Benefit Spending Hits $2 Trillion, Highest Percent Since 1929; One Dollar Out of Every Six From Vouchers

As economic conditions deteriorate and unemployment continues to soar, one in nine Americans are now on food stamps. Moreover, a staggering one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

One in Nine Americans on Food Stamps

According to the USDA One in nine Americans on food stamps.

One in nine Americans are using federal food stamps to help buy groceries as the country's deep recession forced another 591,000 people onto the federal anti-hunger program at latest count.

Enrollment jumped 2 percent to 33.2 million people in March, the fourth consecutive month that rolls hit a record, said the Agriculture Department. The average monthly benefit was $113.87 per person.

"It's tough out there for struggling families and will be for many months to come," Jim Weill, president of the Food Research and Action Center, said. In 20 states, as many as one in eight are on the food stamp program, according to the Food Research Center.

Benefit Spending Accounts for 16.2% of Personal Income

According to the Bureau of Economic Analysis, Benefit spending soars to new high.

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That's the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush's first term.

"The increase in social spending is still relatively modest given the severity of the downturn," says economist Dean Baker of the liberal Center for Economic and Policy Research. "We're not France."

Adam Lerrick, economist at the conservative American Enterprise Institute, says the benefits' explosion will eventually lead to an economic crisis. "We've seen this movie before in many countries. It always has the same ending," he says.

Nevada, Michigan and California had the biggest per-capita increase in bankruptcy filings in May, according to AACER.

California Unemployment Fund Short By Billions

The San Francisco Chronicle is reporting State's unemployment fund short by billions.

California is paying out so much for jobless benefits and collecting so little in payroll taxes that its unemployment insurance fund could be $17.8 billion in debt by the end of 2010, according to a new report from the state Employment Development Department.

This latest fiscal crisis won't immediately affect the 1.1 million Californians now collecting benefits because the state is using an interest-free federal loan to cover their checks.

But the state is supposed to repay that loan and restore its unemployment fund to solvency by 2011 - and right now, policymakers aren't sure exactly how to do that, or at what cost.

"The deficit that California looks like it is facing is staggering," said Bud Bridger, fiscal officer for the unemployment insurance program.

To rebalance the system and pay back the federal loan, lawmakers must raise payroll taxes on employers, reduce benefits for recipients, or both. In 2009 and 2010, the state expects to pay out $29 billion in benefits. It will collect just $11 billion.

Alicia Trost, spokeswoman for state Senate President Pro Tem Darrell Steinberg, D-Sacramento, said legislative leaders met with business and labor officials Monday to discuss the unemployment issue, but it took a back seat to more pressing problems.

"We're going to have to address it," Trost said. "But the most important thing now is to close the current budget shortfall."

Collectively this is a stunning series of problems, both nationally and locally.

California is $17.8 billion in the hole (and counting) on unemployment insurance but the legislature is not even looking at the situation because of more pressing problems and because the state is using an interest-free federal loan to cover benefits.

Excuse me but is this $17.8 billion deficit in addition to the $24 billion budget deficit? How the Hell is California going to pay that back and fix a $24 billion budget deficit that without a doubt will cause a massive increase in unemployment? Has anyone factored that in?

How can loans of $17.8 billion not be considered as part of the deficit that needs to be fixed? What about California pension promises that cannot possibly be met?

One final question: Are we France or does it just look like we're headed that way?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Initial Unemployment Claims Dip Slightly; Continuing Claims Dip Slightly Snapping Streak at 17

The string of 17 consecutive weeks of higher continuing claims ended today with slight dip in claims.

Continuing claims hit 6.788 million last week, setting a 17th consecutive record (revised slightly lower to 6.750 million). Today's number is 6.735 million, breaking the streak (assuming the number is not revised up later).

Please consider the Department of Labor Weekly Claims Report.

Seasonally Adjusted Data

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 621,000, a decrease of 4,000 from the previous week's revised figure of 625,000. The 4-week moving average was 631,250, an increase of 4,000 from the previous week's revised average of 627,250.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 23, unchanged from the prior week's revised rate of 5.0 percent.

The advance number for seasonally adjusted insured unemployment during the week ending May 23 was 6,735,000, a decrease of 15,000 from the preceding week's revised level of 6,750,000. The 4-week moving average was 6,687,500, an increase of 88,750 from the preceding week's revised average of 6,598,750.

Weekly Claims



click on chart for sharper image

The dip in initial claims from the March peak of roughly 650,000 is not accelerating very fast, if indeed at all.

Note that the 4-week moving average of initial claims rose this week after generally declining for a couple months. Also note that the 4-week moving average of continuing claims rose a significant amount.

