When Greece ran into financial trouble three years ago, the problem soon spread. Many observers were mystified. How could such a little country set off a continental crisis? The Greeks were stereotyped as a nation of tax-dodgers who had been living high on borrowed money for years. The Portuguese, Italians and Spanish insisted that their finances were fundamentally sound. The Germans wondered what it had to do with them at all. But the contagion was powerful, and Europe’s economy has yet to recover.

America seems in a similar state of denial about Detroit filing for bankruptcy…. Many people think Motown is such an exceptional case that it holds few lessons for other places. What was once the country’s fourth-most-populous city grew rich thanks largely to a single industry. General Motors, Ford and Chrysler once made nearly all the cars sold in America; now, thanks to competition from foreign brands built in non-union states, they sell less than half. Detroit’s population has fallen by 60% since 1950. The murder rate is 11 times the national average. The previous mayor is in prison. Shrubs, weeds and raccoons have reclaimed empty neighbourhoods. The debts racked up when Detroit was big and rich are unpayable now that it is smaller and poor.

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The economy may be sputtering along. But it hasn’t been in recession for more than four years. More than half of Americans think it still is.

A majority of people ”” 54% ”” in a new McClatchy-Marist poll think the country is in an economic downturn, according to the survey conducted last week and released Tuesday.

One bright spot: July’s figure marks the lowest proportion of Americans who have held that view since 2008. About a third of those surveyed don’t think the economy is in a slump, while 8% are unsure, according to the poll. In March, 63% thought the economy was in recession.

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One of the best new books out there ”“ “something close to a non-fiction masterpiece,” according to a New York Times reviewer ”“ is The Unwinding by George Packer….The book’s author is not an American declinist. There have been other unravellings; rebuilds inevitably follow. But the context is different now. America’s greatest century is behind it. Its degree of dominance will likely never be the same.

In response to all this, how does Canada, the big neighbour to the north, position itself?

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Americans tend to think of poverty as urban or rural””housing estates or shacks in the woods. And it is true that poverty rates tend to be higher in cities and the countryside. But the suburbs are where you will find America’s biggest and fastest-growing poor population, as Elizabeth Kneebone and Alan Berube of the Brookings Institution explain in their book “Confronting Suburban Poverty in America”. Between 2000 and 2010 the number of people living below the federal poverty line ($22,314 for a family of four in 2010) in the suburbs grew by 53%, compared with just 23% in cities. In 2010 roughly 15.3m poor people lived in the suburbs, compared with 12.8m in cities

Suburban poverty began to rise before the recession. As American cities have grown safer and richer, homes there have become less affordable. During the subprime bubble, many people with bad credit scores got mortgages and moved to the suburbs. A shift towards housing vouchers and away from massive urban projects encouraged people in subsidised housing to make the same move. Immigrants, too, chased the American dream of neat lawns and picket fences. Now 51% of immigrants (who are more likely than the native-born to be poor) live in suburbs, compared with just 33% in cities.

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The bankruptcy of Detroit, confirmed in 16 pages filed at 4:06 p.m. Thursday, marks an epic fall for an iconic American city even as it opens a new chapter whose ending is decidedly uncertain.

No one really knows how the largest municipal bankruptcy in the nation’s history will end and when ”” not Emergency Manager Kevyn Orr, who recommended the step Tuesday, not his lawyers, and not Gov. Rick Snyder, who said he approved the filing “as a last resort to return this great city to financial and civic health for its residents and taxpayers.”

“This decision comes in the wake of 60 years of decline for the city, a period in which reality was often ignored,” the governor wrote in his authorization. “Without this decision, the City’s condition would only worsen. With this decision, we begin to provide a foundation to rebuild and grow Detroit.”

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Two-thirds of the way through George Packer’s harrowing and magisterial account of post-2008 America, we meet a Florida boat builder named Jack Hamersma ”“ a rough-hewn, working-class guy who’d climbed up the economic ladder only to find himself drawn into the maelstrom of the real-estate speculation that destroyed huge tracts of suburbia in the wake of the Lehman Brothers collapse.

Like thousands of naïve speculators ”“ the 1920s-era shoeshine boys with the hot stock tip ”“ Hamersma’s savings were tied up in a heavily mortgaged house that lost most of its value after the bubble burst. With repo men circling and foreclosure looming, he retained Matthew Weidner, a small-time Florida lawyer (think Paul Newman in The Verdict) to defend him against the venality of a banking sector that imploded after an orgy of deregulated and frequently fraudulent greed.

