Greenspan: Economic growth is Zero

[J]

CNBC link

Greenspan Says US Growth is at Zero
Topics:Interest Rates | Inflation | Employment | Consumers | Federal Reserve | Economy (U.S.)By Reuters | 25 Feb 2008 | 05:24 AM ET

U.S. economic growth has stalled and recovery may take longer than usual, former U.S. Federal Reserve chairman Alan Greenspan said on Monday.

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J. Scott Applewhite / AP
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As of right now, U.S. economic growth is at zero," Greenspan said at an investment conference in Jeddah, Saudi Arabia's second-largest city. "We are at stall speed."

"Recovery might take longer to emerge than it usually does," he added.

The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.

"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

The Federal Reserve said at the time it was worried the economy could face further setbacks, even after a series of interest rate cuts.

Greenspan also said a boom in oil prices, which hit a record of $101.32 on Wednesday, will "go on forever".

Soaring crude prices have kept U.S. inflation high, even as growth slows.

Of particular interest is the bolded part, "a boom in oil prices will go on forever". Oops. I think we have a problem...

[Admiral Valdemar]

It's like retirement from the Fed kick started his brain again.

It is funny how just a few short years ago, his tune was the total opposite of what it is now. Nothing like sense finally infiltrating the skull. On another note, the prospect of the dollar tanking fatally seems more likely to be of immediate concern than energy and food outstripping the average consumer's buying power. Given the size of bank write-downs in the last six months, I'd be amazed if the US economy was trucking along as it is now by the end of the year.

The consumer confidence gap is only going to get worse as these inflated commodity prices are passed on, pour example.

[Surlethe]

"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.

Translation: If the US starts to go down, we absolutely screw over the rest of the world while we don't go down quite as far as we otherwise would have.

[K. A. Pital]

It's like retirement from the Fed kick started his brain again.

He just doesn't need to lie his ass off anymore, not that he didn't understand that when he was at the helm, I guess

[Zablorg]

So now that the news can be officially recognized, can we expect an actual response of any kind from the Bush administration?

[The Spartan]

So now that the news can be officially recognized, can we expect an actual response of any kind from the Bush administration?

Not a useful one...

[Chris OFarrell]

"After consulting with our finest Regan era Vodoconomists, we have determined that a tax cut to the top one percent of the top one percent of the nations earners will clearly solve this problem through the magical hand of the free market! Oh and tax increases for the middle class of course, to pay for the new abstinence only sex education amendment into the US Constitution!"

[aerius]

So now that the news can be officially recognized, can we expect an actual response of any kind from the Bush administration?

Yes. Denial. Lots of denial. Plus some questionable "economic stimulus" packages.

[J]

I'm not sure this merits its own thread, so I'll just stick it here for lack of a better place.

WSJ link

FDIC to Add Staff as
Bank Failures Loom
By DAMIAN PALETTA
February 26, 2008; Page A2

WASHINGTON -- The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas.

The agency, which insures accounts at more than 8,000 financial institutions, is also seeking to hire an outside firm that would help manage mortgages and other assets at insolvent banks, according to a newspaper advertisement.

In public, policy makers are debating what role the government should play in trying to stabilize the housing market and minimize foreclosures. Meanwhile, regulators have worked discreetly behind the scenes to closely monitor the growing number of troubled banks and thrifts considered at risk.

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

In job postings on its Web site, the FDIC said it is looking for people with "skill in performing duties associated with a financial-institution closing, such as receivership management, resolutions and/or asset disposition; knowledge of the resolutions process as it relates to complex financial institutions." Such positions would require "very frequent overnight travel," the posting said, and would pay up to $180,770.

"The notion of bringing back some people who have been through it before is very smart," said William Isaac, who was FDIC chairman from 1981 until 1985. All told, the FDIC has roughly 4,600 employees, far fewer than the about 15,000 it had as recently as 1992.

On Sunday, the FDIC ran a newspaper ad seeking companies that could service commercial loans, mortgages and student loans in the event of a bank failure. It didn't say how much a company could earn in this area.

The FDIC rated 65 banks and thrifts as "problem" institutions at the end of the third quarter of 2007, up from 47 institutions a year earlier. Both figures are low by historical standards. At the end of 1993, there were 572 "problem" banks and thrifts. The FDIC is expected to update its data on "problem" institutions today.

Before the housing market soured, the banking industry was enjoying one of its most profitable stretches in U.S. history. There wasn't a single bank failure from July 2005 through January 2007, an unprecedented span.

There have only been four bank failures in the past 12 months, a rate the FDIC has easily been able to handle.

In many parts of the country, the housing-market decline has hamstrung banks, and regulators have reported weakening performance of commercial real estate, small business and credit-card loans. Exacerbating the situation is a cash-flow crunch, which makes it harder for banks to obtain funding to originate new loans.

FDIC Chairman Sheila Bair, Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich have warned of a pickup in bank failures. Last week, Mr. Reich reported that the thrift industry lost a record $5.2 billion in the fourth quarter.

The FDIC was created by Congress in the 1930s after a series of bank runs during the Great Depression. At the end of 2007, it had $52.4 billion in its fund that backstops the nation's insured deposits.

So let me get this straight, the talking heads on TV continue to claim that bar a few minor hiccups, everything's going swimmingly well. If so, why would the FDIC be preparing for a large scale banking failure? Hmmm...

[Elfdart]

I guess the FDIC isn't chock full of Dubya's stooges doing their best impression of Dr Pangloss.