Sunday, June 3, 2012

US Jobs Report Points To Renewed Global Crisis

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The disastrous jobs report released Friday by the US Labor Department is further evidence of a deepening global crisis that threatens to unravel into a full-blown financial collapse.

The American economy added only 69,000 jobs in May, far below expectations and about half the amount needed to keep up with population growth. The official unemployment rate rose from 8.1 to 8.2 percent.

The report revised downwards the number of jobs created in March and April, bringing the latter down from 115,000 to 77,000. While, on average, the US economy created 226,000 jobs per month in the first quarter, it averaged just 73,000 in April and May.

It was the worst payroll figure since May of last year, and the first time the unemployment rate increased since June. The report follows similarly gloomy economic data from both Europe and Asia, and comes amid an intensification of the euro crisis, now centered on the solvency of the Spanish banking system.

On Friday, Eurostat, the European Union's statistics office, said that unemployment in the Eurozone reached 11 percent for the first time in records going back to 1995. At the same time, China’s purchasing managers’ index fell to 50.4 in May, down dramatically from 53.3 in April.

Adding to the gloom, Brazil announced that its economy barely expanded in the first quarter, growing only 0.2 percent, significantly less than expected.

The slew of bad economic news sent markets down in Europe and the US by between 2 and 3 percent. The US Dow Jones Industrial Average fell by 2.2 percent, wiping out all the gains the index had made since the start of the year.

There was also a flight of capital to “safe” assets, pushing down yields on US and German government bonds. The yield of two-year German bonds once again fell below zero, meaning that investors were paying the German government to take their money.

The details of the US jobs figures expose a society in deep crisis. The number of long-term unemployed people in the US reached 5.4 million, the highest since February and 300,000 more than in April. The average duration of unemployment grew to 39.7 weeks. Long-term unemployment has declined only slightly over the past year, and remains at levels far in excess of anything seen since the 1930s.

The continued growth in the number of long-term unemployed comes as states prepare to cut another 70,000 people off of extended unemployment benefits this month. This would bring the total number of people who have lost extended benefits due to legislation signed by President Barack Obama earlier this year to nearly half a million.

The US healthcare sector added 33,000 jobs in May, transportation added 36,000, and manufacturing added 12,000. But these gains were partially offset by the fall in the construction sector, which shed 28,000 positions.

Government jobs likewise fell by 13,000, including 2,900 in the US Postal Service, which is planning to cut tens of thousands of additional jobs. A total of 7,000 jobs were eliminated from state and local education, coming on top of hundreds of thousands already eliminated over the past several years.

The jobs report followed other gloomy US economic figures. The Commerce Department said Thursday that the US economy grew at a rate of 1.9 percent in the first quarter, down from its earlier estimate of 2.2 percent.

On Wednesday, the Conference Board said that consumer confidence fell in May to its lowest level in four months. The number of Americans who expect worse employment prospects in the next six months hit its highest level since November.

The sharp deterioration in the US was spurred on by the intensification of the Euro crisis. Last week the Spanish government announced plans to inject a further €19 billion into Bankia, the country’s fourth largest bank.

On Thursday, Spain’s central bank published data showing that about €97 billion euros had been pulled out of the country in the first three months of the year, amounting to about a tenth of the country’s total economic output.

Spain’s economy is forecast by the OECD to contract by 1.6 percent this year and Italy by 1.7 percent. The borrowing costs of both countries—Spain at 6.6 percent and Italy 6 percent—are approaching the levels at which Greece, Ireland and Portugal sought bailouts.

Obama responded to the day's disastrous economic news by calling on Congress to pass his so-called economic “to-do list,” a collection of corporate handouts, deregulation and other measures that will do nothing to address the jobs crisis. (see, “Obama’s jobs program: A laundry list of corporate handouts”)

The only portion of the program that is not a corporate handout or tax cut is predictably trivial. Obama is calling for 20,000 military veterans to work on an environmental conservation program over five years and provide an “online training program” in “the fundamentals of small business ownership” for 10,000 veterans.

