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Asia banking bonds capitalism chart China commentary consumer debt Credit Cards credit crisis curiouscat debt economic data Economics economy employment energy entrepreneur Europe fed Financial Literacy government health care housing interest rates Investing John Hunter manufacturing markets mortgage Personal finance Popular quote Real Estate regulation Retirement save money Saving spending money Stocks Taxes Tips USA Warren Buffett webcast

USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983

The employment news in the USA continues to be very bad. We knew the news on job was going to be bad in 2009; still the actual news confirming those beliefs is not welcome. Of all the economic statistics for the health of the economy, employment is about the most important.

U.S. Unemployment Rate Jumps to 8.1 Percent by Debbi Wilgoren

The Bureau of Labor Statistics said the jobless rate rose from 7.6 percent in January to 8.1 percent in February, the highest rate in more than 25 years. An estimated 12.5 million Americans were unemployed in February, the data show, an increase of 851,000 since January. More than 4.4 million people have lost their jobs since the recession began in December 2007, U.S. Labor Secretary Hilda Solis said.

The government revised sharply upward the number of jobs the economy lost in December and January, showing a staggering 1.99 million jobs disappearing in the past three months. More jobs were lost in each of those months than in any single month since October 1949
…
The February data showed profound losses in the professional and business services sector, with 180,000 jobs gone. Some 168,000 jobs were lost in the manufacturing industry, with most of the decline in the durable goods sector. There were 104,000 construction jobs lost as projects stalled due to the collapse of the real estate industry and the ongoing credit crisis. The financial sector shed 44,000 jobs, retail lost 40,000 jobs and the leisure and hospitality industry reported 33,000 fewer jobs. Job growth continued, however, in the health-care sector.

Analysts say the pace of job cuts is likely to remain brisk for at least a few more months
…
The number of people working part time because they cannot find full-time employment rose by 767,000 in February to 8.6 million, the government said. The unemployment rate does not reflect people who say they would like to work full-time, but can only find part-time job

Related: Over 500,000 Jobs Disappeared in November – What Do Unemployment Stats Mean? – Bad News on Jobs – Poll: 60% say Depression Likely

March 6th, 2009 by John Hunter | 2 Comments | Tags: Economics, quote

House of Cards – Mortgage Crisis Documentary

A documentary of the mortgage crisis by CNBC: House of Cards. It is a bit slow and simple but still for people that don’t really understand the basics of what happened it is interesting.

Related: Nearly 10% of Mortgages Delinquent or in Foreclosure – Ignorance of Many Mortgage Holders (2007) – How Not to Convert Equity – mortgage terms

March 4th, 2009 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Investing, Personal finance, Real Estate

Low Mortgage Rates But High Eligibility Requirements

Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens

The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24
…
“A score of 700 was once near perfect,” said Gwen Muse Evans, vice president of credit policy at Fannie Mae, the government-controlled company that helps set lending standards. “Today, a 700 performs more like a 660 did. We have updated our policy to take into account the drift in credit scores.”

Consumer credit scores, called FICOs after creator Fair Isaac Corp., range from 300 to 850. The average FICO score on mortgages bought by Freddie Mac and Fannie Mae rose to 747.5 in the fourth quarter of last year from 722.3 in 2005, according to Inside Mortgage Finance.

Accunet’s Wickert said that a 660 FICO score would have qualified most borrowers for loans with no upfront fees in the past. Now, someone trying to borrow $200,000 with a 660 score would have to pay a 2.8 percent fee, or $5,600, he said. Even someone with a 719 score would have to pay $1,750 in cash.

The low mortgage rates are attractive but a decision to re-finance (or buy) must consider the long term implications. Also if you are re-financing to take advantage of the low rates consider a 20 year or 15 year loan if you are already well into your 30 year loan. A fixed rate loan is the most sensible option at this time.

Related: Low Mortgage Rates Not Available to Everyone – 30 Year Fixed Mortgage Rates and the Fed Funds Rate Chart – Ignorance of Many Mortgage Holders – Fed Plans To Curb Mortgage Excesses – How Not to Convert Home Equity

February 27th, 2009 by John Hunter | Leave a Comment | Tags: Financial Literacy, Personal finance, Real Estate

Jumbo Loan Defaults Rise at Fast Pace

Jumbo Loan Defaults Rise at Fast Pace as Rich Suffer

About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent

2.57% of homeowners with jumbo mortgage are 60 days late, of those that just got loan last year! That is crazy. These kinds of figures are astounding to me. I am still (posted Feb 2007) amazed that 4.4% is the historic low for mortgages over a month late.

