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Monthly Archives: May 2014

China To Surpass USA As World’s Largest Economy This Year

“The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019.

The figures, compiled by the International Comparison Program hosted by the World Bank, are the most authoritative estimates of what money can buy in different countries and are used by most public and private sector organisations, such as the International Monetary Fund. This is the first time they have been updated since 2005.

After extensive research on the prices of goods and services, the ICP concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies.

The estimates of the real cost of living, known as purchasing power parity or PPPs, are recognised as the best way to compare the size of economies rather than using volatile exchange rates, which rarely reflect the true cost of goods and services: on this measure the IMF put US GDP in 2012 at $16.2tn, and China’s at $8.2tn.

In 2005, the ICP thought China’s economy was less than half the size of the US, accounting for only 43 per cent of America’s total. Because of the new methodology – and the fact that China’s economy has grown much more quickly – the research placed China’s GDP at 87 per cent of the US in 2011.

For 2011, the report says: “The US remained the world’s largest economy, but it was closely followed by China when measured using PPPs.”

With the IMF expecting China’s economy to have grown 24 per cent between 2011 and 2014 while the US is expected to expand only 7.6 per cent, China is likely to overtake the US this year.

The figures revolutionise the picture of the world’s economic landscape, boosting the importance of large middle-income countries. India becomes the third-largest economy having previously been in tenth place. The size of its economy almost doubled from 19 per cent of the US in 2005 to 37 per cent in 2011.

Russia, Brazil, Indonesia and Mexico make the top 12 in the global table. In contrast, high costs and lower growth push the UK and Japan further behind the US than in the 2005 tables while Germany improved its relative position a little and Italy remained the same.

The findings will intensify arguments about control over global international organisations such as the World Bank and IMF….”

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State of the Union: Everything is Just Fine, Go Back to Your Reality Show

“No, the economy is most definitely not “recovering”.  Despite what you may hear from the politicians and from the mainstream media, the truth is that the U.S. economy is in far worse shape than it was prior to the last recession.

Image: U.S. Dollars (Wiki Commons).

In fact, weare still pretty much where we were at when the last recession finally ended.  When the financial crisis of 2008 struck, it took us down to a much lower level economically.  Thankfully, things have at least stabilized at this much lower level.  For example, the percentage of working age Americans that are employed has stayed remarkably flat for the past four years.  We should be grateful that things have not continued to get even worse.  It is almost as if someone has hit the “pause button” on the U.S. economy.  But things are definitely not getting better, and there are a whole host of signs that this bubble of false stability will soon come to an end and that our economic decline will accelerate once again.  The following are 17 facts to show to anyone that believes that the U.S. economy is just fine…

#1 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#2 Consumer spending for durable goods has dropped by 3.23 percent since November.  This is a clear sign that an economic slowdown is ahead.

#3 Major retailers are closing stores at the fastest pace that we have seen since the collapse of Lehman Brothers.

#4 According to the Bureau of Labor Statistics, 20 percent of all families in the United States do not have a single member that is employed.  That means that one out of every five families in the entire country is completely unemployed.

#5 There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007.  Meanwhile, our population has continued to grow steadily since that time.

#6 According to a new report from the National Employment Law Project, the quality of the jobs that have been “created” since the end of the last recession does not match the quality of the jobs lost during the last recession…

  • Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.
  • Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.
  • Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

#7 After adjusting for inflation, men who work full-time in America todaymake less money than men who worked full-time in America 40 years ago…..”

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Ukraine 2.0

“Washington is pushing Venezuela towards a “civil war” because it wants access to the country’s rich oil reserves, Bolivian President Evo Morales has warned. The Venezuelan government has also accused the US of fomenting a coup d’état.

Addressing over 3,000 young people at a Latin American Youth Summit in the Bolivian city of Santa Cruz, Morales branded the US an “empire” with its eye on Venezuelan oil wealth. Morales said that Venezuelan President Nicolas Maduro was blameless in the recent wave of unrest in the country and accused Washington of orchestrating a civil war.

“I believe [the US] are trying to incite if not a coup d’état then a civil war from their empire,” Morales said.“They are always going to sponsor internal conflict so that they can interfere and invade us to take control of our oil reserves.”


An anti-government protester, wearing a Guy Fawkes mask, stands with a shield near flames from molotov cocktails thrown at a water cannon by anti-government protesters during riots in Caracas April 20, 2014 (Reuters / Jorge Silva)An anti-government protester, wearing a Guy Fawkes mask, stands with a shield near flames from molotov cocktails thrown at a water cannon by anti-government protesters during riots in Caracas April 20, 2014 (Reuters / Jorge Silva)


The world needs an “anti-imperialist, anti-capitalist and anti-colonial youth,” said Morales, urging Latin Americans to stand together in solidarity with Venezuela. Morales said there was no danger of a coup d’état in Bolivia since the government had ejected US Ambassador Phillip Golberg in 2008 after he was accused of collaborating in a plot to overthrow the government.

