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It’s Official the US Economy Has Entered a Recession

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the staff of the Ridgewood blog

Washington DC, its official ,the U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported Thursday.

Continue reading It’s Official the US Economy Has Entered a Recession

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Americans haven’t gotten a raise in 16 years


By John Crudele

April 30, 2016 | 10:38am

Mark Twain is credited with saying “figures don’t lie, but liars figure.” If he were around today Twain’s quote might go something like this: “Figures do lie, and liars figure out how to make people believe them.”

Granted, not as catchy.

But my quote goes a long way toward explaining something that is bothering many political pundits today. President Obama whined last week that he’s not getting enough credit for the economy.

Democrats are besides themselves wondering why Americans are so angry that they might be willing to elect Donald Trump president when the official unemployment rate is only 5%, oil prices are near their lowest level in a decade and the economy has been expanding for seven straight years.

Why aren’t Americans happier?

One of those pundits made me chuckle Tuesday night when he was talking about Trump’s primaries victories in another five states. He suggested that Americans were somehow being brainwashed by the media into thinking the economy was really bad when in fact it was good.

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The Fed Is Freaked Out about the Financial Markets


January 29, 2016 7:30 PM

Because it is completely misreading the situation. Early in the new year, on Sunday, January 3, Federal Reserve vice chair Stanley Fischer delivered a hawkish speech to the American Economic Association.

Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.

The next day the S&P 500 dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points.

The dollar went up. Oil plunged 21 percent. Raw-material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially. Actually, it was a global event, as stock markets around the world plunged. Utter chaos.

Read more at:

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WASHINGTON (AP) — For much of the economy’s fitful and sluggish six-year recovery from the Great Recession, analysts have foreseen a sunnier future: Growth would pick up in six months, or in a year.

That was then.

The latest Associated Press survey of leading economists shows that most now foresee a weaker expansion than they had earlier. A majority of the nearly three dozen who responded to the survey predict tepid economic growth, weak pay gains and modest hiring for the next two years at least.

Nearly 70 percent said they thought the economy’s growth would remain below its long-run average of 3 percent annually through 2017. The economy hasn’t attained that pace since 2005.

And if they’re right, don’t expect much of a pay raise: Fifty-eight percent of the economists think wage increases for the next two years will remain stuck below a long-term annual average of 3.5 percent.

What’s more, if growth doesn’t pick up from its modest post-recession pace of 2.2 percent a year, nearly six in 10 expect hiring to fall to an average of 175,000 jobs a month or below, down from its pace of 243,000 jobs a month for the past year.

At the start of the year, many economists thought falling gas prices and strong hiring would finally produce 3 percent economic growth for 2015 as a whole.

“We no longer have reason for optimism that the economy is going to accelerate,” said Mike Englund, chief economist at Action Economics. “The real question is, when is the next downturn coming?”

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Apr 14, 9:47 AM EDT

WASHINGTON (AP) — The International Monetary Fund, citing the consequences of a strong dollar, is downgrading its outlook for the U.S. economy but raising its forecast for Europe and Japan.

The IMF predicted Tuesday that the American economy will grow 3.1 percent this year and next – a performance the fund characterized as “robust.” But the U.S. outlook was down from the IMF’s January forecast of 3.6 percent growth in 2015 and 3.3 percent growth in 2016. The American economy advanced 2.4 percent last year.

The IMF forecast that the 18 European countries that use the euro currency collectively will expand 1.5 percent in 2015 and 1.6 percent in 2016, up from a January forecast of 1.2 percent growth this year and 1.4 percent next. The eurozone grew just 0.9 percent last year.

The fund expects Japan to grow 1 percent this year and 1.2 percent next year, versus an earlier forecast of 0.6 percent this year and 0.8 percent in 2016. The Japanese economy shrank 0.1 percent in 2014.

The IMF expects the world economy to grow 3.5 percent in 2015, barely up from 3.4 percent last year and unchanged for its January forecast. It raised the outlook for global economic growth in 2016 to 3.8 percent, up from a January forecast of 3.7 percent.

The international lending agency also left unchanged its prediction that the Chinese economy will grow 6.8 percent this year and 6.3 percent in 2016. That marks a sharp deceleration from last year’s 7.4 percent expansion, already the slowest for China in two decades. But Gian Maria Milesi-Ferretti, the IMF’s deputy director for research, told reporters the slowdown in China reflects the country’s transition from growth built on often-wasteful investment in factories and real estate to slower but steadier growth built on spending by Chinese consumers. “We think it is a good slowdown for China,” he said.

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Dow Plunges 317 Points, Wipes Out 2014 Gains


Dow Plunges 317 Points, Wipes Out 2014 Gains

U.S. stocks sustained heavy losses on Thursday as traders ditched a wide swath of assets, leading the blue-chip average to hit the flat-line for 2014.

The Dow Jones Industrial Average fell 317 points, or 1.9%, to 16563, the S&P 500 tumbled 39.7 points, or 2%, to 1931 and the Nasdaq Composite dropped 93.1 points, or 2.1%, to 4370.

In a sign of the breadth of the selloff, every major sector was down by at least 1%. The biggest losers could be found in telecommunications, technology, energy and health care. Volume on the New York Stock Exchange was running about 40% higher than the one-month average. The VIX, a measure of implied volatility in U.S. stocks, surged 26%.

ExxonMobil (XOM), the world’s biggest publicly-traded energy company, revealed stronger-than-expected profits on the day, but revenues missed expectations. The Dow heavyweight’s shares fell more than 1%, suggesting they would weigh on the blue-chip average.

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The Fed Can’t Fix What Ails the Economy


The Fed Can’t Fix What Ails the Economy
By Gerald P. O’Driscoll Jr.
This article appeared in Real Clear Markets on July 21, 2014.

