Federal Reserve Governor Elizabeth Duke called for government efforts to promote the rental of foreclosed homes, saying a recovery in the U.S. housing market hinges on clearing the backlog of such properties.

“We need to deal with the unprecedented number of loans in or still entering the foreclosure pipeline, the disposition of properties acquired through foreclosure, and the effect of a high percentage of distressed sales on home prices,” Duke said in a speech today in Washington. “We, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery.”

Read it all.

“The crisis is not over. Not just in Europe is it not over, it is also not over in other regions of the world,” he said, adding the United States had an “enormous” debt problem and lacked the structures to get the problem under control.

Read it all.

In absolute numbers, the total public debt as of Aug. 11 was $9.924 trillion, and the intra-government debt was $4.666 trillion, for a total of $14.587 trillion. That’s well over 300 million times the country’s median household income….

The GDP of the United States was $15.003 trillion at the end of the first quarter in 2011. That makes the public debt equal to 66.1% of GDP and the intra-governmental debt 31.1%. Total debt is now 97.2% of GDP and climbing rapidly.

And it’s the climbing rapidly part that is worrisome, not the debt’s current size relative to GDP. Indeed, the debt has been substantially higher by that measure in earlier times. In 1946, in the immediate aftermath of World War II, it was 129.98% of GDP. But while the debt had increased enormously during the war (it had been 50% of a much smaller GDP in 1940), it did not increase substantially over the next 15 years….

Read it all.

Internet entrepreneur Nicholas Merrill was working in his Manhattan office when an FBI agent in a trench coat arrived with an envelope.

It was fall 2004, and federal investigators were using new legal authority they had acquired after Sept. 11, 2001. Merrill ran a small Internet service provider with clients including IKEA, Mitsubishi and freelance journalists.

The agent handed Merrill a document called a National Security Letter, which demanded that he turn over detailed records on one of his customers. The letter wasn’t signed by a judge or prosecutor. It instructed him to tell no one….

Read it all.

Battered by a weak economy, the nation’s biggest banks are cutting jobs, consolidating businesses and scrambling for new sources of income in anticipation of a fundamentally altered financial landscape requiring leaner operations….

Even as they cut payrolls, banks are exploring ways to generate revenue that could translate to higher costs for consumers. Among the possibilities are new fees for automatic deductions from checking accounts that pay utility and cable bills, according to people involved in the discussions.

Read it all.

For the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.

But this has been a hard sell to an increasingly skeptical public. As Henry M. Paulson Jr., the former Treasury secretary, told the Financial Crisis Inquiry Commission back in May 2010, “I was never able to explain to the American people in a way in which they understood it why these rescues were for them and for their benefit, not for Wall Street.”

The American people were right to question Mr. Paulson’s pitch, as it turns out. And that became clearer than ever last week when Bloomberg News published fresh and disturbing details about the crisis-era bailouts.

Read it all.

In 2008 the world economy was saved from depression by a bold and co-ordinated plan to shore up banks and counter the slump with fiscal and monetary stimulus. Today there is no boldness (the euro-zone crisis is the epitome of politicians doing too little too late). There is no co-ordination. And, to the extent that policies have a common theme, it is the wrong one: politicians across the rich world are taking too short-term a view of fiscal austerity””a bout of budget-cutting which will only increase the risk of another recession.

It does not have to be this way. Echoing the spirit of 2008, policymakers could adopt a co-ordinated strategy to boost growth. Two priorities stand out. First, a recalibration of fiscal and (in some places) monetary policy. Second, a big push on supply-side reforms, from freeing trade to slashing red tape.

Read it all.

… let me say that in English: the European Union is cracking up. The Arab world is cracking up. China’s growth model is under pressure and America’s credit-driven capitalist model has suffered a warning heart attack and needs a total rethink. Recasting any one of these alone would be huge. Doing all four at once ”” when the world has never been more interconnected ”” is mind-boggling. We are again “present at the creation” ”” but of what?….