Venezuela has been gripped by a wave of anti-government protests since February which has left at least 41 dead and over 600 injured. The Venezuelan government has recognized people’s right to demonstrate, but has accused foreign-backed, right-wing extremists of hijacking the protests in an attempt to oust Maduro.

At present, the Maduro government is in dialogue with some of the members of the opposition movement to try and find a peaceful solution to the conflict. The opponents of the government complain that Venezuela is experiencing massive inflation and shortages of basic food products, as well as frequent power cuts….”

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Planned Layoffs Spike 17% in April Do to M&A Activity

“Global outplacement firm Challenger, Gray and Christmas says planned layoffs surged in April.

The firm’s monthly survey of businesses found that employers announced more than 40,000 job cuts, 17 percent more than in March. And it’s up six percent from April a year ago.

John Challenger, CEO of the outplacement company, blames an increase in mergers and acquisitions. 

He notes that “companies don’t need two corporate headquarters” when they combine resources…..”

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DOJ Now Pressuring Banks to Refuse Service to Gun Stores

“Under the program, the DOJ, headed by Attorney General Eric Holder, is attempting to shut down various legal businesses, including firearm dealers, dating services, purveyors of drug paraphernalia and pornography distributors, by coercing financial institutions to close the bank and merchant accounts associated with these businesses.

The businesses targeted follow a 2011 Federal Deposit Insurance Corporation bulletin which lists all of the above legal activities and others as “merchant categories that have been associated with high-risk activity” involving “disreputable merchants.”

“Although many clients of payment processors are reputable merchants, an increasing number are not and should be considered ‘high risk,’” the bulletin reads. “These disreputable merchants use payment processors to charge consumers for questionable or fraudulent goods and services.”

In other words, the FDIC, and now the DOJ, are trying to demonize gun shops by causing banks to view legal firearm dealers as no different than pushers of “ponzi schemes” and “get rich products,” two “high-risk” activities that are also listed in the bulletin.

In 2012, Bank of America told a gun company, McMillan Group International, that because the company was expanding into firearms manufacturing, the bank no longer wanted McMillan’s business.

“We have to assess the risk of doing business with a firearms-related industry,” the bank’s representative told operations director Kelly McMillan.

Last month, BitPay, a U.S.-based bitcoin processor, likewise refused to do business with gun dealerMichael Cargill of Central Texas Gunworks due to a similar policy.

And also in March, a Florida couple who own a gun store received a letter from BankUnited informing them that the bank was closing their business account, which they opened seven years prior, and gave them three days to transfer their money elsewhere.

“I was very angry,” Elizabeth Liberti told the Miami New Times. “They were very inconsiderate. We had all our credit cards going through that bank.”

“All of a sudden, we had to run and find another bank to keep our business going. We shut down for two weeks, and they wouldn’t even tell us why.”

BankUnited finally gave them a reason some time later.

“This letter in no way reflects any derogatory reasons for such action on your behalf, but rather one of industry,” wrote branch manager Ricardo Garcia. “Unfortunately your company’s line of business is not commensurate with the industries we work with.”

And it isn’t just gun stores that the Justice Dept. is targeting.

Last week, Xbiz, a news outlet pertaining to adult entertainment, reported that Chase Bank was sending out letters to hundreds of porn stars notifying them that their accounts would be terminated.

“I got a letter and it was like please cancel all transactions, please fix your automatic pay account and make sure everything’s taken care of by May 11,” actress Teagan Presley told Xbiz. “I called them and they told me that because I am, I guess, public and am recognizable in the adult business, they’re closing my account.”

“Even though I don’t use my account, it’s my personal account that I’ve had since I was 18, when it was Washington Mutual before Chase bought them out.”

And when Presley went to Bank of America to open a new account, the bank also turned her away….”

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Yellen: Fed Will Seek to ‘Tailor’ Oversight of Community Banks

“Thank you for inviting me to ICBA’s policy summit. I am pleased to have this opportunity to share my views on some of the key issues facing community banks and how I see the community banking model fitting into the financial system in the years ahead. In particular, I will discuss steps the Federal Reserve has taken to address the “too-big-to-fail” problem and how these steps affect community banks; I will describe how the Fed strives to improve our understanding of the unique role that community banks play in the economy; and then I’ll show how we are using this knowledge to better tailor our supervisory expectations and approaches to community banks.

