The U.S. economy needs $100 oil like a hole in the head.
The spike in oil to a fresh record on Wednesday is not single-handedly going to tip the United States into a recession. But on top of a housing slump and lingering credit crisis, it increases the head winds facing the battered U.S. consumer.
It also risks higher inflation, which will worry the Federal Reserve and may limit the U.S. central bank's appetite for steep interest rate cuts in the future. Investors are counting on the Fed to shield the economy from a more severe hit.
"The oil price increases of the last few years have not caused the major dislocations that we observed in earlier oil price shocks, in part because American consumers seem to be largely ignoring the price of gasoline," said James Hamilton, economics professor at the University of California San Diego.
"But consumers also seem to be ignoring the recent softness in incomes, declines in real estate prices, and worries about near-term economic prospects. We may have reached a point where something's going to give," he said.
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Thursday, January 3, 2008
Self-Serving Lies Destroyed the American Dream
Last June, a revealing marketing video from the law firm Cohen & Grigsby appeared on the Internet. The video demonstrated the law firm's techniques for getting around U.S. law governing work visas in order to enable corporate clients to replace their American employees with foreigners who work for less. The law firm's marketing manager, Lawrence Lebowitz, is upfront with interested clients: "Our goal is clearly not to find a qualified and interested U.S. worker."
If an American somehow survives the weeding out process, "have the manager of that specific position step in and go through the whole process to find a legal basis to disqualify them for this position -- in most cases there doesn't seem to be a problem."
No problem for the employer, he means, only for the expensively educated American university graduate who is displaced by a foreigner imported on a work visa justified by a nonexistent shortage of trained and qualified Americans.
University of California computer science professor Norm Matloff, who watches this issue closely, said that Cohen & Grigsby's practices are the standard ones used by hordes of attorneys, who are cleaning up by putting Americans out of work.
The Cohen & Grigsby video was a short-term sensation, as it undermined the business propaganda that no American employees were being displaced by foreigners on H-1b or L-1 work visas. Soon, however, business organizations and their shills were back in gear lying to Congress and the public about the amazing shortage of qualified Americans for literally every technical and professional occupation, especially IT and software engineering.
Everywhere we hear the same droning lie from business interests that there are not enough American engineers and scientists. For mysterious reasons, Americans prefer to be waitresses and bartenders, hospital orderlies and retail clerks.
As one of the few who writes about this shortsighted policy of American managers endeavoring to maximize their "performance bonuses," I receive much feedback from affected Americans. Many responses come from recent university graduates such as the one who "graduated nearly at the top of my class in 2002" with degrees in both electrical and computer engineering and who "hasn't been able to find a job."
A college roommate of a family member graduated from a good engineering school last year with a degree in software engineering. He had one job interview. Jobless, he is back at home living with his parents and burdened with student loans that bought an education that offshoring and work visas have made useless to Americans.
The hundreds of individual cases that have been brought to my attention are dismissed as "anecdotal" by my fellow economists. So little do they know. I also receive numerous responses from American engineers and IT workers who have managed to hold on to jobs or find new ones after long intervals when they have been displaced by foreign hires. Their descriptions of their work environments are fascinating.
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If an American somehow survives the weeding out process, "have the manager of that specific position step in and go through the whole process to find a legal basis to disqualify them for this position -- in most cases there doesn't seem to be a problem."
No problem for the employer, he means, only for the expensively educated American university graduate who is displaced by a foreigner imported on a work visa justified by a nonexistent shortage of trained and qualified Americans.
University of California computer science professor Norm Matloff, who watches this issue closely, said that Cohen & Grigsby's practices are the standard ones used by hordes of attorneys, who are cleaning up by putting Americans out of work.
The Cohen & Grigsby video was a short-term sensation, as it undermined the business propaganda that no American employees were being displaced by foreigners on H-1b or L-1 work visas. Soon, however, business organizations and their shills were back in gear lying to Congress and the public about the amazing shortage of qualified Americans for literally every technical and professional occupation, especially IT and software engineering.
Everywhere we hear the same droning lie from business interests that there are not enough American engineers and scientists. For mysterious reasons, Americans prefer to be waitresses and bartenders, hospital orderlies and retail clerks.
As one of the few who writes about this shortsighted policy of American managers endeavoring to maximize their "performance bonuses," I receive much feedback from affected Americans. Many responses come from recent university graduates such as the one who "graduated nearly at the top of my class in 2002" with degrees in both electrical and computer engineering and who "hasn't been able to find a job."
A college roommate of a family member graduated from a good engineering school last year with a degree in software engineering. He had one job interview. Jobless, he is back at home living with his parents and burdened with student loans that bought an education that offshoring and work visas have made useless to Americans.