In fact, for the American ruling class, represented by both big business parties, mass unemployment is part of a strategy of boosting profits by permanently reducing wages and benefits for workers.

Four years since the start of the economic downturn, it is becoming increasingly clear that a new period of intensified crisis is gripping the global economy, which the ruling class can only answer with war, repression, and an unceasing attack on the social position of working people.

The Bad Jobs Report Is Just A Very Small Taste Of The Economic Nightmare That Is Coming

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Another month, another bad jobs report. For the month of May, the U.S. economy only added 69,000 jobs and the unemployment rate rose to 8.2%. Many are calling this a total "disaster" and are worried that the U.S. economy could be headed back into another recession. Economists had been expecting 150,000 payroll jobs would be added, so the 69,000 number really shocked a lot of people. The truth is that the economy needs to add approximately 125,000 new jobs every single month just to keep the unemployment rate steady. So yes, this bad jobs report is not welcome news at all - especially for the Obama administration. When Barack Obama first took office the unemployment rate was sitting at 7.6 percent and now it is sitting at 8.2 percent. Some "recovery", eh? But the reality is that this jobs report was really not that "devastating" even though the stock market had its worst day of the year. Unemployment in America is still about at the same level as it was back at the beginning of 2012. The tough stretch that we are going through right now is only a very small taste of the economic nightmare that is on the horizon. If you think that things are a "disaster" right now, just wait until you see what is coming.

At the moment, 53 percent of all Americans with a bachelor's degree under the age of 25 are either unemployed or underemployed, and there are more than 100 million working age Americans that do not currently have jobs.

But this is only just the beginning.

During the next major economic downturn, the unemployment rate in the United States is going to soar well up into the double digits.

Many Americans will look back on 2010, 2011 and 2012 as "the good old days".

Right now, there are only small pockets of the country that are total economic hellholes.

For example, Yuma, Arizona has an unemployment rate of 26 percent, and El Centro, California has an unemployment rate of 26.2 percent.

In the future, those kinds of numbers are going to become the norm all over the nation.

Sadly, most Americans have no idea what is coming.

Today, I wanted to share with you all a couple of chilling economic forecasts that I have been made aware of recently.

The first is from Raoul Pal. According to Zero Hedge, Raoul Pal "previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe... Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes."

The following is from a Zero Hedge summary of a recent presentation by Raoul Pal....

  • We don’t know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
  • With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
  • There are almost no brakes in the system to stop this, and almost no one realises the seriousness of the situation.
  • The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
  • Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
  • From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
  • And then do you think Japan and China would not be next?
  • And then do you think the US would survive unscathed?
  • That is the end of the fractional reserve banking system and of fiat money.
  • It is the big RESET.

It continues:

  • Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
  • The whole bond market will be dead.
  • Short selling on bonds - banned
  • Short selling stocks – banned
  • CDS – banned
  • Short futures – banned
  • Put options – banned
  • All that is left is the Dollar and Gold

It only gets better. We use the term loosely:

  • We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
  • Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
  • After that…we put on our tin helmets and hide until the new system emerges

So how soon does Raoul Pal think all of this is going to happen?....

From a timing perspective, I think 2012 and 2013 will usher in the end.

You can find his entire presentation entitled "The End Game" right here.

What Raoul Pal is saying lines up very well with what Steve Quayle's anonymous international banking source is telling him....

There is no stopping this...We are still on track as I have been predicting for a while now for a fall/winter collapse of the Eurozone and naked exposure of all derivative markets the world over. Europeans will go through a major reset, after time they will recover as Europeans do not carry the type of personal debt that Americans do. It is for America that I worry. Look for these signs next:

1- JPM will be bailed out again but it will not stop the coming market crash. More details will emerge about their derivative swap failure $150 billion and counting.

2-BOA (BAC Bank of America) will fold and be absorbed into JPM as a way to prop up the bleeding Giant. JPM will get the best picking of this deal just like they got with Bear Stearns.

