The New Your Times is reporting Bush Ponders Move to Bolster Economy.
President Bush said Thursday that he was considering whether to propose a stimulus package to shore up the economy, the clearest indication yet of a growing concern inside the White House over rising oil prices, the subprime mortgage crisis and the possibility of recession.
“I’m concerned about people losing their homes and paying a lot for gasoline,” Mr. Bush said in an interview with Reuters. “In terms of any stimulus package, we’re considering all options.”
Mr. Bush plans to meet Friday with his working group on financial markets, a panel that includes Treasury Secretary Henry M. Paulson Jr. and Ben S. Bernanke, the chairman of the Federal Reserve.
Mr. Bush has repeatedly said economic fundamentals are strong, a theme he is likely to echo Monday in Chicago when he delivers a speech on the economy. But with polls showing that the economy has eclipsed Iraq as the leading concern among voters, and with Democrats warning of a “Bush recession,” it has become increasingly apparent that inside the White House, there is a growing feeling that he cannot leave the economy to its own devices in his final year as president.
“Strong Economic Fundamentals”
Shiller Warns Of Japanese Style Recession
Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.
Americans are falling further behind on consumer loans, with late payments rising to the highest level since the nation’s last recession in 2001, data released Thursday show.
Foreclosures set a record in the third quarter, the Mortgage Bankers Association said on December 6. Many borrowers have struggled to make mortgage payments as their low initial rates reset higher, while falling home prices left others owing more than their homes are worth.
Citigroup, the biggest U.S. bank, may reduce the value of its holdings by $18.7 billion in the fourth quarter and cut its dividend 40 percent, Goldman analyst William Tanona said in a Dec. 26 report on the New York-based companies. JPMorgan Chase & Co., the third-largest U.S. bank, may write off $3.4 billion, double Goldman’s previous estimate. Merrill Lynch & Co. may reduce its holdings by $11.5 billion, he wrote.
New Citigroup CEO Vikram Pandit is considering laying off as many as 20,000 employees and shedding business lines, the report continued.
With credit flowing to practically any company in need of cash in recent years, the rate of defaults for U.S. high-yield companies fell to just 0.34% in December, according to a J.P. Morgan Chase analysis. The J.P. Morgan analyst, Peter Acciavatti, predicts that is about to rise drastically, to 4% by the end of 2009, and he isn’t alone. As BreakingViews points out today, Citigroup expects the default rate to surge to 5.5%, as easy credit becomes a distant memory.
Those skeptics who say such predictions have time and again proved premature got a wakeup call Wednesday. That is when Tousa, the homebuilder, disclosed that it missed interest payments on $485 million in debt. And as Bloomberg reports today, Tousa wasn’t alone. Buffets, the owner of Old Country Buffet (above), HomeTown Buffet and Country Buffet restaurants, missed an interest payment on $293 million of its bonds Wednesday.
The private-equity firm that owns Buffets, Caxton-Iseman Capital, appears to have the misfortune of failing to secure some of the succulent debt terms of other leveraged buyouts later in the boom cycle.
General Motors Corp., Ford Motor Co. and Toyota Motor Corp. said U.S. auto sales fell in December, capping the worst year in a decade, and predicted that 2008 probably won’t be any better.
GM’s sales of cars and light trucks dropped 4.4 percent from a year earlier. Ford’s total tumbled 9.2 percent, while Toyota’s fell 1.7 percent. Toyota moved up to second in annual sales, pushing Ford from the spot it had held since 1931.
The Institute for Supply Management’s manufacturing index, which had already slipped considerably in the second half of 2007, plunged to 47.7 last month, its weakest since April 2003. A reading below 50 points to contraction.
National City Corp., a Cleveland bank that barreled into originating subprime mortgages and the go-go Florida real-estate market, said it would slash its common-stock dividend by 49% and has hired an investment bank to advise it on ways to bolster capital levels now being sapped by souring loans.
The Wrong Solution
Cutting interest rates, starting wars, spending like mad, and creating artificial booms that leave everyone deep in debt hangovers are not the right solutions. It was such Keynesian Nonsense that got us where we are today. More Keynesian nonsense cannot possibly be the cure.
Mike “Mish” Shedlock
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