WASHINGTON (AP) - The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century.
With the economy forecast to lose traction, or even jolt into reverse, unemployment will move higher, the Fed predicted.
Facing the likelihood of “significant weakness” in the economy, some Fed officials suggested “additional policy easing could well be appropriate at future meetings,” according to documents from the Fed’s most recent closed-door deliberations on interest rate policy at the end of October.
[...]
To help ease financial turmoil and spur banks to lend money more freely again to customers, the Fed has taken a series of other unprecedented steps, including offering short-term cash loans and buying up mounds of short-term debt that companies rely on to pay day-to-day expenses like payrolls and supplies.
Under its new economic forecast, the Fed now believes gross domestic product could be flat or grow by just 0.3 percent this year. GDP could actually shrink or expand by 1.1 percent next year. Both sets of projections are lower than the Fed’s forecasts delivered to Congress in July.
[...]
The prospects for weaker economic activity will push up unemployment. The Fed projected that the national unemployment rate will rise to between 6.3 percent and 6.5 percent this year. The rate in October was 6.5 percent, and last year the rate averaged 4.6 percent.
Given news like this I have to say that it will be interesting to see if Obama is going to stick to his statements about holding off in implementing his tax plan.
While the National Bureau of Economic Research has not announced whether or not the economy is in a recession I think it is a safe bet to conclude that we are in a recession. GDP decreased last quarter. The non-farm payroll has declined for 10 straight months in a row. Unemployment insurance claims are up.
Unemployment has been rising steadily since the start of the year. In January unemployment was 4.9% and now it is 6.5%. Citigroup is laying of 50,000 employees. The auto-industry is begging for money or they too will be laying of thousands of employees. Real personal consumption expenditures have been zero or negative from August through September. This is significant in that personal consumption expenditures (PCE) make up just under 71% of GDP. If PCE goes negative it does not bode well for GDP. If PCE is negative again for October and November it will likely mean that GDP is going to be very low and/or negative. So far the only bright spots I’ve heard of are that the CPI is sharply down and real earnings were up from September to October.
Ayman al-Zawahiri, Osama bin Ladin’s deputy, called Barack Obama a “house negro.”
Al-Qaida’s No. 2 leader used a racial epithet to insult Barack Obama in a message posted Wednesday, describing the president-elect in demeaning terms that imply he does the bidding of whites.
The message appeared chiefly aimed at persuading Muslims and Arabs that Obama does not represent a change in U.S. policies. Ayman al-Zawahri said in the message, which appeared on militant Web sites, that Obama is “the direct opposite of honorable black Americans” like Malcolm X, the 1960s African-American rights leader.
In al-Qaida’s first response to Obama’s victory, al-Zawahri also called the president-elect—along with secretaries of state Colin Powell and Condoleezza Rice—”house negroes.”
Speaking in Arabic, al-Zawahri uses the term “abeed al-beit,” which literally translates as “house slaves.” But al-Qaida supplied English subtitles of his speech that included the translation as “house negroes.”
The message also includes old footage of speeches by Malcolm X in which he explains the term, saying black slaves who worked in their white masters’ house were more servile than those who worked in the fields. Malcolm X used the term to criticize black leaders he accused of not standing up to whites.
In Washington, State Department spokesman Sean McCormack said the latest message was just “more despicable comments from a terrorist.”
Despicable, indeed. Comments like this lead to insensitive behavior. Shame, shame al Qaeda.
Polish foreign minister Radoslaw Sikorski, speaking at the Atlantic Council today, declared that Russia’s justification for invading Georgia, that it was defending its friends abroad, is one that has been used by Russian autocrats for centuries to justify a doctrine of imperialism. Saying that we need “a doctrine for a doctrine,” Sikorski declared that, “Any further attempt to redraw borders in Europe by force or by subversion will be regarded by Poland as an existential threat to our security and should entail a proportional response by the whole Atlantic community.” Beyond that, “We need to make NATO’s traditional security guarantees credible again.”
In “Melting the Russian Glacier,” an essay at New Atlanticist, I question whether the West actually has the will to carry out this doctrine.
Comments closed. Please join the discussion at the link.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in October, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The October level of 216.573 (1982-84=100) was 3.7 percent higher than in October 2007.
A drop like this in the CPI suggests that at the very least the Fed can put aside worries of inflation for the moment which means it is unlikely that interest rates will go up. This is the largest one month decrease since 1947 when the BLS started publishing the monthly seasonally adjusted CPI numbers.
