Investing Curiouscatblog

Category: economy

  • Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000

    A report by the Dallas Federal Reserve Bank, Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath, puts the costs to the average household of the great recession at $50,000 to $120,000.

    A confluence of factors produced the December 2007–June 2009 Great Recession—bad bank loans, improper credit ratings, lax regulatory policies and misguided government incentives that encouraged reckless borrowing and lending.

    The worst downturn in the United States since the 1930s was distinctive. Easy credit standards and abundant financing fueled a boom-period expansion that was followed by an epic bust with enormous negative economic spillover.
    …
    Our bottom-line estimate of the cost of the crisis, assuming output eventually returns to its pre-crisis trend path, is an output loss of $6 trillion to $14 trillion. This amounts to $50,000 to $120,000 for every U.S. household, or the equivalent of 40 to 90 percent of one year’s economic output.

    They say “misguided government incentives” much of which are due to payments to politicians by too-big-to-fail institution to get exactly the government incentives they wanted. There is a small bit of the entire problem that is likely due to the desire to have homeownership levels above that which was realistic (beyond that driven by too-big-to-fail lobbyists).

    “Were safer” says a recent economist. Which I guess is true in that it isn’t quite as risky as when the too-big-to-fail-banks nearly brought down the entire globally economy and required mass government bailouts that were of a different quality than all other bailouts of failed organizations in the past (not just a different quantity). The changes have been minor. The CEOs and executives that took tens and hundreds of millions out of bank treasures into their own pockets then testified they didn’t understand the organization they paid themselves tens and hundreds of a millions to “run.”

    We left those organizations intact. We bailed out their executives. We allowed them to pay our politicians in order to get the politicians to allow the continued too-big-to-fail ponzie scheme to continue. The too-big-to-fail executives take the handouts from those they pay to give them the handouts and we vote in those that continue to let the too-big-to-fail executives to take millions from their companies treasuries and continue spin financial schemes that will either work out in which case they will take tens and hundreds of millions into their person bank accounts. Or they won’t in which case they will take tens of millions into their personal bank accounts while the citizens again bail out those that pay our representatives to allow this ludicrous system to continue.

    (more…)

  • Looking at the Malaysian Economy

    Since I am living in Malaysia now, I pay attention to Malaysia’s economy. There are many reasons to be positive but the large consumer and government debt in Malaysia is a serious concern. They do have many administrators that say the right things, the question is going to be whether those statement define policy action or if they are ignored.

    Wahid Says Ringgit Too Weak as Growth Improves: Southeast Asia

    Malaysia and Thailand may be the most vulnerable after India and Indonesia, with the former facing a deteriorating current-account balance and elevated foreign ownership of its debt

    India and Indonesia have experienced large stock market declines and currency devaluations recently. The Malaysian Ringgit has declines 10% against the US $ in the last 3 months. Malaysia is holding up ok, but is venerable as these international loses of confidence often sweep over countries (and move from country to country).

    Malaysia’s current-account surplus probably shrank to 900 million ringgit ($274 million) in the second quarter, according to the median estimate of five economists surveyed by Bloomberg News. That would be the smallest since at least 1999, according to data compiled by Bloomberg.

    There is a real risk that the current account could slip into a deficit for the first time since the fourth quarter of 1997, Macquarie Group Ltd. analysts said in a report this month.
    “We are aware of this situation and we are aware of some of the measures to be undertaken to make sure that Malaysia remains in a surplus position,” Abdul Wahid said, without elaborating on the steps. “It is still a surplus and we are managing it.”

    The surplus is narrowing on increased overseas investment and property buying, higher imports for infrastructure projects, lower palm oil and rubber export prices and the acquisition of new aircraft by Malaysian Airline System Bhd., the minister said.

    The main foreign exchange earner recently seems to be selling property, that isn’t a good way to be earning foreign currency (selling assets). It is ok to do this to some extent, but relying on large inflows this way is very risky (and self defeating over the long term if it is too large). Even though palm oil and rubber exports are declining a bit, I believe they are still strong sources of foreign currency so that is good.

    (more…)

  • A Risk You Probably Don’t Consider: Solar Storms

    The extremely large investment risks due to global climate change are in the minds of sensible investors. One risk people often fail to consider is the damage that can be done to our electronics and our electrical system (large scale distribution) by solar storms.

