Is Government Intervention Working?

[Prieur du Plessis of Minyanville, commenting on the credit crisis:]
"The TED spread (i.e. 3-month dollar LIBOR less three-month Treasury Bills) is a measure of perceived credit risk in the economy. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. On the other hand, when the risk of bank defaults is considered to be decreasing, the TED spread narrows. Since the TED spread’s peak of 4.65% on October 10, the measure eased to 1.75%, but has since worsened to 2.10%.... In summary, although some progress has been made as a result of central banks’ liquidity facilities and capital injections, the credit markets are not yet thawing."

Obama Sees What Works, Sticks With It

The best thing George W. Bush ever did as President was to fire his Defense Secretary, Donald Rumsfeld, and to replace him with Robert Gates (above). This is, of course, faint praise, as it simultaneously brings to mind the worst thing that he ever did, which was to hire Rumsfeld in the first place. Dubya compounded that error by sticking with Rumsfeld for the first six years of his Presidency, making it impossible to recover during the last two.

Yet Gates did almost exactly that. Now expected to continue at Defense during the early months of the Obama Administration, Gates is a pragmatist who reminds us how capable and well-trained the American foreign-policy establishment really is. Our diplomats and strategists work best when not bound by an ideology that simplistically maps the world into good vs. evil. "Success," Gates offered in his famous "Soft Power" speech at K-State a year ago, "will be less a matter of imposing one's will and more a function of shaping behavior--of friends, adversaries, and most importantly, the people in between."

It could be that the Gates appointment was not actually Bush's idea, that he was grafted onto the Administration at the behest of a wise old guard of policymakers who simply could no longer abide rampant incompetence. Dubya has since demonstrated that he still capable of stifling reasoned debate and nuanced judgment; witness the resignation last spring of Admiral William Fallon as the head of U.S. Central Command in the Middle East. Fallon, incidentally, states in a recent Boston Globe interview that the war in Iraq is "essentially over." Perhaps Gates was able to clean up Rumsfeld's mess after all.

Jobs are Going, Going...GONE!

Unemployment is in the eye of the beholder. This chart depicts three views of the unemployment rate in the U.S. over the past fifteen years. The rosiest scenario, naturally, is the line in red (so-called U3), which shows unemployment currently running at a little over 6%. U3, however, does not count workers laid off in the past year who have become too discouraged to look for a new job. Add those workers into the mix, and you get the U-6 calculation (in gray) of almost 12%.

Now, there is another segment of the labor pool, those discouraged workers who have been jobless for more than one year. These the Labor Department simply ignores. Youz guys don't exist. Add them back in, and now you're talking 16% unemployment (blue). With this figure likely surpassing 20% in 2009, get ready for more talk about the Next Depression.

In the River Valley, baseline unemployment has climbed past 8%, and the news is getting worse. The region's biggest employer, the NewPage coated-paper mill in Rumford, has just announced nearly a month of downtime for its #15 machine. Beginning December 8, at least 250 workers will be temporarily laid off--nearly one-fourth of the mill's workforce.

[update, December 5:]
This morning brought the Labor Department's monthly employment report, and the numbers are abysmal. 533,000 jobs were lost in November, the largest monthly slide since 1974; the loss in October was revised from 240,000 to 320,000. The total for 2008 now stands at 1.9 million jobs lost. The "official" unemployment rate (for what it's worth) ticked up from 6.5% in October to 6.7% last month.

Falling off a Cliff

Copyright 2008 The Boston Globe

2008 AL MVP

Red Sox 2B Dustin Pedroia

Hall of Shame

The Magnificent Seven, Wallywood-style. Combined, these CEOs pocketed nearly $1.5 billion over a five-year period while steering their companies to tens of billions in losses and, in some cases, to oblivion. Tens of thousands of employees have lost their jobs. However we revamp our tax code, the rewards to companies should be for jobs created, not for jobs destroyed. Such concentration of wealth as displayed above has throughout human history been a portent of societal stress, often to the breaking point.

When Charts Go Parabolic, Change Is Imminent

The Federal Reserve's balance sheet has more than doubled in the past six weeks, from less than $1 trillion to almost two. Richard Fisher, the president of the Dallas Fed district bank, predicted this morning that another trillion will be added before year's end as the U.S. Treasury cranks out government bonds to pay for the bailout of Wall Street banks. The Fed, in turn, has been swapping Treasuries for mortgage-backed securities and other tainted collateral to try to thaw credit markets.

So let's get this straight. We, the taxpayers, are borrowing money that does not exist to liquefy banks that should be allowed to fail. We pay interest over a long period of time to provide this service. If we try to retire the debt early, we will be paid back in toxic securities. The fallout from all this financial legerdemain will be a devalued dollar, which rewards borrowers and punishes savers. (Watch the price of gold for hints about future inflation.)

Thanks, Congress.