About 1.92 percent of homeowners with 2008 mortgages backed by Fannie Mae and Freddie Mac fell at least 60 days behind, LPS Applied Analytics said. Jumbo loans are bigger than what the two government-controlled agencies buy or guarantee, and Obama’s plan focuses on shoring up mortgages eligible to be bought by Fannie and Freddie.
…
The top five U.S. jumbo lenders — Chase Home Finance LLC, Bank of America Corp., Washington Mutual Inc., Wells Fargo & Co. and Citigroup Inc. — originated a combined $55.3 billion in jumbos in 2008. They lent just $4.3 billion of that during the last three months of the year, according to Inside Mortgage Finance.
…
The national average for a 30-year fixed-rate jumbo mortgage was 6.57 percent this week compared with 5.34 percent for a conforming loan, according to White Plains, New York-based financial data provider BanxQuote.

Related: The Impact of Credit Scores and Jumbo Size on Mortgage Rates – Low Mortgage Rates Not Available to Everyone – 30 Year Fixed Mortgage Rates and the Fed Funds Rate – posts about mortgages

February 24th, 2009 by John Hunter | Leave a Comment | Tags: Personal finance, Real Estate

What the Bailout and Stimulus Are and Are Not

The huge banking bailouts and stimulus bill are meant to counter-balance the huge problems the economy is suffering through. The damage caused to the economy, is largely from unwise risks that were allowed by regulators and politicians that have not panned out and are now greatly damaging the economy. It is always easy for politicians to pay out money in an attempt to buy our way out of problems. That is what the stimulus and bailout bills are doing. They are yet again heaping huge debts on our children and grandchildren.

The bailout and stimulus packages are not about preventing foolish risks to the economy by huge banks that would make the economy safer in the future. Those types of bills are very hard to pass as the politicians get great sums of money to allow people to risk the economy for their own benefit. The concept of the stimulus is not to fix the cause of the problem but do cope with the problem we are left with due to people that paid themselves huge amounts of money. Now the taxpayers get to fund the huge payouts wall street has given themselves.

This is because they never actually provided the value they claimed. They merely created false returns to claim they provided a benefit to justify obscene pay (many of them truly didn’t understand this is what they were doing so beyond failing they were so incompetent [while accepting well over a million dollars a year] they didn’t even understand that the financial games they were playing were failing. It is hard to know what is worse, being so incompetent while claiming you deserve millions or knowing you are just paying yourself money based on false claims of value.

Either way, the banks are left bankrupt – having worthless securities created by those paying themselves huge amounts of money. If the huge banks fail the financial system collapse creates huge problems – businesses that have operated for decades by borrowing some funds (responsibly) go bankrupt because no funds are available to lend them, etc..

The stimulus is not about fixing the problems of the past it is about countering the huge decline from the bubble economy. That bubble economy was funded largely by claiming value where none existed thereby allowing people to spend huge amounts of money based on those faulty claims. How people are shocked that playing financial games doesn’t actually make hundreds of billions of dollars appear out of thin air is beyond me.
Read more

February 23rd, 2009 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, quote

Volcker: Economic Decline Faster Now Than Any Time He Remembers

Paul Volcker said some pretty alarming words recently. Volcker: Crisis May be Even Worse than Depression

“I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,” Volcker told a luncheon of economists and investors at Columbia University.
…
He stressed the importance of preventing financial institutions large enough to pose a threat to the entire system from engaging in risky behavior such as running hedge funds or trading for its own accounts.

He is certainly right on the second point. I must say the decline is bad. And the recent new on jobs and GDP have been bad. It doesn’t strike me as approaching the depression type problems but he didn’t say the economy was approaching a depression, just that the decline was steeper now, perhaps. When he says something like that it makes me at least want to pay a bit more attention to the economy.

Related: Too Big to Fail, is Too Big – Treasury Now (1987) Favors Creation of Huge Banks – Monopolies and Oligopolies do not a Free Market Make

February 21st, 2009 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy

Sound Canadian Banking System

Worthwhile Canadian Initiative by Fareed Zakaria

Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.
…
Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1.
…
Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; “healthy life expectancy” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America’s largest car-producing region.

Related: Canadian Banks Avoid Failures Common Elsewhere – International Health Care System Performance – Greenspan Says He Was Wrong On Regulation

February 8th, 2009 by John Hunter | Leave a Comment | Tags: Economics

GDP Down 3.8%, Worst Since 1982

GDP slides 3.8%, worst since 1982

That was the steepest drop since a 6.4% decline in 1982, easily surpassing the downturns seen during the 1990-91 and 2001 recessions. It also provided the second consecutive drop in GDP, after the 0.5% drop in the third quarter of 2008.
…
“All of this points towards real GDP declining faster in the first quarter than the fourth quarter,” Levy said. Another bad portent was a sharp decline in exports. U.S. sales to other countries had been strong in recent years, boosted by high demand overseas and the relatively low value of the dollar. But that situation reversed sharply in the last three months of 2008, with exports plummeting 19.7%.

