Ohio Unemployment Fund Runs Out

COLUMBUS, Ohio -- Ohio's unemployment compensation fund has been depleted, forcing the state to begin borrowing federal funds.Officials said no disruptions in benefits are expected.The Ohio Department of Job and Family Services said Monday the federal government has already approved $500 million to be borrowed by Ohio to pay benefits in January and February.The state has requested that it be able to use $50 million of that amount to pay benefits this week.Agency spokesman Dennis Evans said Ohio is committed to preventing the unemployed fund from missing any payments.Ohio and many other states have seen their unemployment funds decrease drastically as the number of unemployed workers has surged amid the recession.

New tipping-point in March 2009: 'When the world becomes aware that this crisis is worse than the 1930s crisis'

LEAP/E2020 anticipates than the unfolding global systemic crisis will experience in March 2009 a new tipping point of similar magnitude to the September 2008 one. According to our team, at that period of the year, the general public will become aware of three major destabilizing processes at work in the global economy, i.e.:

• the length of the crisis
• the explosion of unemployment worldwide
• the risk of sudden collapse of all capital-based pension systems

A whole range of psychological factors will contribute to this tipping point: general awareness in Europe, America and Asia that the crisis has escaped from the control of every public authority, whether national or international; that it is severely affecting all regions of the world, even if some are more affected than others (see GEAB N°28); that it is directly hitting hundreds of millions of people in the “developed” world; and that it is only worsening as its consequences reveal throughout the real economy. National governments and international institutions only have three months left to prepare themselves to the next blow, one that could go along severe risks of social chaos. The countries which are not properly equipped to cope with a surge in unemployment and major risks on pensions will be seriously destabilized by this new public awareness.

In this 30th issue of the GEAB, the LEAP/E2020 team describes these three destabilizing processes (two of them are described in this public announcement) and gives recommendations to cope with the surge in risks. In addition, this issue also provides the opportunity to make an objective assessment of the reliability of LEAP/E2020's anticipations and specifies a number of methodological aspects of the analytical process used. In 2008, LEAP/E2020's success rate reaches 80%, and even 86% when it comes to strictly socio-econimic anticipations. In a year of major upheavals, our teal ise altogether quite proud of this result.

The crisis will last at least until the end of 2010

Evolution of the US money base and indications of related major US crisis periods (1910 – 2008) - Source: Federal Reserve Bank of Saint Louis / Mish’s

Global Economic Analysis

As we already explained in GEAB N°28, the crisis will affect in different ways the different regions of the world. However, and LEAP/E2020 wishes to be very clear on that aspect, contrary to the dominant stance today (coming from those experts who denied the fact that a crisis was coming up three years ago, who denied that it was global two years ago, and who denied the fact that it was systemic six months ago), we anticipate that the minimum duration of the decanting phase of the crisis is 3 years (1). It shall be finished neither in spring 2009, nor in summer 2009, nor at the beginning of 2010. It is only towards the end of 2010 that the situation will start stabilizing again and improving a little in some regions of the world, i.e. Asia and the Eurozone, as well as in countries producing energy, mineral and food commodities (2). Elsewhere, it will continue; in particular in the US and UK, and in all the countries depending on their economy, were the duration could approximate a decade. In fact these countries should not expect any real return to growth before 2018.

Moreover no one should imagine that the improvement at the end of 2010 will correspond to a return of high growth. The recovery will take long. For instance, stock markets will take a decade to return to levels comparable to 2007, if they ever return to that. Remember that it took twenty years before Wall Street resumed its 1920 levels. Well, according to LEAP/E2020, the present crisis is deeper and longer than in the 1930s. The general public will gradually become aware of the long-term aspect of this crisis in the coming three months and this situation will immediately trigger two tendencies carrying with them socio-economic instability: fear of the future and enhanced criticism towards leaders.