The reason for the decline are the large decreases in the energy portion of the index lead by the 14.2 percent drop in the gasoline index. Still gasoline prices are over 12 percent higher than where they were last year.
Somali pirates struck again yesterday, seizing an Iranian cargo ship holding 30,000 tonnes of grain, as the world’s governments and navies pronounced themselves powerless against this new threat to global trade.
fester at The Newshoggers is correct in that the cost-benefit of measures to curtail piracy needs to be considered in the calculus:
I have seen calls for the formation of merchant convoys to be formed. These calls are mainly on blogs and in comments. The big problem for this strategy is one of cost and benefit. Right now piracy is a front page issue as it is bizarre and unusual. However in the grand scheme of things, it has not been that expensive. The best estimates are under one hundred million dollars in direct costs for this year.
The costs may be going up sharply and soon. According to William Pentland, writing in Forbes insurance costs for shippers through the Gulf of Aden have increased ten-fold recently:
Roughly 11% of the world’s seaborne petroleum passes through the Gulf of Aden. If the incidents continue unabated, shipping vessels may opt to avoid the Gulf of Aden by taking the longer route to Europe and North America round South Africa’s Cape of Good Hope, which would almost certainly drive up commodities prices.
“The Gulf of Aden is a vital international trade route, and it is intolerable for it to be disrupted by pirates in this way,” Pottengal Mukundan, the director of the International Maritime Bureau recently told a Malaysian shipping publication.
While previous attacks have taken place within 200 nautical miles of land, the Sirius Star was hijacked roughly 450 miles southeast of Mogadishu, Somalia, according to the International Maritime Bureau. In addition, the targets have shifted from fairly insignificant to critically strategic resources. The seizure of the Sirius Star is the first hijacking of a very large crude carrier on record.
Foreign navies have begun patrolling the Gulf of Aden to rein in the pirate gangs off the coast of northern Somalia, but they have had only limited success. As a result, ship owners have seen insurance premiums for coverage of passage through the Straits of Aden climb from an average of $900 to $9,000.
The value of the Sirius Star, the oil tanker captured earlier this week, is estimated to be $120 million and that of its cargo over $100 million. We can probably expect the ransom demand to be commensurate with the value of the prize. I’d estimate the value of the cargo of the Iranian ship that’s been captured at something like $3 million and the ship carrying it about that, too. The value of the cargo of the Ukrainian freighter seized in September which, reportedly, included 33 T-72 tanks is almost certainly in the tens of millions.
As the value of prizes taken and the ransoms demanded rise, I wouldn’t be surprised if the $30 million to $40 million in annual direct costs attributable to piracy worldwide seen this year are looked back on as the good old days and that ten-fold insurance increase is just a start.
At this point I doubt that our navy is really constituted properly for convoy duty. As the costs of piracy rise, that could change.
Piracy, like other forms of banditry, tends to flourish in the absence of functioning governments and that’s certainly the case in Somalia, which has been without one since 1991. The country is plagued by warring clans, Islamists, and even, if reports are to be believed, toxic waste dumping. It may well be that piracy in the Gulf of Aden will only increase without a functioning Somali government. It’s hard for me to see what forces would cause one to emerge.
Update
Traffic through the Suez Canal has already been depressed somewhat by the world financial crisis and, if the threat of piracy causes further reductions in use of the Aden/Suez route, the implications for Egypt could be quite serious. The Suez canal provides 4% of annual GDP and 10% of the countries foreign exchange:
There is growing evidence that the current spate of piracy near the Horn of Africa has undermined ship operator confidence in the Red Sea/Suez route and use of the old Cape route is now a considered option despite the associated high costs.
With such a diversion adding around 20 days to the average voyage and day-rates for the largest ships in the $20,000 (Dh73,476) to $30,000 (Dh110,214) ballpark, the fact that such an alternative is being considered is testament to the seriousness of the piracy situation.
A report in the ME Times claims Egypt privately fears a downturn in canal revenues, which is a hefty foreign currency spinner at 10 per cent and provides around 4 per cent of national income. However, the official response to the claims is to deny that piracy is a threat to the canal despite a recent reduction in tariffs that is believed to be due to a combination of the fall in Chinese exports and piracy surge.