In Congressional testimony this week, Federal Reserve Chair Janet Yellen pointed to several economic maladies warranting continued activism by the central bank. But what ails the U.S. economy cannot be fixed by monetary policy.

This has been an exceptionally weak recovery when gauged by the labor market. About half of the decline in the unemployment rate can be accounted for by “discouraged workers,” who have dropped out of the labor force and are no longer actively seeking jobs. For that reason, the unemployment rate is increasingly becoming a misleading gauge of the labor market.

In Monday’s Wall Street Journal, Mortimer Zuckerman wrote cogently of “The Full-Time Scandal of Part-Time America.” As he put it, “Way too many adults now depend on the low-wage, part-time jobs that teenagers would normally fill.”

Low economic growth is one reason that job growth has been weak. Growth in full-time jobs has also been slowed by Obamacare. The act mandates that employers provide health insurance for those working 30 hours a week or more. The predictable consequence is that employers are reluctant to hire full-time workers. Better two half-time workers than one full-time employee.

There are many other forces at work in labor markets, few of which are influenced by anything the Fed does. Until recently, there were extended unemployment benefits. These discouraged workers from actively seeking jobs. That effect combines with benefits, like food stamps, to act as a tax on taking a job. Casey Mulligan, an economics professor at the University of Chicago, has written extensively on the employment tax. If people don’t take jobs, employment cannot grow.

Some of what occurred in the recession is a continuation or acceleration of trends long in place. The male labor force participation rate has been declining since 1950. It was about 87% then, and is 69.2% today. The overall labor force participation increased for a long time because of rising participation by women. That has flattened now.

The fact that men increasingly do not work has profound social consequences. But, again, this is not a problem that monetary policy can address.

Janet Yellen has long been associated with the belief that the central bank can influence employment. She has also commented on the weakness in current labor markets, and the fact that the numbers overstate strength there.

Yet yesterday she observed that the labor market is improving more quickly than expected, and therefore the Fed might raise interest rates sooner than expected. Perhaps the Yellen Fed has decided to declare victory, and extricate itself from the trap of its own making. But that does not change the fact that labor markets remain weak.

It is hubris to claim the Federal Reserve can control variables, like the unemployment rate and labor market weakness, over which they have no systematic influence. But Fed policy is not just ineffective; it is malignant.

The main effect of Fed policy has been to create asset bubbles in financial markets, decoupling these from the underlying economy. As we learned painfully in the recent financial crisis, overheated asset markets are not a source of strength – they the source of future problems.

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US economy slowed to 0.1 percent growth rate in Q1


US economy slowed to 0.1 percent growth rate in Q1

Apr 30, 9:38 AM (ET)


WASHINGTON (AP) — The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.

Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.

Many economists said the government’s first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors — from retail sales to manufacturing output — rebounded in March. That strength should provide momentum for the rest of the year.

And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.

(AP) In this March 26, 2014 picture, Jon Wyand works on a truck engine assembly line at…
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“While quarter one was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began,” said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.

Still, the anemic growth last quarter is surely a topic for discussion at the Federal Reserve’s latest policy meeting, which ends Wednesday afternoon. No major changes are expected in a statement the Fed will release. But it will likely announce a fourth reduction in its monthly bond purchases because of the gains the economy has been making. The Fed’s bond purchases have been intended to keep long-term loan rates low.

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Europe Funds The Last Ponzi Game Standing

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September 5, 2012
By Lee Adler

For the past year or so I have espoused the opinion that chaos in Europe is good for the US because of capital flight from Europe to the US. That capital is funding the Last Ponzi Game Standing, the US Treasury market and US economy.

Here’s how that works. As Europe destabilizes, big money exits the problem markets of Greece, Portugal, Ireland, Italy, and particularly Spain. Ireland and Italy have stabilized somewhat in recent months, but money is still pouring out of Greece, Portugal, and Spain. Much of it is transferred to the US to purchase Treasuries and probably big cap stocks to some degree. These purchase funds flow into the US Treasury and US bank accounts. The Treasury subsequently spends the cash it borrowed from these sources, and it ends up in US bank accounts.

Of every dollar the US Government spends, on average over the course of the year approximately 35 cents comes from borrowing. Some of that borrowing comes from domestic sources. About 8% of it over the past year has come from foreign central banks. Of the rest, the US Treasury TIC report says that Europeans made net purchases of $76 billion of US Treasury Bonds in the second quarter. That was equivalent to 30% of the new Treasuries issued. In other words, it appears that European capital flight accounted for 30 cents of every dollar of debt the Treasury raised. That debt accounted for 35 cents of ever dollar the government spent. Therefore, roughly 10 cents of every dollar of US government spending driving the US economy came from European capital flight.

Given those cash flows, anyone who argues that what’s bad for Europe is bad for the US is simply wrong. If Europe somehow manages to ameliorate its problems, or even create the impression that it is doing something to solve them, then these flows would slow down or even stop. The obvious effect would be that long term US bond yields would be forced to rise in order to attract investors. Alternatively, the US government would need to spend less or tax more in order to reduce borrowing. Any of those outcomes would slow the economy. The other option would be for the Fed to step into the breach to monetize the debt. No doubt that would have an immediate response in the commodities pits, driving the cost of energy, materials, and food into the stratosphere, which in turn would crush the US economy.

So the last thing the US needs is for the European situation to improve. In fact, the worse things are over there, the greater the capital flows from there into the US.

It is true that some of the capital flooding out of Spain, Portugal, and Greece heads to Germany. As a result European bank deposits in total have remained relatively stable. But that doesn’t account for all of the capital flowing from those countries. Some of it heads for the UK and elsewhere, and it seems clear that some of it heads for the US where it funds the Last Ponzi Game Standing.