Economists expect to see unemployment by 10% at the end of the year. I expect to see it at 9.8%+- by August and approaching 11% by the end of the year. Bear in mind the "stress-free tests" conducted by the Fed had an adverse scenario of 10.3% at the end of 2010.

Finally, I would like to point out that unemployment insurance does run out. People will drop off the rolls when benefits expire.

Those looking for a recovery in jobs soon are going to be disappointed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Variations on a Two-Light Theme, Pt. 3

Finishing up our quick series on two-light headshot ideas, we finally come around to something a little more mainstream looking. Today, two different spins on umbrella key used with on-axis fill.

More, inside.
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For the first two, we used a gridded flash and a gobo'd SB-III, respectively. Today we are going for a little more of a classic look, then putting a twist into it.

Steven, above, was lit entirely by flash -- no ambient contribution in the exposure. The key was an SB-800 in a shoot-thru umbrella, positioned right over the top of the camera. You can see the setup shot here:


(Setup shots courtesy Syl Arena / Paso Robles Workshops. Click on any pic for bigger.)

We used a white wall as a background, but dropped the wall to dark grey by moving everything away from the background to underexpose it. (All about the relative distance.)

We could have easily gone to black by moving further away. The point is that you can get any tone you want by depriving the wall of light -- or adding light to it.

Since we did not need to use the second light for the backdrop, that left us free to use it as fill. Our second light was an SB-800 in an Orbis ring flash adapter.

This two-light combo now gives us complete control over subject key, fill and background levels. The fill, obviously, being determined by the power level on the ring flash.

We can place the umbrella wherever we want, to shape Steven's face however we want. We don't have to worry about the shadows so much, because we are erasing them to whatever extent we want with on-axis fill.

And because we have control over the fill level, we can ease that key over into a more dramatic position. Just by moving the key around a little, we can give this same setup a little more attitude.


Enter, "Tokyo" Bill. (We had an extra Bill in the class, and we had to tell them apart somehow.)

With Bill, we can really rack that key light around to far camera left and work that Obi-Wan thing with his hoodie. Bill was damn-near ready to whip out a light sabre before we finished.

(That, of course, would not have fit into our two-light limit. But it would have looked friggin' cool.)

We can move the key around to sculpt his face and work the edge of his hood because we are not at all worried about the fill light in the deep, dark recesses under there at camera right. This is where on-axis fill shines, as it can worm its way into just about anything.

If you can see it from the lens axis, you can light it. As much or as little as you want. Here's the setup:



When using two lights like this, I find it very simple to think in terms of, "one for shape, and one for detail." You control the form with the key, and control the depth of the form with the fill.

That fill can be an off-axis strobe, or an Orbis (or Ray Flash, or ABR-800) or it can be ambient. All have advantages and disadvantages.

But working that shape-vs. detail balance can allow you to get many different looks with just a couple of speedlights.

First, Riaz, then Brett, now Steven and Bill. So Just a few quick and dirty, all-flash two-light headshot looks that you can whip out anywhere the ambient is controllable.

Which you may find very useful, starting next week.

Bernanke's Monkey See Monkey Don't Policy

Bernanke's knows deficits are a problem and unsustainable as well. He is even warning Congress about them. Bernanke also knows that the Fed is going to have to unwind the garbage on its balance sheet.

Bernanke sees the problems, yet he is still willing to add to those problems. This is clearly a case of Monkey See Monkey Don't.

Let's investigate the situation starting with Treasuries Rise as Bernanke Warns on Deficits, Fed Buys Debt.

Treasuries rose for a second day after Federal Reserve Chairman Ben S. Bernanke said large budget deficits threaten financial stability and the central bank purchased $7.5 billion of U.S. government securities.

Yields on 10-year notes declined as the Fed chief said deficit concerns are already influencing the prices of long-term Treasuries after yields climbed to the highest since November last week. The central bank plans to purchase U.S. debt again tomorrow as part of its $300 billion, six-month effort to cap lending rates.

The U.S. can’t continue to borrow at the current rate to finance the budget deficit, Bernanke said in testimony to the House Budget Committee today.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bill Gross, founder of Pacific Investment Management Co., said Treasury Secretary Timothy Geithner’s plan to bring the budget back into balance won’t be successful as consumers shrink spending and the U.S. growth rate slows. The budget deficit will be narrowed to “roughly” 3 percent of GDP from a projected 12.9 percent this year, Geithner said June 1.

‘Balanced Rabbit’

“I think he’ll fail at pulling a balanced rabbit out of a hat,” Gross said in a Bloomberg Radio interview today from Pimco’s headquarters in Newport Beach, California. “They are talking about -- once the economy in the U.S. renormalizes --the move back toward balance or much less of a deficit. I suspect that will be hard to do.”

Gross advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.

Dearth of Rabbits

I suspect Gross is talking his book and the dollar may be poised for a rally as noted in Speculative Bets Against The Dollar Highest Since July 15 2008.