Update 2
There are reports that the Indian Navy has sunk a pirate vessel that’s being characterized as one of the “mother ships” responsible for extending the reach of the Somali pirates farther into the open seas:
NEW DELHI – An Indian naval vessel sank a suspected pirate “mother ship” in the Gulf of Aden and chased two attack boats into the night, officials said Wednesday, yet more violence in the lawless seas where brigands are becoming bolder and more violent.
Separate bands of pirates also seized a Thai ship with 16 crew members and an Iranian cargo vessel with a crew of 25 in the Gulf of Aden, where Somalia-based pirates appear to be attacking ships at will, said Noel Choong of the International Maritime Bureau’s piracy reporting center in Malaysia.
“It’s getting out of control,” Choong said.
A multicoalition naval force has increased patrols in the region, and scored a rare success Tuesday when the Indian warship, operating off the coast of Oman, stopped a ship similar to a pirate vessel mentioned in numerous piracy bulletins. The Indian navy said the pirates fired on the INS Tabar after the officers asked it to stop to be searched.
“Pirates were seen roaming on the upper deck of this vessel with guns and rocket propelled grenade launchers,” said a statement from the Indian navy. Indian forces fired back, sparking fires and a series of onboard blasts — possibly due to exploding ammunition — and destroying the ship.
Note the report of the seizing of the Thai ship. That would make three ships seized in as many days.
In a NYT op-ed entitled “Let Detroit Go Bankrupt,” Mitt Romney argues that Congress should let creative destruction do its job.
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I agree wholeheartedly. Funny thing is, though, when he was vying for votes in the Michigan primary — which he ultimately won — he was saying something rather different. A January 13 NYT piece titled “McCain and Romney Tangle Over Job Losses in Michigan” tells the story:
Mr. Romney, a former governor of Massachusetts whose father was president of American Motors in the 1950s and ’60s, insisted that the auto industry can be revived and blamed Congress and Mr. McCain for ignoring Michigan’s problems.
“The question is, where is Washington?” Mr. Romney said, speaking to a gaggle of reporters across from a General Motors transmission plant near Ypsilanti, where 200 layoffs were announced this week. “Where does it stop? Is there a point at which someone says ‘enough’? Or are we going to allow the entire domestic automotive manufacturing industry to disappear?”
[...]
In Warren, Mr. McCain said he would be “ashamed” to tell voters that the lost jobs would return to Michigan, but he vowed to take care of displaced workers through a promised job retraining program that would be offered through community colleges. “We are a Judeo-Christian values nation,”Mr. McCain told the group at the town hall in Warren. “We cannot leave people behind.”
My OTB teaser post yesterday afternoon, “Should Obama Hunt Osama?,” has thus far generated 30 comments. My much more substantive New Atlanticist post, “Hunting Bin Laden,” has only one.
Is there a barrier that I’m unaware of that’s depressing commenting at the latter site? We’re getting quite respectable traffic but having difficulty generating much discussion.
Senator Ted Stevens, who looked to have narrowly won re-election to the Senate weeks after being convicted on felony corruption charges, has now apparently lost as absentee ballots are slowly counted.
Sen. Ted Stevens, the longest serving Republican in Senate history, narrowly lost his re-election bid Tuesday, marking the downfall of a Washington political power and Alaska icon who couldn’t survive a conviction on federal corruption charges. His defeat by Anchorage Mayor Mark Begich moves Senate Democrats within two seats of a filibuster-proof 60-vote majority.
[...]
Tuesday’s tally of just over 24,000 absentee and other ballots gave Begich 146,286, or 47.56 percent, to 143,912, or 46.76 percent, for Stevens.
A recount is possible.
Interestingly, I’m not seeing any cries of Foul, as has been the case in Minnesota, where new votes for Al Franken seem to be discovered on an hourly basis.
What I haven’t seen in any of the reports is an explanation for why the absentee and “other” ballots are so radically different than those cast on election day. It’s especially odd to me that they’re trending much more against Stevens given that some substantial number of them were cast before his conviction. Is there some reason that Alaska’s Democratic minority votes absentee at a greter rate?
When I was 8 years old, I got a compilation album in my Santa Claus presents called Star Trackin’ ‘77 — one of those Ronco-style collections. The cover was a picture of a guy in a spacesuit on the lunar landscape with a microphone (which he was holding, inexplicably, outside his helmet; I knew even at 8 that wouldn’t work in a vacuum). This song is the only one I can remember being on it. Which is to say, I’ve pretty much always loved it.
