Saturday, March 8, 2008

Bernanke's solutions

In Bernanke's testimony before Congress, he suggested that lenders just reduce the amount of principal on homeowners loans. So think about that.

Bernanke is suggesting that lenders shouldn't be paid in full. So take this a bit further. If lenders shouldn't be paid in full, how about buyers of our currency? That's the "strong dollar" policy of this administration.

Our President had this to say about the economy yesterday:
Earlier today I spoke with members of my economic team. They updated me on the state of our economy. This morning we learned that our economy lost 63,000 payroll jobs in February, although the unemployment rate improved to 4.8 percent.

But he "saw it coming" and gave us the rebate "booster shot."

In January, the BLS assumed that 78,792,000 were not in the labor force. In February it jumped to 79,436,000. So we have 644,000 who are no longer employed, and 450,000 who left the labor market. So we have a 4.8% unemployment rate, instead of 5.1%. And a President who says the employment rate improved. But the BLS doesn't count illegals, or the marginally attached.

About 1.6 million persons (not seasonally adjusted) were marginally attached to the labor force in February. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 396,000 discouraged workers in February, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them.

The BLS disenfranchises the marginally attached, and the labor force participation rate workers-I guess they are the equivalent of the Florida and Michigan democratic primary voters.

But we've been living with these lying statistics for years. We just don't look at them, until things get bad.

Just like the mortgage lenders assumed that house price appreciation would bail out both buyers and lenders.

But the deleveraging of the finacial system is becoming systemic, and $50 billion TAF offerings aren't going to solve the problems. David Rosenberg of Merrill Lynch had this to say yesterday about Bernanke's solution: “After all, isn't the new strategy to cut rates eight days before meetings?” David Rosenberg, chief economist of Merrill Lynch, noted with more than a hint of sarcasm in a research report yesterday.

Mr. Rosenberg, who said he wouldn't be surprised if Mr. Bernanke moved early, called the job numbers “an unmitigated disaster,” and seemed unimpressed with the Fed's move yesterday to expand the term auction facility – a mechanism for lending money to large banks and helping to ease liquidity constraints.

“As if that is going to stop Citigroup from paring its mortgage lending unit by 20 per cent, trigger a renewed hiring cycle, or prevent the economy from moving into a full-blown recession."

Let's see what the Central Banks can come up with next week.

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