwound. This is another reason that the price of gold, in US dollar terms, is down over the past month – albeit, not nearly as much as other assets that were on the long side of the leveraged trade.

That said, we must confess to being perplexed (although far from discouraged) by the recent price action of gold. It is not behaving the way one would expect it to behave during times of financial crisis; namely, as the consummate safe haven asset of choice when all other assets are being shunned. Mind you, gold isn’t performing badly by any means. In Canadian and Australian dollar terms the price of gold is at or near all-time highs. Such is the case in most of the world’s currencies. Even in Euro terms, the price of gold is within 5% of the high it reached earlier this year. But gold has yet to catch a wind under its sails in all currencies. Is it really the ‘barbarous relic’, rendered obsolete by the stability and prosperity of the paper-based fiatcurrency global financial system? Laughably, this argument was once used by anti-gold proponents as the main reason not to own gold. How quickly things have changed! Today’s financial system, with the institution of the central bank at its foundation, has proven to be anything but as stable and prosperous as once thought. For the first time in a long while, the very foundations of capitalism are being put into question. Once infallible central banks of developed nations have become almost irrelevant. The financial markets, even the stock markets, are completely ignoring them. Central banks have shown, to their chagrin, that they can only solve one problem by causing another. The system is in such a state of disarray that the leaders of many of the world’s developed countries, including the US, Britain, France and others, are now proposing some sort of massive overhaul in the way the world does finance. How it will all play out remains to be seen. Certainly it will involve greater government involvement and therefore greater waste and inefficiency. But be that as it may, we would not consider any paper-based asset as ‘safe’ right now. Especially not currencies, as we will explain shortly. When the markets realize this, the outcome should be highly bullish for gold.
http://www.sprott.com/pdf/marketsataglance/10_2008.pdf

Hell, Meet Handbasket [MUST READ]
All the government’s actions to date have accomplished… well, precious little. For the time being, credit remains frozen. Banks are still making overnight loans to other banks, but only very selectively. The stock market, despite coming off its lows, is extremely volatile after enduring its worst crash ever. Commodities have sold off. States and municipalities are facing severe budget cuts and, in some cases, bankruptcy. Money markets are in trouble. Pensions and retirement funds are at risk. And recession, or worse, looms increasingly large on the horizon.

Nor is the crisis purely an American problem. Much of the U.S. bad paper was sold to gullible Europeans, and world economies and markets are so interconnected that if one sneezes, someone else catches a cold. Already there have been big bailouts in Germany and England. The Irish government recently announced it was guaranteeing all bank deposits, which attracted a flood of money from elsewhere in the European Union, enraged other members of the EU, and raised questions of how long that shaky confederation can endure as each country charts its own path through the economic minefield.

This is a once-in-a-lifetime event, a train to nowhere, and it will cause no end of suffering.

Since we can’t stop it, we’ll do the next best thing, which is to protect ourselves. That means assessing the likely fallout from the government’s meddling in the market, and developing guidelines for the best way to ride out the hurricane.
http://news.goldseek.com/GoldSeek/1226088321.php