However, I happen to agree with the idea that there is a dearth of rabbits available to pull out of hats.

It's your problem, Bernanke tells Congress

The question of the day is: Who is going to shut off the spigot? Clearly it's not the Fed, at least not Bernanke, as noted above. Indeed, Bernanke tells Congress, It's your problem.

Congress and the people who elected it must decide how much government they want to afford, Bernanke said. Stating the obvious, he went on to say: "Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run."

Unfortunately, Congress and the people have seldom gotten the balance right. We want the benefits of a large government without paying the costs, just as we wanted a loftier personal living standard than our income could support.

For its part, the Fed also faces having to make some tough choices. The U.S. central bank has lowered interest rates substantially and has expanded its balance sheet by about $1.2 trillion, effectively flooding the banking system with cash to keep the economy from collapse.

Everyone knows this and accepts it in principle -- but in practice, it will come down to knowing when to let go. It will require a deft hand and a dollop of good luck to keep the economy from crashing back to the ground or, conversely, from soaring like Icarus and burning up with inflation.

Sadly, the Fed's near-impossible task is child's play compared with the problem faced by the Obama administration, the Congress and the people.

Tough Decisions For The Fed

Inquiring minds are reading An Economy at Risk: The Tough Decisions Ahead by Thomas Hoenig, President, Federal Reserve bank of Kansas City. Here are a few quotes.

"In the long run we are all dead but our children will be left to pick up the tab".

"In our efforts to fix the oversight process for our financial system, we should not misdiagnose the patient. Unfortunately, I'm afraid we are witnessing some regulatory malpractice now. The emphasis on reform at the moment is to change the structure of the regulatory system rather than address the fundamental weakness of that system."

"Capitalism is a process of success, failure and renewal, and for it to work properly, institutions must be allowed to fail, no matter their size or political influence."

"Over the past two decades, The US has created for itself a set of economic imbalances that, in my judgment, have significantly increased uncertainty and placed economic growth at risk for future generations of Americans".

"Starting from where we are today, it is clear that interest rates must rise."

"I suspect there will be considerable pressure on the central bank to 'help out' in easing this adjustment process by keeping interest rates low for an extended period. This happens because people often confuse the establishment of low interest rates - and therefore the creation of money - with the creation of wealth".

Fed's Hoenig Is A Monkey See Monkey Don't Policy Advocate

The first quote above is Hoenig quoting Keynes, and one of the few things Keynes said that makes much sense. Most of the rest seem to come from the Austrian economic handbook.

I especially like "In our efforts to fix the oversight process for our financial system, we should not misdiagnose the patient. Unfortunately, I'm afraid we are witnessing some regulatory malpractice now. The emphasis on reform at the moment is to change the structure of the regulatory system rather than address the fundamental weakness of that system."

Yes indeed, it is the Fed and Fractional Reserve Lending that are the "fundamental weakness of that system" and no amount of regulation can possibly fix that problem. Please see Case Against the Fed and Fractional Reserve Lending for details.

Yet, for all Hoenig's talk, where is the action? Where are the dissenting votes? More so than Bernanke, Hoenig seems to understand at least a few basic principles including the extremely important distinction between rising prices with rising wealth.

However, actions (or lack of them) speak louder than words. I hope Hoenig can prove me wrong, but as of right now Hoenig appears to be a willing participant of Bernanke's Monkey See Monkey Don't Policy.

No Rabbits For Obama Or Congress Either

The magic hats are empty. There are no rabbits to be found.

Monkeys are large and in charge, everywhere one looks. Meanwhile, rabbits are hiding in Wonderland with Bernanke chasing them down the zero interest rate hole. Unfortunately, even the monkeys who see problems and know what to do about them are unwilling to make the tough choices necessary.

It's a sad case of Monkey See Monkey Don't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Speedlinks: June 3, 2009

Just a quick batch of four this time, fresh off the grill:
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• Lumiquest SB-VI? Lumiquest SB-33? Nope, just two Lumiquest SB-IIIs, used over and under, by McNally in Charleston. (You have to scroll down -- I like this look.)

• Not able to find Honl stuff at retail stores in Spain, WIRED's Charlie Sorrel rolls his own. (I still like my DIY'd speedstrap better, Charlie.)

• It's official. They don't need us anymore. This photo wasn't retouched at all. It wasn't even lit. Because it's not a photo.

• And finally:

"Lord Vader, we believe our sensors have located the headquarters of The Resistance."

-30-

"Preposterous Prices" For Luxury Condos In Philadelphia

Condo prices were the first to show weakness and will be the last to revive. Supply is simply too great and demand at "normal prices" is non-existent.

Please consider Fire-sale prices for luxury Center City condos.