As for America, we’ve thrived in recent decades with a credit-consumption-led economy, whereby we maintained a middle class by using more steroids (easy credit, subprime mortgages and construction work) and less muscle-building (education, skill-building and innovation). It’s put us in a deep hole, and the only way to dig out now is a new, hybrid politics that mixes spending cuts, tax increases, tax reform and investments in infrastructure, education, research and production. But that mix is not the agenda of either party. Either our two parties find a way to collaborate in the center around this new hybrid politics, or a third party is going to emerge ”” or we’re stuck and the pain will just get worse.

Read it all.

Squeezed into a corner, Ben S. Bernanke tried a classic escape tactic: Create a diversion.

With financial markets hoping for something of substance in the Federal Reserve chairman’s speech on the economy Friday, Bernanke instead cooked up some comfort food. The near-term outlook is a struggle, he allowed, but over the long term the U.S. has the wherewithal to return to a healthy pace of growth.

Read it all.

The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.

One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.

A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.

Read it all.

The economy will grow by less than 3% through 2012, and unemployment will remain above 8% until 2014, the non-partisan Congressional Budget Office projects.

In its semiannual update of budget and economic data, the agency ”” which serves as the official scorekeeper for President Obama and Congress ”” projects painfully slow progress on the economic front through next year’s election and beyond.

Economic growth will remain slow but steady, it says, increasing by 2.3% this year and 2.7% next year. In a blog post on the agency’s website, director Douglas Elmendorf notes those projections were made in early July ”” before financial market gyrations and some lackluster economic indicators.

Read it all.

In this year’s speech, he is likely to put particular emphasis on what needs to be done to repair the U.S. economy over the longer run, including lowering long-term deficits. The title of the speech, in fact, is “Near- and Long-Term Prospects for the U.S. Economy.”

While Bernanke has said that Congress should not cut the budget deficit too quickly, lest this austerity undermine the weak economic recovery, he has previously argued that a long-term plan to put the government’s spending in line with its revenue could help instill confidence. Indeed, Deutsche Bank chief economist Peter Hooper said in a research note that the need for longer-term adjustments in the economy could be another argument against new Fed intervention.

“Any action the Fed takes at this point may give the markets no more than a temporary lift and would not resolve the more fundamental problems that are weighing on the economy,” Hooper said.

Read it all.

I have spoken to this many times in public. Those with the capacity to hire American workers”•small businesses as well as large, publicly traded or private”•are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks….

…put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

Read it all.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

Read it all.

A mosque dispute in this Atlanta suburb is shining a spotlight on an antidiscrimination law increasingly pitting the Department of Justice against zoning officials across the country.

Lilburn’s city council plans to vote Tuesday whether to allow construction of a 20,000-square-foot Muslim worship center between a large Baptist church and a Hindu temple on a busy thoroughfare also lined with gas stations and strip malls.

The city council rejected zoning applications in 2009 and again last year for the center amid stiff opposition from some residents, who say the large mosque would bring too much traffic and noise and encroach on the neighborhood behind it.

Read it all.

Check it out it allows you to move the cursor over any country and see the data–a great tool.

Like earthquakes, financial crises seem to be accompanied by aftershocks, like the one we’ve been living through this week. They can feel every bit as bad as the crisis itself. But economic history and academic research suggest they can set the stage for a sustainable recovery ”” and eventual sharp stock market gains.

The events of the last few weeks ”” gridlock in Washington, brinksmanship over raising the debt ceiling, Standard & Poor’s downgrade of long-term Treasuries, renewed fears about European debt and a dizzying plunge in the stock market ”” bear an intriguing resemblance to some of the events of 1937-38, the so-called recession within the Depression, with a major caveat: it was a lot worse back then. The Dow Jones industrial average dropped 49 percent from its peak in 1937. Manufacturing output fell by 37 percent, a steeper decline than in 1929-33. Unemployment, which had been slowly declining, to 14 percent from 25 percent, surged to 19 percent. Price declines led to deflation.

