Mish's Global Economic Trend Analysis

Emergency Press Conference on Newark Budget Gap; Massive Service Cuts; No Toilet Paper for City Offices; Newark is Bankrupt
Four-Week Moving Average of Weekly Unemployment Claims Holds Steady near 460,000, No Progress for Seven Months
Bernanke is "Unusually Uncertain" - Is that an Improvement?

Emergency Press Conference on Newark Budget Gap; Massive Service Cuts; No Toilet Paper for City Offices; Newark is Bankrupt

Posted: 22 Jul 2010 01:25 PM PDT

Newark Mayor Cory Booker and the city council are fighting over ways to balance a $70 million budget hole. Literally everything is under discussion except the one thing that needs to be done: declare bankruptcy.

Please play this video. It is pretty enlightening.

CNN Money reports Newark mayor: No toilet paper for city offices

In a desperate attempt to fill a $70 million budget hole, Newark's mayor is taking a chainsaw to the town's budget -- even going so far as to cut toilet paper from the 2010 budget.

"Every single contract that does not go to the core function of our city in providing safe streets, providing fire protection, or other things to keep our city afloat will now be cut," Booker said during an emergency press conference Wednesday.

The reductions include not buying toilet paper for city offices, cutting the work week to four days for non-uniformed city workers, which is equivalent to a 20% pay cut, scrapping city holiday decorations, and closing city pools. These extreme measures, most of which will take effect beginning in August, are expected to save the city between $10 million and $15 million.

The city came to this impasse after the city council deferred a vote to create a Municipal Utilities Authority, a key component of Booker's method of balancing the budget. Because Newark could issue bonds on the Authority, it would have cash inflow to cover the immediate deficit. Without that infusion, the mayor said they can't make ends meet.

Municipal Utilities Authority Idea is Sheer Madness

I applaud the decision by the council to reject Mayor Booker's Municipal Utilities Authority.

It is time for cities and states to address issues now, not raise taxes and not float more bonds that cannot and will not be paid back unless sugar daddy Congress steps in with taxpayer sponsored guarantees.

The Blame Game

As you might expect, finger-pointing is now running rampant. Please consider Newark council slams Mayor Booker for 'savage' proposed budget cuts.

Donald Payne Jr., Newark's council president, and four of his colleagues today put up a united front to counter Mayor Cory Booker's roll out of "savage" budget cuts, accusing him of political gamesmanship for trying to thrust responsibility on the governing body.

"It appears the mayor is Pontius Pilate," said Mildred C. Crump, councilwoman-at-large. "In other words, his hands are clean. The blood of the residents of Newark will be on our hands."

The dramatic push-back came just 24 hours after Booker unveiled a four-day workweek for 1,450 non-uniformed city employees, the closing of city pools, even cutbacks on everything from toilet paper to holiday decorations — and then proceeded to challenge the council to come up with its own budget blueprint.

"This is the mayor's issue. We advise and consent on the budget. It's the mayor's job," Payne countered. "Press conference after press conference, he says the council is not doing its job."

Both to Blame

The mayor and the city council are both to blame. Once again the culprit should be easy to spot: union contracts and pension benefits.

Public unions in conjunction with corrupt politicians have bankrupted Newark. There is simply no other way of looking at this. The city's best option is to declare bankruptcy, placing pension benefits and salaries in a court of law rather than on the backs of over-burdened taxpayers.

Stories like these abound. Indeed nearly every city in the country is headed for bankruptcy, yet people email me this is not the big issues.

Well this IS the #1 problem for cities and states. There are other extremely important issues at the federal level such as ridiculous military spending. However, addressing Federal issues will not cure problems with cities and states.

Union benefits are preposterous, wages are too high, and pension plans are $2 trillion in the hole. Let me repeat that: Public pension plans are $2 trillion in the hole, and getting worse every year.

Yet every day I receive emails from people saying there are more important issues. No there certainly are not more important , at least at the city and state level.

