Who is hiring? The unemployment office!

Seems that unemployment offices are reaching the tipping point in being able to handle the vast increase in unemployment claims (now at a 26 year high), which includes those calling in due to the increase in benefits from 13 to 20 weeks in November. The only good news is that the unemployment offices themselves are doing some rather massive hiring. Not enough to put much of a dent in things, I'm afraid.

http://www.financialarmageddon.com/2009/01/state-unemployment-claim-systems-overwhelmed-the-associated-press----growing-number-of-jobless-workers-strains-sometimes-kno.html


First the Bad News

Before the Obama $775 billion stimulus plan spends a dime, we are already dealing with a record budget deficit of $1.2 trillion. Now as a percentage of GDP this may not be as bad as we had to experience in WWII, but it is by far the worst since then, according to the CBO. The number is simply staggering and getting worse. Thank you TARP.

http://www.ft.com/cms/s/0/92d8a656-dcd6-11dd-a2a9-000077b07658.html

Thank God for the good graces of our trading partners who are quite willing to date to support our deficit spending and help save our economy. They continue, and undoubtedly will continue, to buy all the Treasuries we can print, and at very low rates, right?

Now it is time for really bad news.

I am not pretending to understand all the details like Yves at Naked Capitalism does, but the bottom line is that China, the largest foreign purchaser of our Treasuries, has better places to spend its money - like at home. With hot money heading out of the country and exports and tax income in a nose-dive, they don't have the money to spend even if they wanted to, and right now there are a lot of reasons for them not to want to.


For one, the U.S. can lessen its debt load by allowing inflation to go up greatly - assuming it can escape the deflation spiral and get that old inflation train running again. Think about it. You are paying very low rates on Treasuries, so if inflation goes over 10% or so it is like the holders of those Treasuries paying the U.S. a nice rate of return. The U.S. gets to repay in increasingly cheap dollars. This helps a lot if you are trying to avoid a default. U.S. default, no way - right? . . . If we don't continue to run levels of deficit that are ridiculous, right. But we need to watch what we are doing here.

So what happens when others are unwilling to pay for our deficit spending ways? I suspect we will find out before long. Time to rethink the concept of running trillion dollar deficits for years to come as I just do not see us being able to do so - even if it made sense. Our friends might not allow us to do so, or be able to let us do so. So time for a new plan that does not involve spending trillions of dollars. I never really thought the fiscal stimulus thingy was so smart anyway.

http://www.nakedcapitalism.com/2009/01/ny-times-china-cooling-on-us-debt.html

Okay, there is some good news too.

Nouriel Roubini - perhaps one of the most recognized faces of doom and gloom - sees the recession lasting two years (we are already over a year into it), with GDP only dropping 5%. I know what you are thinking "only" 5%? I know that is major, but I was expecting worse. Many aspects of this, like housing and unemployment, he does not expect to bottom until 2010, but overall it is a rather peachy outlook for Nouriel Roubini. Personally, I am not nearly as optimistic (yet) but this gives me hope.

http://www.marketwatch.com/news/story/roubini-forecasts-recession-last-2/story.aspx?guid=%7BD3E17944%2DFFE5%2D40D3%2DA0E4%2D564C8F901DDE%7D

Back to the bad.

Small and medium sized banks seem for the most part to have avoided the heat in the kitchen. Well, things are heating up for them. They for the most part were not as exposed to residential debt as some of their larger bretheren. But they nonetheless had some fairly significant increases in commercial real estate (CRE) exposure over the years and that seems to be an area in just a wee bit of trouble right now. Think about it, thouse building commercial buildings, malls and the like are sucking wind right now. How do they pay off existing debt on past projects? Answer, they don't. Part of this is due to pretty vast overbuilding in the CRE sector during the boom with easy credit times, leading to a lot of excess capacity, but the rest is due to a decline in commercial activity leading to a decline in a need for CRE. How many malls do you know with newly vacant spaces? Two-plus-two my friends.

http://www.calculatedriskblog.com/2009/01/commercial-delinquencies-double-over.html

Or in this case it should perhaps be three-plus-three. In another whammy to small to medium banks, small businesses are taking a total beating. Now I do not have handy any stats on SBL delinquincies or defaults lately, but I do have stats on small businesses having job losses. If they are hurting there, they are hurting on paying off loans. Let's look at this nice chart from ADP:

Pretty dramatic cliff diving there, if I do say so myself.

Enough bad news for me for one day.

Disclosures: None.