“The parallels to what is happening now are very strong,” Robert McElvaine, author of “The Great Depression: America, 1929-1941” and a professor of history at Millsaps College, said this week. Then as now, policy makers were struggling with how and when to turn off the fiscal stimulus and monetary easing that had been used to combat the initial crisis.

Read it all.

Lin Hersh, a 61-year-old small-business owner in Bearsville, N.Y., about two hours north of New York City, called up her stock broker two weeks ago and gave the order to sell everything.

She dumped nearly all of her individual equities and her stock mutual funds, moving almost completely into cash. Ms. Hersh is haunted by the market plunge of 2008, when her $432,000 in savings dwindled to $150,000.

“What I’ve got left after the last downturn is about a third of what I started out with and I’m not in the mood to play anymore,” she said. Pointing to the weak American economy and concerns about Europe, Ms. Hersh said she would most likely steer clear of stocks through the end of this year.

Read it all.

Bank of America would have us believe the goodwill by itself was more valuable than what the market says the entire company is now worth. Investors don’t buy that. They see a company that needs to raise fresh capital, judging by the discount to book value, in spite of the company’s claims it doesn’t need to. The more the stock price falls, the more shares Bank of America would need to issue to appease the markets, leading to fears of even more share dilution.

The same story is playing out in Europe, driven by the sovereign-debt crisis. The 32 companies in the Euro Stoxx Banks Index yesterday had a stock-market value of 313.2 billion euros ($444 billion) and a combined book value of 620.5 billion euros. France’s Credit Agricole SA (ACA), the index’s third-largest bank by assets, trades for just 34 percent of book.

Read it all.

The Federal Reserve on Tuesday sharply downgraded its outlook for the American economy and took the extraordinary step of signaling that it would hold short-term interest rates at exceptionally low levels “at least through mid-2013.”

The move marks the first time that the U.S. central bank has pegged a specific timetable to a pledge on its benchmark interest rate, the federal funds rate, which has been near zero since late-2008.

But the decision came with three dissenting votes from Fed committee members, reflecting concerns about the threat of runaway inflation down the road.

Read it all.

From here:

Popular personal finance personality Dave Ramsey summed it up eloquently and simply: “If the US Government ”‹was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing big spending cuts to reduce their spending to $72,000 a year.”

Alan Haley has a further discussion of this here.

Standard and Poor’s, the agency responsible for Friday’s downgrade, merely confirmed what anyone with their eyes open for the past decade or two already knew: The U.S. has a huge and growing debt problem that it is resolutely unwilling to solve.

Not unable. Just unwilling.

Not just politicians, but anyone who buys into their divisive, fanciful rhetoric.

Read it all.

Whatever one thinks of the credit-rating agencies””and we aren’t admirers””it serves no good purpose to shoot the fiscal messengers. Friday’s downgrade by Standard & Poor’s of U.S. long-term debt to AA+ from AAA will be the first of many such humiliations if Washington doesn’t change its economic and fiscal policies.

Read it all.

The downgrade of the United States long-term debt to AA+ from AAA has global implications, said Alessandro Giansanti, a credit market strategist at ING in Amsterdam.

“We can see that this may force the U.S. to move more aggressively to cut spending,” he said, something that could drive the already weak economy into recession and weigh on the economies of all of its trading partners. “That’s the main driver” of the stock market declines, he said.

Read it all.

Local government officials are struggling to gauge the impact of the Standard & Poor’s unprecedented downgrade of federal credit even as Washington watches global reaction to its latest financial setback.

Will the ratings agency downgrade counties and states? Will the federal government’s predicament cost local taxpayers? And can local governments have better credit than the federal government?

“We are in uncharted territory,” Prince William County Board Chairman Corey A. Stewart (R) said. “No one knows what the ultimate long-term ramifications are. .”‰.”‰. But we know they’re going to be significant.”

Read it all.