Price break on luxury condos in striking glass tower in Center City. Best offers over $250,000 considered.

That's the strategy for moving 40 of the 178 units still unsold at the Murano at 21st and Market Streets, to be sold at auction for sums 50 percent below their original list price later this month.

Take the 1,405-square-foot, 23d-floor unit originally listed at $995,000. It could go for $485,000, less than what it would cost to build today, said Jon Gollinger, president of Accelerated Marketing Partners, of Boston, which is handling the sale for Murano's developer, Thomas Properties Group Inc.

"These are preposterous numbers," Gollinger said of the prices, which are based on his analysis of the Philadelphia high-rise condo market. "But there is disequilibrium in the market, and the only way to get it moving is to try to provide an extreme-value opportunity - a once-in-a-lifetime event."

The sale, set for 1 p.m. June 27 at the Westin Philadelphia, 99 S. 17th St., is not an auction with absolutes, said Gollinger, who markets high-rise condo buildings nationally.

"If the reserve published minimum bid is $250,000 and no one bids above it, the condo sells for $250,000," he said.

"The market dictates prices, and I don't see these being gobbled up like they think it will," said Center City mortgage and real estate broker Fred Glick. "No matter the price, financing is extremely difficult for a building that is not 50 percent presold, so . . . investors with cash will be the only ones that will probably buy these."

The developer seems to have the idea that if they can get 40 units sold at fire sale prices, the rest will go at better prices. Let's look at the math: There are 302 units, only 124 sold, and only 112 of the sold units have closed. The likelihood that that the 12 sold, unclosed units actually close is slim.

If 40 units are sold for 50% off, and all of them close soon, the building will be 50.3% closed (clearly the reason for precisely 40 units). At that point perhaps bank financing becomes available with the key word being perhaps. What then?

Will buyers rush in with attractive offers? No Chance. Expect to see "Preposterous Prices" on condos for a long time to come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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May 2009 Non-Manufacturing ISM - Details Suggest Weakness

The Institute for Supply Management Report On Business® shows the May 2009 Non-Manufacturing ISM is Still Contracting, but at a lesser rate. As is often the case, details and the headline numbers suggest different things.

The NMI (Non-Manufacturing Index) registered 44 percent in May, 0.3 percentage point higher than the 43.7 percent registered in April, indicating contraction in the non-manufacturing sector for the eighth consecutive month, but at a slightly slower rate.



click on table for sharper image

ISM's Non-Manufacturing Business Activity Index in May registered 42.4 percent, a decrease of 2.8 percentage points when compared to the 45.2 percent registered in April. Six industries reported increased business activity, and 10 industries reported decreased activity for the month of May. Two industries reported no change from April. Comments from respondents include: "Many initiatives and plans on hold"; and "Delay in start date of new client projects."

The six industries reporting growth in May based on the NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Utilities; Retail Trade; Construction; and Accommodation & Food Services. The 11 industries reporting contraction in May — listed in order — are: Other Services; Mining; Educational Services; Management of Companies & Support Services; Wholesale Trade; Finance & Insurance; Public Administration; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Health Care & Social Assistance; and Information.

Employment

Employment activity in the non-manufacturing sector contracted in May for the 16th time in the last 17 months. ISM's Non-Manufacturing Employment Index for May registered 39 percent. This reflects an increase of 2 percentage points when compared to the 37 percent registered in April. Three industries reported increased employment, 12 industries reported decreased employment, and three industries reported unchanged employment compared to April. Comments from respondents include: "Layoffs and non-replacement of attrition continue to lower overall employee populations"; "Hired some line workers for small increase in business"; and "Properties beginning to add back staff to take care of increased demand."

The industries reporting an increase in employment in May are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; and Mining. The industries reporting a reduction in employment in May — listed in order — are: Educational Services; Public Administration; Other Services; Information; Transportation & Warehousing; Management of Companies & Support Services; Wholesale Trade; Construction; Finance & Insurance; Accommodation & Food Services; Health Care & Social Assistance; and Retail Trade.

There is much more in the report so inquiring minds may wish to take a look.

Data Weaker Than Headline Number

Orders, employment, backlog of orders, imports, and exports suggest the report is much worse than the headline sentiment of "contracting at a lesser rate".

New Orders is arguably the most important measure of activity and orders are contracting faster than last month. The Backlog of Orders index is also contracting at a faster pace.

Employment is contracting at a lesser pace. However, employment is sitting at 39, the weakest component, and a long way from neutral. Inventories are contracting at a lesser pace. Prices are falling at a lesser rate, but the US$ has also been getting crushed.

Collectively, the data suggests an inventory replenishment phase as opposed to "green shoots" that will amount in sustainable trends. The report may not have been a disaster, but the details show it was not very good.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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