by Calculated Risk on 9/10/2009 08:46:00 AM

The Census Bureau reports:

The ... total July exports of $127.6 billion and imports of $159.6 billion resulted in a goods and services deficit of $32.0 billion, up from $27.5 billion in June, revised.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through July 2009.

Imports were up again in July, and exports also increased. On a year-over-year basis, exports are off 22% and imports are off 30%.

The second graph shows the U.S. trade deficit, with and without petroleum, through July.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased to $62.48 in July - up about 50% from the prices in February (at $39.22) - and the fifth monthly increase in a row. Import oil prices will probably rise further in August.

It appears the cliff diving for U.S. trade might be over, although recent port data shows some weakness in traffic.

by Calculated Risk on 9/10/2009 08:31:00 AM

The DOL reports weekly unemployment insurance claims decreased to 550,000:

In the week ending Sept. 5, the advance figure for seasonally adjusted initial claims was 550,000, a decrease of 26,000 from the previous week's revised figure of 576,000. The 4-week moving average was 570,000, a decrease of 2,750 from the previous week's revised average of 572,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending Aug. 29 was 6,088,000, a decrease of 159,000 from the preceding week's revised level of 6,247,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 1,250 to 570,000, and is now 88,750 below the peak in April.

It appears that initial weekly claims have peaked for this cycle. However it seem that weekly claims are stuck at a very high level; weekly claims have been in the high 500 thousands for 10 weeks. This indicates continuing weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before the total employment stops falling.

by Calculated Risk on 9/09/2009 09:12:00 PM

From Eric Dash at the NY Times: In Florida, Vestiges of the Boom

On the corner of Flamingo Road and Pink Flamingo Lane ... a soaring monument to the great condominium bust bakes under the Florida sun.

The Tao Sawgrass ... built on the western fringes of Fort Lauderdale with easy money from the now tottering condo king of American finance: Corus Bancshares of Chicago. Only about 50 of the 396 units have been sold.

... The primary regulator of Corus, the Office of the Comptroller of the Currency, failed to sound the alarm until Corus was deeply troubled. ... Corus will go down as the great enabler of condo madness, and its travails are a harbinger of the pain yet to come in the troubled world of commercial real estate.

...regulators are moving to cleave the bank in two and sell its banking operations and condominium loans separately. The hope is to clinch a deal by the end of the month.

This article touches on several key points - the speculative activities of Corus, the slow response of their primary regulator, the FDIC trying to split the bank in two to sell the banking operations (not worth much) separately from the "monuments to madness" condo towers (also not worth much), the coming losses from C&D and CRE loans for other banks, the coming hit from Corus to the Deposit Insurance Fund (DIF) and more ...

Also, this article suggests Corus might have until the end of the month. However the bids for assets were due last Thursday, and I think it is likely that Corus will be seized this week.

by Calculated Risk on 9/09/2009 08:05:00 PM

YouTube live feed (ht bANK fAILURE) or Link Here for large image.

Note: Embed removed. Here is the text for the speech.

by Calculated Risk on 9/09/2009 07:21:00 PM

There seems to more and more concern about the deficit and the increases in the National Debt. It is definitely scary, and I've been writing about this issue for a number of years.

Back in late 2000 and in 2001 (I started this blog in January 2005) I focused on the deficit - and the long term fiscal damage I felt the Bush policies would cause.

President Bush argued in February 2001 that his fiscal policy "returns ... the surplus to the American taxpayers". In his 2001 testimony to Congress, then Fed Chairman Alan Greenspan supported President Bush by offering projections of "an on-budget surplus of almost $500 billion ... in fiscal year 2010". The National Debt would soon be retired and the Boomer's retirements secure. Greenspan offered a projection of "an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs."

Mr Bush also said in February 2001: "After paying the bills, my plan reduces the national debt, and fast. So fast, in fact, that economists worry that we're going to run out of debt to retire. That would be a good worry to have."

I disagreed strongly with President Bush and Mr. Greenspan's projections. I argued the surpluses were a mirage, and the tax policies would create a significant structural deficit.

I became even more adamant about the Bush structural deficits in 2004 and 2005, when it became obvious that the small improvement in the annual deficit was because of the housing bubble. I wrote in March 2005 about why I was so concerned about the housing bubble:

If we slide into a global recession, we have limited tools available to stimulate the economy. Interest rates are already very low (although the Fed has recently put some arrows back into the quiver), and we are already running general fund budget deficits of close to 6% of GDP.

In 2006, Professor Samwick (who served as Chief Economist on the Staff of President Bush's Council of Economic Advisers) wrote: First Things First

CR writes:

Everyone should agree that the most immediate fiscal problem is the structural General Fund deficit. Excluding future health care costs, the structural deficit is around 4% to 4.5% of GDP. This serious problem has been caused almost exclusively by Bush's policies. And imagine if the economy slows next year, as many people expect, adding a cyclical deficit on top of the huge Bush structural deficit.

So isn't it reasonable to suggest that Mr. Bush and the GOP fix the structural deficit first, before addressing other long-term issues? Of course.

CR is correct in his diagnosis of the immediacy and the size of the problems of the General Fund deficit. As I have discussed in earlier posts ... the appropriate target for the General Fund deficit is for it to average to zero over a business cycle. A corollary to that is that the General Fund should be in surplus during the non-recessionary parts of that business cycle. (A slightly weaker target that I would also accept is that the Debt/GDP ratio not trend upward over time.)

Today I believe some people are getting upset about the wrong thing at the wrong time. As Samwick noted, during a recession the deficits will increase - from falling tax revenues, automatic stabilizers and stimulus spending. Maybe some people disagree with the stimulus package, but that isn't going to change (except additions like extending unemployment benefits again).

Eliminating the recessionary deficit requires the economy to recover, and unfortunately the recovery will most likely be choppy and sluggish, but eventually a recovery will happen. Eliminating the structural deficit will be much more difficult and will require hard choices, but now is not the time.

The time to concerned about the structural deficit was in 2001 through 2006, and hopefully again starting in 2011 or 2012.