Friday Night Frights - Aug. 6, 2010

The over/unders were 5.

The private sector added jobs but Census workers are now out of work; the result was a net loss of jobs. The participation rate was revised down to 64.6% from 64.7% so the monthly jobs report shows unemployment holding steady at 9.5%. Yes, Virginia the numbers are all make believe. People aren’t participating in the labor market because there are almost no jobs to be had. The real unemployment number is just over 21%.

Consumers aren’t consuming; this is understandable because they don’t have jobs. They are holding onto their dollars until the eagle grins. Consumer credit outstanding shrank for the fifth straight month in June.

Second quarter Gross Domestic Production was revised to 2.4 percent growth compared to 3.7% GDP growth in the first quarter. The worst depression since the Great Depression just keeps getting more depressing. Much of the first half growth was attributed to inventory adjustments. So we are setting up for a second half decline. Unless consumers go on a wild spending spree, businesses won’t be restocking inventories. Second half growth will have a hard time topping 2%.
We predicted this back in March. The next sixty days on Wall Street will likely be ugly. Don’t believe me? Goldman Sachs is now betting on deflation. After all, what can business do? Cut costs by laying off more workers? Maybe, but that just adds to the deflationary spiral. Also, liquidity is drying up; the money supply isn’t growing; the banks aren’t lending. The process is called deleveraging, and it still has a long way to go.

What about QE2, Quantitative Easing part 2? Don’t count on it. Congress has shown it doesn’t have the fortitude to create jobs, much less mitigate the plight of the unemployed. Many politicos are still arguing for tax cuts for the wealthiest one percent. The very definition of insanity is doing the same thing and expecting a different outcome. Nero fiddled while Rome burned. The band kept playing on the deck of the Titanic. Some things never change.

What about the Federal Reserve? Part of the Fed’s mission is to create an economic environment conducive to full employment. Don’t count on the Fed. An easy way out of an unwinnable battle is to simply declare victory and run away. In other words, look for the Fed to eventually declare that we have “structurally” high unemployment. That’s just the way it is; nothing can be done about it; get used to it.

It’s a little like all these banks that keep failing. A few years ago, it was rare for banks to fail. Now, it is expected; it happens every Friday like clockwork. When only one bank fails, it’s a little disappointing. We’ve become inured.

Bank Failure # 109 - Ravenswood Bank, Chicago, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation – Division of Banking, which appointed the FDIC as receiver. Northbrook Bank and Trust Company, Northbrook, Illinois will assume all of the deposits of Ravenswood Bank.

Ravenswood Bank had approximately $264.6 million in total assets and $269.5 million in total deposits, and two branch locations.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $68.1 million. Ravenswood Bank is the 109th FDIC-insured institution to fail in the nation this year, and the thirteenth in Illinois.

Cert # 34231

Sinclair Noe
Eat the Bankers