    When space weather attacks!

    Today, electric utilities and the insurance industry are grappling with a scary possibility. A solar storm on the scale of that in 1859 would wreak havoc on power grids, pipelines and satellites. In the worst case, it could leave 20 million to 40 million people in the Northeast [USA] without power — possibly for years — as utilities struggled to replace thousands of fried transformers stretching from Washington to Boston. Chaos and riots might ensue.

    That’s not a lurid sci-fi fantasy. It’s a sober new assessment by Lloyd’s of London, the world’s oldest insurance market. The report notes that even a much smaller solar-induced geomagnetic storm in 1989 left 6 million people in Quebec without power for nine hours.

    “We’re much more dependent on electricity now than we were in 1859,” explains Neil Smith, an emerging-risks researcher at Lloyd’s and co-author of the report. “The same event today could have a huge financial impact” — which the insurer pegs at up to $2.6 trillion for an especially severe storm. (To put that in context, Hurricane Sandy caused about $68 billion in damage.)
    …
    A truly severe geomagnetic storm could create currents powerful enough to overload electric grids and damage a significant number of high-voltage transformers, which can take a long time to repair or replace. That could leave millions without power for months or years.
    …
    there are technologies that could harden the grid, such as capacitors that can help block the flow of ground currents induced by a geomagnetic event. In Quebec, the Canadian government has spent about $1.2 billion on these technologies since the 1989 blackout.

    Likely in the event of extremely large solar storms that knock out a significant number of large transformers would provide business to companies that manufacture replacements and companies that offer protection (once insurers raise insurance rates for unprotected equipment the economics will quickly justify the expenses).

    I am still looking for investment ideas that stand to benefit from global climate change. We seem pretty determined not to take actions to reduce the risks so reducing the impacts seems unlikely. Mostly this will cause great damage to our standards of living (and even endangering many lives). But even so I image there will be some investments that should benefit.

    Even if say global climate changes reduce global economic well being by 10% I don’t think it will be 10% evenly distributed. Some places/businesses.. will go down 20%, some 12% some 3% and I would think there is also the chance some will actually increase. But I have not been successful in thinking of investments that will benefit due to global climate change (and our refusal to take sensible steps to reduce the damage). If you have ideas add a comment.

    I wish we would take significant action to reduce the damage global climate change will cause. But since we are not, and the damage will be huge, reducing what I can expect from average investment returns, seeking investments to help balance those losses is a wise step to take.

    Related: Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation – Disability Insurance is Very Important – Unless We Take Decisive Action, Climate Change Will Ravage Our Planet – Solar Cycle Prediction – Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually

  • Eurozone Unemployment at 12.2% and for Those Under 25 is 24.4%

    Eurozone unemployment hits new high with quarter of under-25s jobless

    The problem was most extreme in Greece where almost two-thirds of those under-25 are unemployed. The rate was 62.5% in February, the most recently available data.
    …
    Youth unemployment in Spain is 56.4%, in Portugal 42.5%. Italy recorded its highest overall unemployment rate since records began in 1977, at 12%, with youth joblessness at 40.5%. Economists said that the rise in unemployment was fairly broad-based with rises in so-called core countries as well, including Belgium and the Netherlands. The rate in France was 11%.
    …
    Ireland recorded one of the biggest falls in unemployment, down to 13.5% from 14.9% a year ago. That compares with a rate of 7.7% for the UK, where youth unemployment is 20.2%. The lowest rates for youth unemployment were in Germany at 7.5% and Austria at 8%.

    Unemployment continues to be a huge problem. The slow recovery from the great recession caused by the too big to fail financial institutions continues to do great damage. That damage is very visible in unemployment figures and the huge transfer of wealth from savers to bail out otherwise failed financial institutions (that not only haven’t been made to be small enough to fail but continue to pay themseves enormous bonuses while taking the billions in transfer of wealth from retirees that have had their income sliced by the interest rate policies necessatated to bail out the bankers).

    The USA employment situation is still bad but has actually could easily be much worse. Unemployment in the USA stands at 7.5% now (the rate for teenagers is 24.1%).