3- Massive layoffs at Citigroup and Wells Fargo

4- Goldman Sachs finally pays the piper, look for massive cuts there as well as BIG Losses

5- Bond market bust which leads to freeze of all bond sales

6- Derivative bust the next one will be BOA followed by Citigroup

7- All CDS shorts and swaps will freeze.

8- Total Meltdown

You can read the rest of what that source is saying right here.

As I have been saying all along, there are two keys that you need to be watching right now....

#1 Europe

#2 Derivatives

Sadly, the articles that I write about Europe tend to get far less of a response than my other articles get. Most Americans simply do not understand that what is happening in Europe right now is going to significantly affect their daily lives.

And most Americans have very little understanding of derivatives. But as you just read, there are some in the financial community that are warning that we could see the derivatives bubble burst very soon.

Time is running out. This period of relative stability that we are currently experiencing will not last forever.

You better get ready.

Feds Want Warrantless Spying Loss Overturned, Saying the Law Can't Touch Them

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The Obama administration is set to argue to a federal appeals court Friday that the government may breach, with impunity, domestic spying laws adopted in the wake of President Richard M. Nixon’s Watergate scandal.

The case tests whether Americans may seek recourse or monetary damages when a sitting U.S. president bypasses Congress’s ban on warrantless spying on Americans — in this instance when President George W. Bush authorized his secret, warrantless domestic spying program in the aftermath of the September 2001 terror attacks.

A federal judge found in 2010 that two American lawyers’ telephone conversations with their clients in Saudi Arabia in 2004 were siphoned to the National Security Agency without warrants. The allegations were initially based on a classified document the government accidentally mailed to the former al-Haramain Islamic Foundation lawyers.

The document was later declared a state secret, removed from the long-running lawsuit and has never been made public. With that document ruled out as evidence, the lawyers instead cited a bevy of circumstantial evidence that a judge found showed the government illegally wiretapped the lawyers as they spoke on U.S. soil to Saudi Arabia.

Against the government’s objections, San Francisco U.S. District Court Judge Vaughn Walker awarded the two lawyers — Wendell Belew and Asim Ghafoor — $20,400 each in damages and their legal counsel $2.5 million in costs. It marked the first time anyone had prevailed in a lawsuit challenging Bush’s so-called Terrorist Surveillance Program.

The government appealed to the 9th U.S. Circuit Court of Appeals, and arguments before a three-judge panel are set to be heard in Pasadena, California, this Friday.

The al-Haramain litigation was considered the dark horse in a string of lawsuits challenging the Bush spy program. Eventually, it became the only case to reach a verdict against the government, establishing that it is actually possible to hold the government to task in a public court for secretly violating the law.

More high-profile cases, such as the Electronic Frontier Foundation’s case against the nation’s telecoms for their participation in the spy program, was thrown out of court — thanks to a retroactive immunity law Congress passed in 2008. Suits brought by the American Civil Liberties Union and others have floundered — facing the burden of proving that Americans were actually victims of the once-secret spy program. In a move that bodes well for the government, the Supreme Court earlier this month agreed to hear the government’s appeal of a lawsuit brought by journalists and attorneys, arguing that the case should be dismissed because of the plaintiffs’ inability to actually prove they were spied upon.

The domestic spying program was first disclosed by The New York Times in December 2005, and the government subsequently admitted that the the National Security Agency was eavesdropping on Americans’ telephone calls without warrants if the government believed the person on the other line was overseas and associated with terrorism. Further news investigations found that the government had secretly enlisted the help of major U.S. telecoms, including AT&T, to spy on Americans’ phone and internet communications without getting warrants as required by the 1978 Foreign Intelligence Surveillance Act.

Parts of the surveillance program were so egregious that the upper echelon of the Justice Department, including then-Attorney General John Ashcroft, threatened to resign en masse if it wasn’t changed.

Congress, with the vote of President Barack Obama — who was an Illinois senator at the time — subsequently legalized much of the warrantless spying in the summer of 2008. The legislation also provided the nation’s telecommunication companies immunity from lawsuits accusing them of being complicit with the government’s warrantless wiretapping.