Kicking the Can

Unfortunately, Newark Mayor Cory Booker wants to do nothing but kick the can down the road. He is also pandering to police and fire unions by holding those spending levels high. By doing that, Booker may raise enough ire from citizens who have no toilet paper in parks or government buildings.

The mayor is either a fool or is guilty of political pandering, more likely both. The problem is public unions and that problem cannot be fixed with a Municipal Utilities Authority. The problem can only be addressed by taking the police and fire unions head on.

The city council is not showing much leadership either.

Newark is Bankrupt

Newark is bankrupt and public unions did it. The only sensible solution for Newark is to declare bankruptcy, dissolve the unions and their pension plans, and start all over with non-union employees for government services.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Four-Week Moving Average of Weekly Unemployment Claims Holds Steady near 460,000, No Progress for Seven Months

Posted: 22 Jul 2010 11:40 AM PDT

Tack on another month of no progress with weekly unemployment claims. The 4-Week moving average is still hovering around the 450,000 to 460,000 level where it was in mid-December 2009.

Please consider the Unemployment Weekly Claims Report for July 17, 2010.

In the week ending July 17, the advance figure for seasonally adjusted initial claims was 464,000, an increase of 37,000 from the previous week's revised figure of 427,000. The 4-week moving average was 456,000, an increase of 1,250 from the previous week's revised average of 454,750.

Weekly Claims and 4-Week Moving Averages

Last week's improvement in claims is an outlier primarily related to seasonal discrepancies in auto manufacturing workloads. The 4-week moving average smoothes out such fluctuations and is still hovering above 450,000,

The numbers are consistent with an economy that is losing jobs.

Questions on the Weekly Claims vs. the Unemployment Rate

A question keeps popping up in emails: "How can we lose 400,000+ jobs a week and yet have the unemployment rate stay flat and the monthly jobs report show gains?"

The answer is the economy is very dynamic. People change jobs all the time. Note that from 1975 forward, the number of claims was generally above 300,000 a week, yet some months the economy added well over 250,000 jobs.

Also note that the monthly published unemployment rate is from a household survey, not a survey of payroll data from businesses. That is why the monthly "establishment survey" (a sampling of actual payroll data) is not always in alignment with changes in the unemployment rate. At economic turns the discrepancy can be wide.

It may be quite some time before we weekly claims drop to 300,000 or net hiring that exceeds +250,000.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Bernanke is "Unusually Uncertain" - Is that an Improvement?

Posted: 22 Jul 2010 02:26 AM PDT

In response to Bernanke Says Economic Outlook is "Unusually Uncertain", Fed Prepared for "Actions as Needed" I received this comment from "Economics Teacher".

ET Writes...

Ben is forecasting uncertainty and saying the Fed's prepared for action as needed. Did Uncle Ben strain his cerebrum coming up with that one (forecasting uncertainty)?

I suppose there's a difference between "unusually uncertain" and "typically uncertain." Either way it comes out this way - Ben doesn't know squat!

Is "Uncertain" an Improvement?

Bernanke was pretty certain there would not be a recession, that housing was not in a bubble, that the unemployment rate would peak at 8.5%, that paying interest on reserves would enable the Fed to hold short-term rates above 2%.

Bernanke was wrong on every count. At least now he admits he is guessing.

Let's recap the Fed Uncertainty Principle to see what it suggests may be certain or uncertain.

Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.

Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three: Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

That was written on April 03, 2008. Many of the Corollaries have played out time and time again.

Things to be Certain About

When Bernanke says he is prepared to take action "as needed", you can be certain of it.

Moreover, you can be pretty certain that he is about to take action soon, whether action is needed or not. The pertinent question is "What Action?"

On that, we cannot be certain. However, we can be certain that one or more of corollaries two, three, and four will be in play.

Finally, we can also be certain that whatever Bernanke tries will ultimately be a failure given Bernanke's Deflation Preventing Scorecard is a perfect zero.

Hopefully this clarifies things you can and cannot be certain about, even if Bernanke himself is "Unusually Uncertain".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

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