The lawyer was able to keep the lenders from foreclosing on Hamersma. But as lawsuit dragged on, Hamersma’s life unwound into insolvency and costly cancer diagnoses. “That happened a lot to Weidner’s clients ”“ the job, the house, their health, usually in that order,” writes Packer, a New Yorker staff writer, novelist and playwright. “Weidner watched Jack shrink before his eyes, dropping a hundred pounds until, three years after that first consultation, he limped into the office one afternoon to discuss his case, wasted legs sticking out of his shorts, a canvas bag hanging over his shoulder, from which a drip tube extended under a bandage on his chest.”

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The official unemployment rate is 7.6%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 14.3% [and note that month over month U-6 ROSE from 13.8% to 14.3%]. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Read it all and he also has more on this today. I have emphasized the importance of U-6 as the best gauge of the employment situation over and over and over again–KSH.

“The recovery has basically been a recovery for a tiny fraction of the population,” said Geoffrey Godbey, professor emeritus at Pennsylvania State University and co-author of “Time For Life: The Surprising Ways Americans Use Their Time.” “What you’re seeing is people who might want more work but aren’t getting it,” he said.

Read it all (emphasis mine).

The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that the central bank intended to reduce its monetary stimulus later this year ”” and end the bond purchases entirely by the middle of next year ”” if unemployment continued to decline at the pace that the Fed expected.

Mr. Bernanke said that the Fed planned to continue the asset purchases until the unemployment rate fell to about 7 percent, the first time that the Fed has specified an economic objective for the bond-buying. The rate stood at 7.6 percent in May.

The Federal Reserve also struck notes of greater optimism about the economic recovery, saying in a statement released after a two-day meeting of its policy-making committee that the economy was expanding “at a moderate pace,” the job market was improving and risks to the recovery had “diminished since last fall.”

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Amid speculation that the Federal Reserve soon might start scaling back its stimulus efforts, the International Monetary Fund cautioned that a pullback before next year could hurt economies worldwide.

Highlighting its concern Friday, the IMF lowered its forecast for U.S. economic growth next year to 2.7% from an earlier projection of 3%.

The IMF also criticized U.S. fiscal policy, calling for the repeal of the automatic federal spending cuts, known as the sequester, and urging lawmakers to act promptly to raise the nation’s debt limit.

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Next up, the employment population ratio:

June 1985 – 59.8%
May 2013 – 58.6%

Many economists consider the employment population ratio to be THE most important indicator for the labor market, and it’s interesting to note that we are currently 1.2% under the rate posted in June of 1985, which is quite a difference.

Next up – the labor force participation rate:

June 1985 – 64.6%
May 2013 – 63.4%

Again, another significant difference.

Read it all.

Fewer Americans are now optimistic about their future personal financial situations, with 57% saying they will be better off in a year, down from 66% who said so last October. Optimism still surpasses pessimism, as 29% expect to be worse off a year from now — although that is up from 11% who said so last fall.

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Shifting government finances are likely to take an even bigger bite out of growth over the next few years than many now expect, economists at the San Francisco Fed warned Monday.

In a research note, Brian Lucking and Daniel Wilson write fiscal policy headwinds will subtract one percentage point from growth over the next three years beyond the normal fiscal drag that usually comes during times of recovery. If not for the current and likely future stance of fiscal policy, the economy would be growing at a faster rate, which would allow for more robust job growth and, presumably, a more normal stance of monetary policy for the Federal Reserve.

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The largest rise in house prices for seven years and a surge in consumer confidence have added to a fast-improving US economic outlook, increasing the chances the Federal Reserve will slow its $85bn-a-month in asset purchases.

House prices jumped 10.9 per cent in March from last year’s levels, the biggest increase since the height of the housing boom in 2006, according to the S&P/Case-Shiller index. The rise in prices for homes and other assets helped push the Conference Board’s index of consumer confidence to its strongest level for five years.

Read it all (another link there.

Christine Lagarde, the IMF managing director, captured a sense of fragmentation last month when she spoke of a “three-speed” global economy. On this week’s evidence, however, there are even more speeds than that.

Falling commodity prices and a rising dollar show the broad picture: the global outlook is weakening a little and becoming more dependent on the US. For every country putting out good news, such as Japan, there are weaker data elsewhere ”“ for example in China.

It is a global economy that lacks a strong source of demand growth.

Read it all (subscription required).

Barclays has “repeatedly let down society” and needs to clean up its culture in the wake of the £290m fine for rigging Libor, the Church of England said on Wednesday

The annual investment report by the Church Commissioners shows that the discussions with Barclays will be reviewed in July, a year on from the interest rate scandal that led to the departure of the chairman Marcus Agius, the chief executive Bob Diamond and chief operating officer Jerry del Missier.