As you may know, before I rejoined the Federal Reserve Board as Vice Chair in 2010, I had the privilege of serving for six years as president and chief executive of the Federal Reserve Bank of San Francisco. The 12th district is the largest of the Fed’s districts, covering nine western states, and it is home to a significant number of community banks, the majority of which are supervised by the San Francisco Fed directly or indirectly through bank holding companies. Community bankers helped me, when I served as president, to take the pulse of the local economy and also to understand how regulatory and policy decisions in Washington affect financial institutions of different sizes and types, sometimes in very different ways. During the financial crisis, I saw firsthand the challenges that community banks faced in a crisis they did little to cause, and I have felt strongly ever since that the Fed must do what it can to ensure that the actions taken following the crisis do not place undue burdens on your institutions.

I believe a healthy financial system relies on institutions of different sizes performing a variety of functions and serving different needs. In some communities, your banks are actually situated on Main Street, but all community banks serve Main Street by providing credit to small business owners, homebuyers, households, and farmers.

Because of their important role, I am pleased that the condition of many community banks has been improving. Although there is still considerable revenue pressure from low margins, earnings for most community banks have rebounded since the financial crisis. Asset quality and capital ratios continue to improve, and the number of problem banks continues to decline. Notably, after several years of reduced lending following the recession, we are starting to see slow but steady loan growth at community banks. While this expansion in lending must be prudent, on balance I consider this growth an encouraging sign of an improving economy.

Addressing Too Big to Fail
Let me begin by discussing an issue that I know has been on the minds of many community bankers: how policymakers are addressing the problem of banks that are perceived to be too big to fail.1 Community banks share the interest we all have in reducing the systemic risk posed by firms that are large, complex, and interconnected, and also in reducing any potential competitive advantages that such firms may enjoy as a result of too-big-to-fail.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) addresses the too-big-to-fail issue through steps intended to limit both the likelihood that systemically important firms would fail and the potential damage from any that do. The Federal Reserve and the other financial regulatory agencies have issued a number of regulations to implement the requirements set forth in the legislation and to enhance the supervision of the largest financial firms.

But even before Dodd-Frank became law, the Federal Reserve began to strengthen its oversight of the largest, most complex banking firms and require these firms to materially improve their capital adequacy. For example, in 2009, we conducted the first stress tests of the largest 19 U.S. bank holding companies. That test has subsequently evolved into our annual Comprehensive Capital Analysis and Review, known as CCAR, which requires all bank holding companies with total assets of $50 billion or more to submit annual capital plans for review by the Federal Reserve. CCAR helps ensure that the largest banking organizations will have enough capital to continue operating through times of economic and financial stress.2 To be clear, as the federal banking agencies have stated previously, these stress testing and capital planning requirements do not, and should not, apply to community banks.3

In addition to strengthening requirements for stress testing and capital planning, the agencies have also strengthened capital requirements for the largest firms by approving more robust risk-based and leverage capital requirements. Because the financial crisis demonstrated the importance of having adequate levels of high-quality capital at banks of all sizes, many elements of the revised capital framework apply to all banking organizations. In designing the revised capital rules, however, the agencies considered financial stability risks and adjusted the final rules to make the requirements substantially more rigorous for the largest, most systemically important banking organizations than for community banks.4

While we have taken a number of steps to address too-big-to-fail concerns, our work is not finished. Because the failure of a systemic institution could impose significant costs on the financial system and the economy, the Board recently finalized a requirement for the eight large, globally systemic banks to meet a significantly higher leverage requirement than other banking organizations. And we are working to implement risk-based capital surcharges for these systemically important firms. We also need to ensure that the new rules are embedded in our supervision of the largest firms; and, we must continue to watch for emerging sources of systemic risk and take steps as appropriate to address these risks.

One such risk that the Federal Reserve has been monitoring closely is the reliance of some firms on potentially volatile short-term wholesale funding.5 We are carefully considering the systemic vulnerabilities that may be posed by overreliance on short-term wholesale funding and are weighing potential policy responses. While it would be premature to indicate whether or how we might address these vulnerabilities, I can say that few, if any, community banks are reliant on levels of short-term wholesale funding that could raise concerns about systemic risk, and regulators would carefully consider the ramifications of any action, including the effect on community banks.

Improving Our Understanding of Community Banks
In carefully considering how our actions affect community banks, the Federal Reserve is committed to understanding your institutions and the challenges you face. We continue to try to improve that understanding in two important ways–research and outreach. The Fed is uniquely positioned to employ these two methods because of our traditional strength as a research institution and because of our structure, with Reserve Banks that have deep roots in communities in every region of the country…..”

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Jobless Claims Rise More Than Expected

“Jobless claims hit 344,00.

Consensus was for 320,00, down from revised 330,000.

The four-week moving averaged also claimed back to 320,000, an increase of 3,000.

A Labor Department official said claims tend to be more volatile around Easter….”

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