Officials Worried About a Deep Recession

As a number of other bloggers have noted, the Democrats need to be talking 24/7 about how the Chimperator/GOP economic policies and anti-regulation mantra are largely to blame in the rapidly sinking U. S. economy. Instead of gay bashing and working to pass marriage amendments, minding the economic store would have been far more prudent. Now, all will suffer as a result of wingnut homophobia and GOP voodo economics. The latest economic indicators seem to pointing downward and the USA may well drag down other economies with it. Here are highlights from a less than optimistic Yahoo News story (http://news.yahoo.com/s/ap/20080408/ap_on_bi_ge/fed_minutes):

WASHINGTON - Worries about a deep recession — not a shallow one — drove Federal Reserve policymakers to slash a key interest rate last month, meeting minutes show. "With the uncertainties in the outlook for both economic activity and inflation elevated, members noted that appropriately calibrating the stance of (interest-rate) policy was difficult," the minutes stated. On the one hand, the Fed has been urgently moving to prevent the trio of economic woes — housing, credit and financial_ from plunging the country into a deep recession. On the other hand, with soaring energy prices and high food costs, policymakers realize that they can't afford to let inflation get out of control, either.

The government reported last week that the economy lost jobs for the third month in a row in March. All told, the nation has lost 232,000 jobs in just three months — stark evidence of just how much the employment market has buckled under the weight of the economy's woes.

Besides cutting rates, the Fed has taken a number of unconventional steps recently to ease a dangerous credit crisis. Under one new program, the Fed has been letting big investment firms borrow super-safe Treasury securities and put up more risky investments, including certain shunned mortgage-backed securities as collateral. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions. The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis.

US Loan Default Problems Widen

As if the mortgage and housing market concerns were not bad enough, now the credit markets are showing other areas of weakness (http://www.ft.com/cms/s/0/7c453090-7ff7-11dc-b075-0000779fd2ac.html):

Poor quarterly results from banks across the US over the past two weeks suggest credit problems once confined to high-risk mortgage borrowers are spreading across the consumer landscape, posing new risks to the economy and weighing heavily on the markets. US banks have raised reserves for loan losses by at least $6bn over the second quarter and by even larger amounts from last year, indicating financial executives believe consumers will be increasingly unable to make payments on a variety of loans. Banks are adding to reserves not just for defaults on mortgages, but also on home equity loans, car loans and credit cards.

Dick Bove, analyst at Punk Ziegel, said bank earnings indicated “there are problems with consumer debt that extend beyond the well-known issues in the real estate markets. Auto loans are clearly a new area of concern”. At Wachovia, the fourth largest US bank by assets, credit loss provisions more than doubled from the second quarter to $408m. Troubled loans that could turn into losses also more than doubled. Ken Thompson, chief executive, said the housing market could remain weak through next year. Wachovia’s poor earnings fuelled a stock market rout on Friday.

Problems can be seen at banks across the US. At KeyCorp, in Cleveland, non-performing assets rose $241m from last year and loan-loss provisions doubled. In Dallas, Comerica’s loan loss provisions tripled from last year to $45m. Net credit losses jumped from $663m last year to $892 at Wells Fargo, in San Francisco, due to home equity and car loan losses. Loans more than 90 days past due and still accruing increased to $5.53bn from $3.66bn last year.

Yet despite all of this, the Chimperator continues to claim that the economy is fine. Perhaps for him and his wealthy friends (many of whom have made millions from no-bid sweetheart deals), but not for many regular people. The man is either an idiot or delusion (or maybe both).