In the report the commissioners, working with the Ethical Investment Advisory Group (EIAG), said they had “commenced an intensive engagement with Barclays seeking robust assurance that, having repeatedly let down society with its conduct, Barclays is making a determined and successful effort to effect a fundamental turnaround in culture”.

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America’s credit crunch is easing. For the past six years, consumers and businesses have struggled to borrow money, but slowly, things are getting easier.

Large U.S. companies are taking advantage of low interest rates to borrow record amounts of capital in bond markets. Banks are opening the spigots for commercial and industrial firms, and loans grew at an 11% annualized rate in the first quarter of this year, the sixth double-digit percentage increase in seven quarters, Federal Reserve data show. According to the Fed’s survey of senior bank-lending officers released Monday, 28% of banks lowered the cost of credit lines early this year to smaller firms like Mr. Aaron’s that have annual sales of less than $50 million. Residential lending began edging up last year, and even people with bad credit can get a loan to buy a car these days.

Read it all.

(Please note that you may find an earlier discussion of the importance of U-6 as a measure of the real labor market situation in this blog post and discussion from Februaryl–KSH).

Voluntary plus involuntary part-time employment rose by a whopping 441,000 jobs. Take away part-time jobs and there is not all that much to brag about. Indeed, full-time employment fell once again, this month by 148,000.

Read it all and there is another article there. For the table of all six employment/unemployment measures, you may go there.

Its surprising how many people still marry. As everyone knows, it’s a risky proposition; the divorce rate, though down from its peak of one in two marriages in the early 1980s, remains substantial. Besides, you can have a perfectly respectable life these days without marrying.

When the Pew Research Center asked a sample of Americans in 2010 what they thought about the “growing variety in the types of family arrangements that people live in,” 34 percent responded that it was a good thing, and 32 percent said it made no difference. Having a child outside of marriage has also become common. According to a report by the National Marriage Project at the University of Virginia, 47 percent of American women who give birth in their 20s are unmarried at the time.

And still, demographers project that at least 80 percent of Americans will marry at some point in their lives.

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Employers kept hiring at a steady pace in April and the government revised up job tallies for February and March, easing fears that the economy is tumbling into a spring slump and propelling blue-chip stocks to record highs.

Nonfarm payrolls rose by 165,000 last month and the jobless rate ticked down to 7.5%, the lowest level since December 2008. The Labor Department also significantly raised hiring estimates for the two prior months, by a combined 114,000 jobs.

But the job gains in April, which were tilted toward the retail and business-services sectors, come alongside mixed signals for the economy almost four years into the recovery. While the housing and auto sectors are accelerating after years of industry turmoil, other major sectors are showing signs of trouble. In short: The Federal Reserve is looking for more broad-based and sustained job growth before easing up on its easy-money policies.

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In the thirty or so years that I have been following EU affairs ”“ or is it nearer 35 years now since I studied in French literature in Paris, and German philosophy in Mainz ”“ I have never seen ties between Europe’s two great land states reduced so low.

The French Socialist Party crossed a line by lashing out at Chancellor Angela Merkel in person. It is one thing to protest “German austerity”, it is quite another to rebuke the “selfish intransigence of Mrs Merkel, who thinks of nothing but the deposits of German savers, the trade balance recorded by Berlin and her electoral future”.

There is no justification for such an ad hominem attack. German policy is indeed destructive, but that is structural. It is built into the mechanisms of EMU and the anthropological make-up of the enterprise.

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Justin Welby, the new leader of nearly 80m Anglicans around the world, has won a respectful hearing for his ideas on banking and the British economy. Even if they disagree with the details, people have generally not reacted by saying “this man hasn’t a clue what he is talking about” or “he should go back to singing hymns.”

On April 21st, the archbishop of Canterbury suggested that big, unhealthy banks should be broken up into regional ones, as part of a “revolution in the aims” of banks designed to make sure that they served society as well as their own narrow interests. That sounded very like the proposal made last month by Ed Miliband, the Labour leader, for local lenders modelled on the German system. It comes at a time when the government faces hard decisions about the future of the Royal Bank of Scotland after its rescue by the tax-payer. Given the immediacy of the issue, some people will accuse the archbishop (who lists his hobbies as French culture, sailing and politics) of making narrow political points rather than broad moral ones.

But he also had some longer-term ideas on the financial sector. Drawing on his experience as a member of a parliamentary Banking Standards Commission, he said senior positions in banking ought to form a regulated profession which required qualifications.

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To retirees, the offers can sound like the answer to every money worry: convert tomorrow’s pension checks into today’s hard cash.