The hundreds of individual cases that have been brought to my attention are dismissed as "anecdotal" by my fellow economists. So little do they know. I also receive numerous responses from American engineers and IT workers who have managed to hold on to jobs or find new ones after long intervals when they have been displaced by foreign hires. Their descriptions of their work environments are fascinating.
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Wednesday, January 2, 2008
Many problems from 'free trade'
One of Santa's biggest surprises this Christmas has been the storm over unsafe toys for children. Should we have been so surprised? Don't we know why? I guess when people get bombarded with certain words by the media day after day, we become immune and don't really hear.
The words I am thinking of are "free trade". And I guess one shouldn't be too surprised. Any phrase with "free" in it can't be all bad. Can it? If you look in any book about economics, you will quickly find that the theory of "free trade" centers on the theory of comparative advantage. The idea is that each country will produce the products that it has "an advantage in" (as in lowest cost).
Then the standard of living will rise because all goods will be produced at their cheapest cost.
Now, anybody with a functioning moral compass would assume that this theory would work just fine if the countries involved were relatively equal in terms of wages, benefits, and health and safety standards for workers.
If they weren't, then capital would flow to the country with the lowest wages and standards -- while high-wage and high-standards countries would suffer losses.
In other words, we are looking at "unfair trade".
And that is exactly what has happened.
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The words I am thinking of are "free trade". And I guess one shouldn't be too surprised. Any phrase with "free" in it can't be all bad. Can it? If you look in any book about economics, you will quickly find that the theory of "free trade" centers on the theory of comparative advantage. The idea is that each country will produce the products that it has "an advantage in" (as in lowest cost).
Then the standard of living will rise because all goods will be produced at their cheapest cost.
Now, anybody with a functioning moral compass would assume that this theory would work just fine if the countries involved were relatively equal in terms of wages, benefits, and health and safety standards for workers.
If they weren't, then capital would flow to the country with the lowest wages and standards -- while high-wage and high-standards countries would suffer losses.
In other words, we are looking at "unfair trade".
And that is exactly what has happened.
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Kuwaiti fund eyes US subprime bargains
The Kuwait Investment Authority is following its peers in the Middle East in the hope of finding bargain investments in the US in the wake of the subprime mortgage crisis.
The $213bn sovereign wealth fund, unique in the Middle East because its inflows are governed by law and subject to parliamentary oversight, rather than the wishes of the ruling family, is particularly interested in opportunities in financial services.
“Perhaps we are at the eye of the storm now and are close to the peak of the problem,” Bader Al-Sa’ad, head of the KIA, told the Financial Times. “We don’t see prices dropping much more.”
Mr Al-Sa’ad said he intended to speed up decision-making at the KIA to take advantage of the opportunities thrown up by the crisis. “With Citi, the Abu Dhabi Investment Authority had good timing,” he said, noting that it took ADIA less than three weeks to seal its late November deal to invest $7.5bn in convertible securities in Citigroup. “I believe we need to move faster in some of our response time.”
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The $213bn sovereign wealth fund, unique in the Middle East because its inflows are governed by law and subject to parliamentary oversight, rather than the wishes of the ruling family, is particularly interested in opportunities in financial services.
“Perhaps we are at the eye of the storm now and are close to the peak of the problem,” Bader Al-Sa’ad, head of the KIA, told the Financial Times. “We don’t see prices dropping much more.”
Mr Al-Sa’ad said he intended to speed up decision-making at the KIA to take advantage of the opportunities thrown up by the crisis. “With Citi, the Abu Dhabi Investment Authority had good timing,” he said, noting that it took ADIA less than three weeks to seal its late November deal to invest $7.5bn in convertible securities in Citigroup. “I believe we need to move faster in some of our response time.”
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Manufacturers shift into reverse
December survey of purchasing managers shows first decline in activity in nearly a year sparking debate of whether a recession and more Fed cuts lay ahead.
Manufacturing activity unexpectedly declined for the first time in 11 months in December, a survey of purchasing managers in that sector released Wednesday showed.
The Institute of Supply Management's manufacturing index weakened to 47.7, compared to 50.8 in November. Economists surveyed by Briefing.com had expected the index to show slower growth forecasting a reading of 50.5.
The unexpected weakness in manufacturing came due to a sharp drop in new orders and production. The reading, one of the first looks at the economy in December, raised questions of whether more Federal Reserve rate cuts and possibly a recession were on the horizon.
The tipping point for the index is 50, with a reading above that reflecting growth in the sector. A reading below 50 represents a decline in manufacturing.
The report said slowing demand for products, rather than excess inventories, resulted in manufacturers hitting the brakes during the month.