The al-Haramain lawyers, who were representing the Saudi-based charity when the U.S. government declared it a terror group in 2004, sued the government under the Foreign Intelligence Surveillance Act, a 1978 measure adopted in the aftermath of Watergate to set domestic spying boundaries.

The government, however, claims said it cannot be held liable under the spying law, and that Congress has not waived sovereign immunity — meaning the government has not consented to being sued for breaching its own laws.

“In sum, there is no waiver of sovereign immunity here permitting the district court’s multi-million dollar damages and attorney fees judgment against the government. For this reason, the judgment of the district court must be set aside as a matter of law on this sovereign immunity ground alone, and this court need not proceed any further to dispose of this appeal,” Justice Department attorney Thomas Bondy wrote in a court filing. (.pdf)

Bondy also argued in a court briefs that Judge Walker should have dismissed the lawsuit after both the Bush and Obama administrations invoked the so-called state secrets privilege. The privilege was first recognized by the U.S. Supreme Court in a McCarthy-era lawsuit in 1953, and has been increasingly and successfully invoked by federal lawyers seeking to shield the government and its agents from court scrutiny. At the government’s request, judges generally toss lawsuits when the privilege is cited.

Judge Walker found otherwise, and the government then refused to set up a secure system to prove to the court that a secret warrant had actually been obtained, prompting Walker to consider sanctioning the government for disobeying court orders.

The attorney for the two lawyers for the now-defunct charity scoffed at the suggestion that the appeals court should reverse the monetary damages Walker awarded his clients.

“This case has now been successfully adjudicated without any breach of state secrecy or harm to national security — without using the sealed document, and without revealing intelligence sources, methods, or operational details,” attorney Jon Eisenberg wrote in a filing to the appeals court, adding:

“By an exemplary act of judicial minimalism, the district court narrowly determined the bare fact of plaintiffs’ warrantless electronic surveillance, based solely on public evidence. National security has been protected, while the rule of law has been vindicated. A more satisfactory conclusion of this litigation cannot be imagined.”

Judge Walker ruled that the lawsuit made its case using snippets of evidence, including public statements from government investigations into al-Haramain, the Islamic charity for which the lawyers were working. The evidence included speeches by government officials discussing an investigation that concluded with the listing of al-Haramain as a terror organization, the FBI’s public disclosure that it monitored al-Haramain officials, and a speech about their case by an FBI official.

The government, however, contends that the snippets do not demonstrate whether any eavesdropping was warrantless — and the Obama and Bush administrations have neither admitted nor denied the allegations.

A group of retired admirals and generals teamed with the Washington Legal Foundation to urge the court to reverse Judge Walker. They agree with the government’s contention that it was never proven that the surveillance was done without a warrant issued by the Foreign Intelligence Surveillance Act Court, a secret body the 1978 FISA legislation set up to supervise government spying of Americans. The foundation says it is “devoted to defending and promoting the principles of free enterprise and individual rights.”

But in this case, it’s siding with a secretive government program.

“They could do no more than speculate that perhaps the government did not obtain a required FISA warrant before engaging in electronic surveillance,” Richard Samp, the foundation’s attorney, told the appeals court in a filing. (.pdf)

The Electronic Frontier Foundation also weighed in with a friend-of-the-court filing. (.pdf)

“The dangers of allowing the executive unfettered power to use the state secrets privilege to turn the Constitution on and off at will are plain,” EFF legal director Cindy Cohn wrote, “and strike at the heart of our constitutional system of government.”

Judge Walker, when finding for the two lawyers, found the surveillance was unlawful (.pdf) since the government refused to say whether it did or did not have a warrant, but did not declare the Terrorist Surveillance Program unconstitutional. Walker also declined to issue punitive damages to punish the government for wiretapping in the country without warrants.