But these offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards.

In lean economic times, people with public pensions ”” military veterans, teachers, firefighters, police officers and others ”” are being courted particularly aggressively by pension-advance companies, which operate largely outside of state and federal banking regulations, but are now drawing scrutiny from Congress and the Consumer Financial Protection Bureau.

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The U.S. economy expanded in the first quarter but failed to gather as much steam as expected, raising concerns of another year of sluggish growth.

Consumer spending advanced during the first quarter despite tax increases, but those gains were held in check by slowing business investment and government cutbacks.

The nation’s gross domestic product, a measure of all goods and services produced in the economy, advanced at a 2.5% annual rate between January and March, the Commerce Department said Friday. Economists had forecast a 3.2% expansion.

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Culture change in financial services will not be achieved by “light touch” or “heavy touch” regulation, Archbishop Justin said at a Westminster discussion organised by the Bible Society.

Instead the banking sector must adopt “an aim of service to society and not mere rent-seeking, and a culture of virtue based in the realities of daily life and not a fantasy nirvana,” he said.

Describing what this change of culture might look like, the Archbishop said it would require “a ruthless honesty and a deep willingness to be made very uncomfortable indeed through listening to things one does not want to hear”.

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Speaking at a Parliamentary event on “finding long-term solutions to the financial crisis”, Archbishop Welby said there needs to be a “revolution in the aims” of banks to ensure they serve society rather than “self-regarding interest” or even just shareholders.

“What we’re in at the moment isn’t a recession but some kind of depression,” he said. “It needs something very, very major to get us out of it, in the same way it took something very major to get into it.”

The Archbishop, who sat on the recent Banking Standards Commission but said his ideas were not those of the Commission, also called for professional banking standards to be introduced as a way of transforming ethical standards in banking.

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In March, 7.6 million Americans who want more hours were stuck in part-time jobs, about the same as a year earlier and three million more than there were when the recession began at the end of 2007.

These almost invisible underemployed workers do not count toward the standard jobless rate of 7.6 percent. A broader measure, which includes the involuntary part-timers as well as people who want to work but have stopped looking, stands at 13.8 percent.

“There’s nothing inherently wrong with people taking part-time jobs if they want them,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “The problem is that people are accepting part-time pay because they have no other choice.”

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At this time of year, when most Americans have just filed their returns, exasperation with the income tax system reaches a peak. Hardly anyone denies it’s a complex mess. In 2010, calculating their taxes cost Americans $168 billion, estimates the Taxpayer Advocate Service of the Internal Revenue Service. That’s about 15 percent of taxes collected ”” a heavy overhead. Almost 60 percent of taxpayers pay accountants or other tax preparers. Public esteem for the tax system is low; in a 2011 Pew poll, 55 percent judged it unfair. Disaffection was fairly even politically: 47 percent among Republicans, 58 percent among Democrats and 56 percent among independents.

So “tax reform” ought to be a cinch, right? Well, no.

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We have no way of knowing how this all ends. One problem is that the smartest solution””having Germany and perhaps a handful of other northern countries leave the euro for a new currency (the Deutche Mark 2.0, or a “neuro” for northern Europe)””would make life easier in the south. The south based euro would fall in value, but since debts and contracts are denominated in that currency, the adjustment would be the same as in a normal devaluation. This course would likely lead quickly to a new burst of growth in the south, though inflation and other problems would take a toll over time.

But the euro’s break up day would cause a lot of problems for Germany and its northern friends….

So we’re in an interesting situation. The crisis is crippling the south, but the south has no power to resolve the crisis. The crisis isn’t comfortable for the north but still looks less painful than the solution. So the north, which has the ability to resolve the crisis, doesn’t have the will to do it and the south, which has the will, lacks the ability.

Read it all (and please note that the Financial Times article by Wolfgang Münchau which is mentioned, entitled “The riddle of Europe’s single currency with many values,” is indeed a must read as Mr. Read says).

American workers are being fired or laid off less often than at any time in the last decade, the government reported this week. But companies are also less willing to hire than they used to be.

The Labor Department’s Job Openings and Labor Turnover Survey for February showed that during that month the total number of people who were either discharged or laid off totaled just 0.9 percent of all job holders in the United States. It was the first month since that survey began in 2000 that the figure dipped below 1 percent.

Over the most recent 12 months, the Labor Department figures show, only 15.1 percent of workers lost their jobs because of layoffs or discharges. Until this year, the lowest figure for any 12 months had been 15.3 percent, during the period ending in September 2006. That came as the economic boom was cresting before the recession that began at the end of 2007.

Read it all.