According to the International Monetary Fund, the decline in the U.S. is matched by other leading economies, which contracted about 5.5% in the fourth quarter of 2008.

The decline was a bit less than anticipated but obviously shows an economy in serious trouble. U.S. GDP Falls At 3.8 Percent Pace In 4th Quarter

The figure showed how rapidly the economy was contracting. In the previous quarter, the economy slipped 0.5 percent. For all of 2008, GDP rose 1.3 percent, the slowest growth since 2001, when the economy expanded 0.8 percent. In 2007, the GDP increased by 2 percent.

The Commerce report showed consumer spending – which accounts for a whopping two-thirds of U.S. economic activity – fell another 3.5 percent in the fourth quarter after declining 3.8 percent in the third quarter. Spending on durable goods such as cars and furniture plunged 22.4 percent, the steepest decline since the first quarter of 1987.

As I have been saying for awhile the economy is in trouble and 2009 looks to be difficult. We should be happy if a recovery is underway in the 4th quarter of 2009 and we have not too drastically increased the burden on the future to pay for current spending.

Related: Financial Market Meltdown (Oct 2008) – Cracks in US Economy? (Dec 2006) – Fed Continues Wall Street Welfare – Forecasting Oil Prices – Crisis May Push USA Federal Deficit to Above $1 Trillion for 2009

January 31st, 2009 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy

Our Capacity Remains Undiminished

President Barack Obama’s Inaugural Address

We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

That sounds nice I believe however, it is fairly irrelevant. Economic demand is what is down, not production capacity. We are “no less productive than when this crisis began.” Ok, that is probably true. So what. That implies that the crisis has something to do with productivity. If we say the color of our eyes is the same as when the crisis began it is obvious that is a non-sequitur. Well so is the quote by the new President, though that is less obvious.

Our demand was definitely over stimulated using massive federal government budget deficits, massive trade deficits, massive amounts of consumer debt, massive amounts of unjustified mortgage debt and massive amounts of leverage. None of those things has anything to do with capacity in the implied sense – capacity to produce. They have to do with the capacity to consume. And while our capacity to consume has not declined. The funding that allows that consumption (foreign lending, high leverage, junk mortgages…) has decreased.
Read more

January 26th, 2009 by John Hunter | 1 Comment | Tags: Economics, quote

Stock Markets Down $30 Trillion for 2008

$30.1 trillion in stock market valuation was wiped out last year – Journal of a Plague Year: Faith in Markets Cracks Under Losses:

The price tag has been transcendent, too. Global stock markets lost about half of their value in 2008, or $30.1 trillion dollars. In the U.S., $7.2 trillion of shareholder value was wiped off the books, as the Standard & Poor’s 500 Index fell 39 percent through Dec. 30 and the Nasdaq Composite Index dropped 42 percent.
…
Lehman Brothers Holdings Inc., with assets of $639 billion, filed the largest bankruptcy in U.S. history on Sept. 15. Its creditors may have lost as much $75 billion, the firm’s chief restructuring officer said.

Bear Stearns Cos. was taken over by JPMorgan Chase & Co. in March after a funding crisis triggered by losses from subprime- mortgage investments. Merrill Lynch & Co., facing a crisis of its own, sold itself to Charlotte, North Carolina-based Bank of America Corp. And the last two major investment banks, Goldman Sachs Group Inc. and Morgan Stanley, converted to bank holding companies and got capital injections from the U.S. government.

2008 was quite a memorable year in the markets. What the markets will do this year is hard to know. But the economy is likely to be very weak. Job losses will increase. If we are lucky the economy will be picking up by the end of the year. A huge problem is we have been living well beyond our means for decades. And now we are selling out even more of our children and grandchildren’s future to pay for the extravagance of those last few decades. How costly our credit-card-like financing of government bailouts is going to be is the most important issue I believe.

There is nothing wrong with spending money you saved for a raining day when that day comes. There is a big problem (for your future) taking our more credit cards to spend money you didn’t bother to save. You might have to do so, but the costs you are heaping on your future is very high (and for the economy overall many of those costs will be borne by children not yet born).

Related: The Economy is in Serious Trouble – Crisis May Push USA Federal Deficit to Above $1 Trillion for 2009 – What Should You Do With Your Government “Stimulus” Check? – Over 500,000 Jobs Disappeared in November

January 8th, 2009 by John Hunter | Leave a Comment | Tags: Economics, Investing
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