[Boston University’s Laurence] Kotlikoff explains that America’s “unofficial” payment obligations ”” like Social Security, Medicare and Medicaid benefits ”” jack up the debt figure substantially.

“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap,” he says. “That’s our true indebtedness.”

We don’t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

Read (or much better) listen to it all.

…among the rulers, only 63 percent — triple the fraction of the general populace but still less than two-thirds of the political class — regard the federal government as legitimate by the standards of America’s founding document. The remainder, presumably, are comfortable being tyrants.

These numbers should raise deep worries about the future of our republic. A nation whose government does not rest on the consent of the governed is a nation whose government holds sway only by inertia, or by force.

It is a nation vulnerable to political shocks, usurpation, or perhaps even political collapse or civil war. It is a body politic suffering from a serious illness. Those who care about America should be very worried.

Read it all.

The global economy faces a deep crisis ”” deeper, in some ways, than the panic that struck financial markets in August 2008. At least then there was the prospect of short-term government action: tax cuts and spending increases, quantitative easing, and the like. Those measures averted total meltdown, yet the United States, Europe and Japan failed to restore strong, self-sustaining growth, leaving governments so deeply indebted that aggressive new policy interventions are probably not feasible for now. Indeed, what seems to have sent markets panicking last week is a dawning sense that capitalist democracies may have made more promises than their economies are capable of fulfilling ”” without significant growth-generating structural reforms. Or so it would appear from the recent dramas over bailing out Greece and raising the U.S. debt ceiling.

For Americans, a dead-in-the-water economy would be not only a colossal waste of productive potential but also a human tragedy, as Friday’s announcement of another U.S. unemployment rate above 9 percent cruelly demonstrated. “We need to create a self-sustaining cycle where people are spending, companies are hiring and our economy is growing,” President Obama said.

Well said. But how?….

Read it all.

[If done properly]….Tax reform will already have slashed rates radically. In one Simpson-Bowles scenario, the top rate plunges to 23 percent. Conservatives could at that point contemplate increasing net revenue by slightly tweaking these new low rates, say, back to Reagan’s 28 percent, still much lower than the current 35 percent and Obama’s devoutly desired 39.6 percent. The deviation from revenue neutrality would yield new tax receipts for the Treasury, in addition to those resulting from the economic growth stimulated by the lower rates.

Democrats would have to respond by crossing their own red line on entitlements. That means real structural changes. That means raising the Medicare and Social Security ages, indexing them to longevity (until 70 becomes the new 65) and changing the inflation formula. Perhaps even means-testing Social Security (after one has recouped what one originally paid in).

The result of such a grand bargain would be debt reduction on a scale never before seen. World confidence in the American economy would rise dramatically. Best of all, we would be back on the road to national solvency….

Read it all.

Just as the Y2K threat was overstated but nevertheless had unexpected, adverse intermediate term consequences, I doubt this chicanery will be cost free to the public at large. But the debt overhang that ideologues have used to whip the public into a funk is profoundly deflationary unless addressed head on, via writedowns and bankruptcies offset by fiscal stimulus. Deflation means that high quality bonds are the place to be, as the market action of last week confirmed, so Treasuries benefit from the very condition that S&P depicts as a disaster.

Thus the best outcome would be if the bond and currency markets shrug off the S&P action, which would reveal that the much feared downgrade was a paper tiger. But even if the marker response is underwhelming, it is hard to imagine that Obama will not take a political toll for his colossal miscalculation. It was he who stoked the debt ceiling phony crisis to implement a neoliberal agenda, who refused to reverse course and threaten to circumvent the debt limits when the process had clearly spun out of his control.

So even if S&P fails to land a body blow in the markets, its ploy has garnered press that seems certain to taint the Administration, and thus confirms the power of its reckless conduct. Thus the cost is not likely to show up in bond yields, but in something far more fundamental: in yet more destruction of the foundations of our society for short-term, selfish ends.

Read it all.