"December was apparently a very tough month as new orders, production and employment were all below the breakeven mark of 50 percent," Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee said in a statement. "Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better."
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Manufacturing activity unexpectedly declined for the first time in 11 months in December, a survey of purchasing managers in that sector released Wednesday showed.
The Institute of Supply Management's manufacturing index weakened to 47.7, compared to 50.8 in November. Economists surveyed by Briefing.com had expected the index to show slower growth forecasting a reading of 50.5.
The unexpected weakness in manufacturing came due to a sharp drop in new orders and production. The reading, one of the first looks at the economy in December, raised questions of whether more Federal Reserve rate cuts and possibly a recession were on the horizon.
The tipping point for the index is 50, with a reading above that reflecting growth in the sector. A reading below 50 represents a decline in manufacturing.
The report said slowing demand for products, rather than excess inventories, resulted in manufacturers hitting the brakes during the month.
"December was apparently a very tough month as new orders, production and employment were all below the breakeven mark of 50 percent," Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee said in a statement. "Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better."
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US credit crunch may hit Wall Street outlook
The US housing meltdown and credit crunch, which brought a swift end to an investment bonanza earlier this year, is likely to give Wall Street a stiff hangover this year, market strategists say.
A flurry of private-equity-fuelled buyouts and corporate takeovers helped propel the Dow Jones Industrial Average to an all-time high of 14,164.53 points in early October, but the Dow has swooned since then as the housing downturn has worsened.
Investment strategists said the housing slump, now almost two years old, and a related credit squeeze that has triggered multibillion-dollar losses at some of America's biggest financial firms, may temper stock market advances this year.
"Growth has clearly slowed in the fourth quarter in the US," said Legg Mason Global Asset Allocation president Steve Bleiberg.
Bleiberg said the overriding concern for US investors in the coming 12 months would likely be the health of the credit markets and whether companies would be able to tap fresh capital.
Credit flows have tightened because big banks have lost billions of dollars in mortgage-related investments, which has forced them to curtail lending and triggered efforts by central banks to boost liquidity.
Overseas stock markets have also been singed by the pullback in US shares as foreign investors had also gorged themselves on US mortgage-backed securities during the housing market's boom years.
Some analysts believe the housing and credit woes could destabilise the wider US economy, or even trigger a recession, which would further depress Wall Street sentiment.
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A flurry of private-equity-fuelled buyouts and corporate takeovers helped propel the Dow Jones Industrial Average to an all-time high of 14,164.53 points in early October, but the Dow has swooned since then as the housing downturn has worsened.
Investment strategists said the housing slump, now almost two years old, and a related credit squeeze that has triggered multibillion-dollar losses at some of America's biggest financial firms, may temper stock market advances this year.
"Growth has clearly slowed in the fourth quarter in the US," said Legg Mason Global Asset Allocation president Steve Bleiberg.
Bleiberg said the overriding concern for US investors in the coming 12 months would likely be the health of the credit markets and whether companies would be able to tap fresh capital.
Credit flows have tightened because big banks have lost billions of dollars in mortgage-related investments, which has forced them to curtail lending and triggered efforts by central banks to boost liquidity.
Overseas stock markets have also been singed by the pullback in US shares as foreign investors had also gorged themselves on US mortgage-backed securities during the housing market's boom years.
Some analysts believe the housing and credit woes could destabilise the wider US economy, or even trigger a recession, which would further depress Wall Street sentiment.
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'Contraction' in US manufacturing
The US manufacturing sector contracted in December, seeing its weakest monthly output since April 2003, a study says.
The Institute for Supply Management (ISM) said its index of factory activity fell to 47.7 in December from November's figure of 50.8.
A reading less than 50 indicates a fall in output, and December's figure was also worse than forecasts of 50.4.
The report also said that prices had risen for the third consecutive month, as inflationary pressures remain.
"Of all the major economic indicators this is first unambiguously weak reading," said Brian Gendreau from ING Investment Management in New York.
"There was a strong reaction in stocks, and I think this is a sufficiently weak reading to generate the concern about recession the market is expressing."
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The Institute for Supply Management (ISM) said its index of factory activity fell to 47.7 in December from November's figure of 50.8.
A reading less than 50 indicates a fall in output, and December's figure was also worse than forecasts of 50.4.
The report also said that prices had risen for the third consecutive month, as inflationary pressures remain.
"Of all the major economic indicators this is first unambiguously weak reading," said Brian Gendreau from ING Investment Management in New York.
"There was a strong reaction in stocks, and I think this is a sufficiently weak reading to generate the concern about recession the market is expressing."
Read Complete Story
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