Instead, the judge granted the two spied-upon lawyers $100 a day for each of the 204 days he found that their telephone calls were wiretapped beginning in February 2004, an amount they sought. In addition, they requested about $200,000 each in punitive damages, and the same amount to be awarded to the charity — all of which was denied.

“The president and other senior executive branch officials responsible for national security necessarily bear some risk that their actions may one day be held to be unlawful,” Walker wrote in 2010, “They must balance this risk against the harm that may come to the nation if they fail to act. While the court has the constitutional duty to apply the law in cases before it and hold violators accountable, it need not mete out punitive measures on officials for perceived ‘recklessness’ in dealing with a serious, proven threat to the national security.”

Walker ruled the record showed the government had reason to believe al-Haramain supported acts of terrorism and that “critical intelligence was obtained monitoring al-Haramain.” Walker added that al-Haramain was involved in planning and financing terrorist attacks against the United States’ embassies in Kenya and Tanzania.

Despite that, the government appealed, hoping to re-establish that citizens spied on by the government in the name of national security have no recourse in the courts, even if the government flagrantly violates the laws and the Constitution.

Unemployment Rate Edges Up to 8.2 Percent

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The economy added 69,000 jobs in May—short of the 90,000 jobs needed to maintain pace with growth in the labor force. With downward revisions to previous months' payroll survey numbers, employment in May was only 20,000 above the previously reported estimate for April.

The unemployment rate ticked up 0.1 percentage point to 8.2 percent. The household survey showed large gains in both employment and the size of the labor force but these changes reflect large variations in the household survey. Over the last two months, the unemployment rate is unchanged, adding 150,000 persons into the labor market and only 126,500 net new jobs.

Of the 69,000 new jobs in the establishment survey, 83,000 came from the private sector while there was a loss of 13,000 in government. The public sector has shed jobs in 23 of the last 24 months, starting with the departure of Census workers in June 2010, and a total of 657,000 over the last four years.

Within the private sector, employment in goods production fell 15,000, including a loss of 28,000 jobs in construction. Over the last three months, the number of construction jobs has fallen by 47,000 in part due to higher employment during the unseasonably warm winter.

Manufacturing added only 12,000 jobs in May, but this may reflect an incomplete seasonal adjustment, as job growth in manufacturing has been relatively strong in the early part of each of the last three years only to slow in subsequent months.

The private service sector added 97,000 jobs, including 9,200 in temporary help services. Temporary help should pick up prior to employment in general, but only 7,700 net jobs have been created in this area since February.

Similarly, transportation and warehousing added 35,600 jobs in May, but only after a loss of 16,900 the month prior. Over the last three months, this sector has created only 8,400 jobs per month and on average the workweek has fallen by half an hour in this sector over the last year.

As expected, the household survey showed general increases in unemployment after last month's large fall in labor force participation. Since January, the rate of unemployment has fallen from 8.3 to 8.2 percent while the employment-to-population ratio (EPOP) has ticked up 0.1 percentage points to 58.6 percent. Though the EPOP is nearly at its highest level since September of 2009, it was 63.0 percent five years ago.

The participation rate for adult men rose 0.3 percent along with the rate of unemployment, largely a correction from April. Since January, their participation rate is unchanged, but the EPOP among adult men has fallen to 67.5 percent—compared to 67.7 percent four months ago. On the other hand, the EPOP for adult women rose 0.2 percentage points to 55.1 percent—0.4 percentage points higher than January.

The EPOP for black adult women fell a full percentage point to 55.1 percent— returning almost all of the gains since February. In contrast to their white counterparts, this group had seen increasing employment rates in recent months and it is unclear how different labor market outcomes have actually varied.

Overall, this month's report is disappointing, though not surprising. With the warm winter advancing employment growth earlier in the year, payroll numbers were bound to be low, while the return to growth in labor force participation arrested the fall in the unemployment rate. Even so, unless the economy picks up, producing jobs at a much higher rate, it is difficult to see how unemployment will be anything but persistent for some time. As it currently stands, the economy is still recovering at a slower pace than the previous four recessions.

Job Loss and Recovery in Recent Recessions