The risk of sudden collapse of all capital-based pension systems

Finally, among the various consequences of the crisis for dozens of millions of people in the US, Canada, UK, Japan, Netherlands and Denmark in particular (3), there is the fact that, from the end of the year 2008 onward, news about major losses on the part of the organizations in charge of managing the financial assets supposed to finance pensions will multiply. The OECD anticipates that pension funds will lose 4,000 billion USD in 2008 only (4). In the Netherlands (5) as well as in the United Kingdom (6), monitoring organizations recently blew the whistle asking for an emergency contribution reappraisal and a State intervention. In the United States, growing numbers of announcements call for contribution increases and benefit reductions (7), knowing that it is only in a few weeks time that most of these funds will start calculating their total losses (8). Most of them are still deluding themselves about their capacity to build up again their capital after the markets turn around. In March 2009, when pension fund managers, pensioners and governments will become simultaneously aware of the fact that the crisis is there to last, that it coincides with the « baby-boomer » generation’s age of retirement and that the markets will not resume their 2007 levels until many long years (9), chaos will flood this sector and governments will reach the moment when they will be compelled to nationalize all these funds. And Argentina, who took this decision a few months ago already, will appear a pioneer.

All the trends described above are already at work. Their combination and the public becoming aware of the consequences they could entail, will result in the great collective psychological trauma of Spring 2009, when everyone will realize that we are all trapped into a crisis worse than in the 1930s and that there is no possible way out in the short-term. The impact on the world’s collective mentalities of people and policy-makers will be decisive and modify significantly the course of the crisis in its next stage. Based on greater disillusion and fewer beliefs, social and political instability will settle down worldwide.

Shipping rates hit zero as trade sinks

Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 3:39PM GMT 14 Jan 2009

The cost of shipping goods from Asia to Europe has tumbled

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit­igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.

Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.

Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.

A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.

"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.

Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.

It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.

The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.

Mr de Trenck predicts Asian trade to the US will fall 7pc this year. To Europe he estimates a drop of 9pc – possibly 12pc. Trade flows grow 8pc in an average year.

He said it was "illogical" for shippers to offer zero rates, but they do whatever they can to survive in a highly cyclical market.

Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.

Max Keiser speaking before the UN Security Council about disarming bankers

Leading economist fears decade of weakness in US

Suzy Jagger in New York

One of the world's leading economists has given warning that the United States is facing a decade of financial misery, with the number of unemployed Americans set to continue to rise for years.

Robert Shiller, Professor of Economics at Yale University, who predicted the end of the internet bubble seven years ago, said: “We could have many years of a very weak economy. Big recessions are followed by years of weakness and typically unemployment keeps rising.

“To say that this will last years is not a dramatic statement. What is happening now is much worse than 1990. We could be facing a decade of real weakness.

“This is no ordinary recession. There are signs that people see this as a different story. People are talking about a depression, something that we haven't seen previously.”

• Huge rise expected in US unemployment figures

• ‘Terrible’ US job losses reach 34-year high

Professor Shiller's comments come as the unemployment rate in America is rising astonishingly fast.

Last week official figures showed that the US lost 524,000 jobs in December, with the overall unemployment rate rising to 7.2 per cent — the highest level for 16 years.

With about 11.1 million people out of a job, the total number of unemployed is about 50 per cent higher than a year ago.

Some economists, such as Kenneth Rogoff, the former chief economist at the International Monetary Fund and now a Professor of Economics at Harvard University, believe that America will be lucky if unemployment peaks at 9 per cent of the workforce and that there is a high chance that it will reach at least 10 per cent.

Professor Shiller, who said that he has talked to the incoming Obama Administration about possible solutions to the housing crisis in the US, took a swipe at the Federal Reserve.

He said: “This recession is by no means mechanical. People have lost a sense of confidence, a sense of trust in institutions and in each other. It is very hard for a central bank to address that by just cutting interest rates.”

Professor Shiller, who has recently published The Subprime Solution — How Today's Global Financial Crisis Happened, and What to Do About It, also warned that plans to try to limit foreclosures had met with resistance from those who felt “they had paid their mortgages, they had done everything right, but that they are now being taxed for those who did not”.

The housing market in the United States is widely seen as one of the main causes of its economic troubles.

Spurred by low interest rates and initiatives to promote home ownership, residential real estate boomed for a decade.

Professor Shiller, who co-founded the authoritative S&P Case/Shiller home price index, was one of the first to predict that the housing market would slump and that this could bring down financial institutions.