    Related: 157,000 Jobs Added in January and Adjustments for the Prior Two Months add 127,000 More (Feb 2013) – USA Unemployment Rate Drops to 7.8%, 200,000 Jobs Added (Oct 2012) – USA Adds 216,00 Jobs in March and the Unemployment Rate Stands at 8.8% (March 2011)

  • Career Flexibility

    I think we could use some innovation in our model of a career. I have thought retirement being largely binary was lame since I figured out that is mainly how it worked. You work 40 hours a week (1,800 – 2,000 hours a year) and then dropped to 0 hours, all year long, from them on.

    It seems to me more gradual retirement makes a huge amount of sense (for society, individuals and our economy). That model is available to people, for example those that can work as consultants (and some others) but we would benefit from more options.

    Why do we have to start work at 22 (or 18 or 26 or whenever) and then work 40 or so straight years and then retire? Why not gap years (or sabbaticals)? Also why can’t we just go part time if we want.

    The broken health care system in the USA really causes problems with options (being so tightly tied to full time work). But I have convinced employers to let me go part-time (while working in orgs that essentially have 0 part time workers). And I am now basically on gap year(s)/sabbatical now. It can be done, but it certainly isn’t encouraged. You have to go against the flow and if you worry about being a conventional hire you may be nervous.

    Related: Working Less: Better Lives and Less Unemployment – Why don’t we take five years out of retirement and spread them throughout your working life? – Retiring Overseas is an Appealing Option for Some Retirees – Living in Malaysia as an Expat – 67 Is The New 55

  • Top Nations for Retirement Security of Their Citizens

    Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.

    The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
    support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.

    Top Countries for Retirees

    • 1 – Norway
    • 2 – Switzerland
    • 3 – Luxembourg
    • 6 – Finland
    • 9 – Germany
    • 10 – France
    • 11 – Australia
    • 13 – Canada
    • 15 – Japan
    • 19 – USA
    • 20 – United Kingdom

    Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.

    Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).

    The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.

    On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).

    See the full press release.

    Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production

  • Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

    Chart of manufacturing output from 1999 to 2011 for China, USA, Japan and Germany
    Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

    The story of global manufacturing production continues to be China’s growth, which is the conventional wisdom. The conventional wisdom however is not correct in the belief that the USA has failed. China shot past the USA, which dropped into 2nd place, but the USA still manufactures a great deal and has continually increased output (though very slowly in the last few years).

    The story is pretty much the same as I have been writing for 8 years now. The biggest difference in that story is just that China actually finally moved into 1st place in 2010 and, maybe, the slowing of the USA growth in output (if that continues, I think the USA growth will improve). I said last year, that I expected China to build on the lead it finally took, and they did so. I expect that to continue, but I also wouldn’t be surprised to see China’s momentum slow (especially a few more years out – it may not slow for 3 or 4 more years).

    As before, the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 in 2011). I would expect Korea and Brazil to grow manufacturing output substantially more than Italy in the next 5 years.

    (more…)

  • Health Care Costs Continue to Grow Including Costs Missed in Economic Data

    A recent report by Deloitte, The Hidden Costs of U.S. Health Care: Consumer Discretionary Health Care Spending provides some interesting data.

    Between 2006 and 2010 USA health care expenditures increased by 19%. Government spending accounted for 40% of costs (remember that figure is lowered due to Deloitte’s including inputed value for care of relatives). Those 65 and older account for 61% of the inputed cost care that is provided.

    chart of USA health care spending by age group
    Seniors and baby boomers account for 64% of health care costs, but comprise only 40% of the USA population. The imputed cost of supervisory care and hospital care are far higher proportions of health care expenditures of seniors (65 and older).
    An additional $621 billion in direct and indirect costs was estimated for goods and services above what is captured in NHEA accounting. Of this additional amount, $492 billion (79 percent) is the imputed value of unpaid supervisory care given to individuals by family or friends.

    I find this imputed value largely not worth considering. There are problems with the way we count GDP and economic activity (that affect health care and lots of other things). It is fine to be aware that they think $492 billion of extra care is given by family members but using that figure in any sensible way (other than saying hey there is a huge cost in people’s time to dealing with our health care system and sick people that isn’t counted in economic data) is questionable.