He said: “So far the Government isn't doing much. [President-elect Barack] Obama has not made any announcement. They do not have anything going. I would have thought that Obama would be receptive [to a rescue plan to stem the rate of foreclosures].”

Recession means brisk business for pawnbroker H&T

• Graeme Wearden
• guardian.co.uk, Monday 12 January 2009 18.32 GMT
• Article history

Britain's biggest pawnbroker has cheered the City by predicting it will comfortably beat profit expectations after enjoying a surge in business last year.

H&T Group reported this morning that its chain of 105 UK stores experienced strong growth during the last six months of 2008, a time when many families began to suffer from the downturn in the economy.

With like-for-like sales up by 3% in December, H&T is confident that its pre-tax profits for the year will beat consensus forecasts of £10m by at least 10%.

H&T, whose website's slogan reads "Helping you get your hands on cash", opened 16 new stores last year. Much of its business involves making loans guaranteed against personal possessions such as gold jewellery, though the company, founded in 1897, also provides cheque-cashing services.

Chief executive John Nichols said H&T was planning to open more stores and hire more staff in 2009. So far, H&T has not seen an increase in the number of customers failing to repay their loans. Nichols said this could change, though, if consumers were hit by rising prices and bills this year.

The average loan made by H&T is £120, typically repaid after three months. H&T reported last summer that gross profit in its pawnbroking business grew by almost 36% in the first half of the year. The soaring gold price has also helped the company, as it buys broken jewellery which is sold on as for scrap metal.

Analysts at Daniel Stewart tipped pawnbrokers as likely winners of the financial crisis.

Shares in H&T jumped by 13%, gaining 19.5p to close at 172p.

Warning that house prices may fall by 80%

LAURA SLATTERY

HOUSING MARKET: IRELAND WILL see more demolition than construction of houses over the next decade, as the economy struggles to recover from the collapse of the housing market and the emergence of “zombie” banks, UCD economist Morgan Kelly told the conference.

In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.

“Construction, but not demolition, of residential and commercial property will fall to zero for the foreseeable future,” he said.

Low levels of education among those employed in construction – where worker numbers peaked at about 280,000 – meant retraining would not be straightforward.

Recovery will be slow: “It has taken us 10 years to get into this situation – it will in all likelihood take us 10 years to get out of it.”

Mr Kelly said he had been hailed as being extremely prescient as a result of his warnings in relation to the property bubble, when in fact he and a handful of other “amateurs” were merely stating what was obvious.

Sparing no blushes, he said professional economists in the Central Bank and the Economic and Social Research Institute “need to look very closely at their analyses of the Irish economy and figure out what went wrong”.

Mr Kelly said Ireland’s “reputational capital” had been damaged by “chancers” such as ex-Anglo Irish Bank chairman Seán FitzPatrick, who had been abetted by “buffoons” such as former financial regulator Patrick Neary, Minister for Finance Brian Lenihan and the Taoiseach.

In discussing the €110 billion given in loans to developers, Mr Kelly said a typical regional housing collapse in the US saw banks sustain a 20 per cent loss on these loans, but the narrowness of the Irish market increased the risk of “substantially larger losses” for Irish banks.

“The guarantees of Anglo and [Irish] Nationwide liabilities have a strong chance of being called in over the next 21 months,” he said. Extending the Government guarantee to these two financial institutions was “extraordinarily unwise” and could produce losses that the State cannot afford to repay.

The global financial crisis may have been positive for the Irish economy as it “stopped us dragging ourselves even deeper into our hole,” he said. “If it had taken another year or two, we would have ended up in an Icelandic-shaped hole, which is not to say that we won’t end up in one.”

Mr Kelly said the Government should abolish stamp duty on property, compile proper price and quantity statistics and restore competitiveness through a public sector pay cut of 10 per cent.

A paper by TCD economist Patrick Honohan on the banking crisis argued that capital injections in the banks were a prerequisite for recovery. The financial regulator needed to decide now which banks had systemic importance to the economy – in other words, are “too big to fail”, and which are “zombie” banks.

“The goal is to avoid the continued operation of an undercapitalised, error-prone bank with a flawed business model and administrative practices, a problematic customer base and a compromised management facing distorted incentives,” the paper stated.