    It is useful in looking at the increasingly old population we will see in the future and judging their is a large need for supervisory care that is not captured in just looking at the costs included in economic data currently. Not only will our grandkids have to pay for our living beyond our means today they will have to do so while providing unpaid care to their parents and grandparents.

    The burden of long term supervisor care (that which can be provided by a non-health care professional) is one reason a resurgence in multi-generation housing options make sense to me. There are other good reasons also (child care, socialization, financial support to the young…). There are some real advantages and real disadvantages to such options. But I think economic advantages are going to encourage more of this going forward.

    Related: Personal Finance Basics: Long-term Care Insurance – Health Care in the USA Cost 17.9% of GDP, $2.6 Trillion, $8,402 per person in 2010 – Resources for Improving Health Care System Performance

  • USA Adds Another 255,000 Jobs. Unemployment Rate To 7.9%

    Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate increased at 7.9%, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, health care, and retail trade. The change in total nonfarm payroll employment for August was revised from +142,000 to +192,000, and the change for September was revised from +114,000 to +148,000.

    So with this report another 255,000 (171 + 50 + 34) were added, quite a good number. If we could see 250,000 jobs added for 12 more months that would be quite nice – though still will not have recovered all the jobs cost by the too-big-too-fail credit crisis.

    Employment growth has averaged 157,000 per month thus far in 2012, about the same as the average monthly gain of 153,000 in 2011.

    Hurricane Sandy had no discernable effect on the employment and unemployment data for October. Household survey data collection was completed before the storm, and establishment survey data collection rates were within normal ranges nationally and for the affected areas.

    Long-term unemployment remains a problem, in October, the number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 5.0 million. These individuals accounted for 40.6% of the unemployed (a higher percentage than normal – as it has been for the duration of the too-big-too-fail job recession.

    The civilian labor force rose by 578,000 to 155.6 million in October, and the labor force participation rate edged up to 63.8%. Total employment rose by 410,000 over the month (I am guessing this is not seasonally adjusted – the highlighted figures normally quotes are seasonally adjusted figures). The employment-population ratio was essentially unchanged at 58.8%, following an increase of 40 basis points in September.

    Related: Unemployment Rate Reached 10.2% (Oct 2009) – USA Economy Adds 151,000 Jobs in October and Revisions Add 110,000 More (Oct 2010, unemployment rate at 9.6%) – USA Unemployment Rate Drops to 8.6% (Nov 2011) – USA Lost Over 500,000 Jobs in November, 2008

    (more…)

  • USA Unemployment Rate Drops to 7.8%, 200,000 Jobs Added

    The unemployment rate decreased to 7.8%, and total nonfarm payroll employment rose by 114,000 in September, the U.S. Bureau of Labor Statistics reported today. The change in total nonfarm payroll employment for July was revised from +141,000 to +181,000, and the change for August was revised from +96,000 to +142,000. Thus, with this report 200,000 new jobs were added (114,000 + 40,000 + 46,000).

    The unemployment rate declined from 8.1% in August to 7.8% in September. For the first 8 months of the year, the rate held within a narrow range of 8.1 and 8.3%. The number of unemployed persons, at 12.1 million, decreased by 456,000 in September.

    The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 4.8 million and accounted for 40.1% of the unemployed. This remains one of the most serious problems – along with the less that strong job creation numbers (since the too-big-too-fail financial crisis kicked off the great recession). In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011. 150,000 is decent but because of the huge job losses in the 4 years prior to 2011 there is a big recovery needed. Adding above 225,000 jobs a month, for years, would be a good result and put the economy on much firmer ground.

    Health care added 44,000 jobs in September. Job gains continued in ambulatory health care services (+30,000) and hospitals (+8,000). Over the past year, employment in health care has risen by 295,000.

    The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.5 hours in September. The manufacturing workweek edged up by 0.1 hour to 40.6 hours, and factory overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours.

    In September, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $23.58. Over the past 12 months, average hourly earnings have risen by 1.8 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees increased by 5 cents to $19.81.

    Related: Bad Jobs News in the USA, Unemployment Remains at 9.1% (Sep 2011) – USA Unemployment Rate at 9.6% (Sep 2010) – Unemployment Rate Increases to 9.7% (Sep 2009) – Over 500,000 Jobs Disappeared in November 2008