28 January 2010

Economic Tidbits

* A news story within the last week reported that General Motors, after scuttling a deal to sell its Saab division and preparing to shut down the brand, has found a new buyer with financial backing from the Swedish government.

* Ford not only managed to avoid a government bailout and bankruptcy, it earned a $2.7 billion profit in 2009:

It was the automaker's first annual profit in four years. Ford's full-year revenue of $118.3 billion fell 14 percent from 2008, but the Dearborn-based automaker benefited from $5.1 billion in cuts to manufacturing, engineering and advertising and a $1.3 billion profit at Ford Credit. It gained market share in North and South America and Europe despite the worst U.S. sales climate in 30 years. Share in Asia was flat. . . . It lost a record $14.6 billion . . . in 2008. . . . The automaker finished the year with $34.3 billion in debt, up $7.4 billion from Sept. 30. The company took on $7 billion in debt it owes a retiree health care trust fund run by the United Auto Workers union. It puts Ford at a disadvantage to GM and Chrysler Group, which were able to shed debt in bankruptcy court.

[Ford had a] U.S. market share of 15.3 percent, which was up 1.1 percentage points. It was Ford's first U.S. market share increase since 1995.

In round numbers, Ford is making a profit of about $120 per vehicle sold from its core automotive business, with the remainder of its profits, just under half, coming from its financing arm. This isn't a huge profit, but the fact that Ford was able to do this in an extremely bad year for car sales during a serious recession, without the crutch of having tens of billions of dollars of debt forgiven or receiving tens of billions of dollars of government loans, is encouraging.

The fact that Ford is able to make a profit in these circumstances also makes one very concerned if GM and Chrysler are not able to make profits in the very near future despite having shed their debts, shut down their unprofitable brands, and in the case of Chrysler, having secured a successful foreign partner.

* A tentative deal has been reach between metro area Albertson's workers through their union, and management. Employees will vote on the deal over the next week. As I noted earlier, while Safeway employees rejected a deal from management proposed at the same time as a similar deal with King Soopers workers, a new deal was reached this past month and is also awaiting approval. If the Albertson's and Safeway workers approve the new deals, all three major unionized grocery store chains in metropolitan Denver will have labor contracts in place.

* The consequences of the housing bubble collapse have not yet run their course. Defaults on single family home mortgages guaranteed by Fannie Mae continue to soar:

Fannie Mae reported today that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business increased to 5.29% in November, up from 4.98% in October - and up from 2.13%in November 2008.

"Includes seriously delinquent conventional single-family loans as a percent of the total number of conventional single-family loans."

* One month Treasury bills now have negative effective interest rates. Investors are willing to pay slightly more than a dollar now in exchange for a risk free promise of a dollar a month from now. The effective interest rate is negative one hundredth of a percent. Previously, on March 26, interest rates on one month T-Bills had fallen as low as negative one point five hundredths of a percent.

This means, basically, that there are more people out there who don't want to take any risk at all by investing in something other than Treasury bills over the next month (even non-FDIC insured bank deposits or gold or foreign currencies, for example) than there are Treasury bills available to buy.

The good news is that this helps brings the cost of paying interest on the national debt (which is spread amongst a variety of maturity dates) to a near record low, easing one pressure on the federal budget.

* The U.S. Senate has voted to let Ben Bernanke keep his job as chair of the Federal Reserve, despite considerable controversy over the vote. The vote was 70-30, and could have been blocked by a filibuster if another ten Senators had opposed his nomination. "I[t] was still the most negative votes [to reconfirm a Federal Reserve chairman] since the 16 nay votes for Volcker in his reconfirmation vote in 1983. . . . The Chair of the Fed serves a four year term and, unlike the 14 year term for Federal Reserve Board members, the Chair can be reappointed."

In fact, the "70 to 30 vote was the thinnest approval ever extended to a chairman in the central bank’s 96-year history. . . . the Senate first voted 77 to 23 to end debate, well over the threshold of 60 needed to overcome the threat of a filibuster. On a second vote, to confirm, the 30 dissents came from 18 Republicans, 11 Democrats and one independent, Bernard Sanders of Vermont."

Either party could have mobilized to defeat the reconfirmation, which was decidedly not partisan. Both of Colorado's Senators voted to reconfirm Bernanke.

Why was this appointment controversial? Because, " given his stated intensions, a Bernanke reappointment implies larger bailouts in the future – thus compromising our budget further with contingent liabilities, i.e., huge payments that we’ll have to make next time there is a crisis."

* Finally, here is a quick recap of President Obama's State of the Union Address Tax Proposals (apparently guest cross-posted from here):

[A]n accelerated depreciation provision amounting to a 10% tax cut for businesses and costing $38 billion . . . . preferences for capital gains (exempting them from taxes when the money is invested in small businesses) . . . a tax credit for new workers . . . .

Adjusting the way the federal government supports loans for college students . . . The current program represents a subsidy for banks that has grown through the years to provide fees to banks even though universities do most of the same administration work that they did under the direct loan programs. . . . It's time to eliminate the giveaway and provide the money to students instead of to the banks.

Ending tax breaks for Big Oil, ending the carried interest preferential taxation of compensation for investment fund managers, and not extending the lower rates for the super-rich . . . .

[T]axing financial institutions to pay for the costs of the federal guarantee that has been necessary to move them out of crisis through use of the TARP funding. . . . based on the degree of leverage other than ordinary deposits.

I am not a fan of the accelerated depreciation provision or the capital gain tax preference proposed, nor am I a fan of the "Cadillac plan" excise tax in the Senate health care reform bill which is the point from which any deal on health care reform adopted this year will start (not included in the listing above). The other proposals seem reasonably sensible given the circumstances.

1 comment:

Andrew Oh-Willeke said...

Albertson's workers have unanimously approved the contract. This means that Denver area Safeway workers are the only unionized grocery workers without a contract (unless they approved it and I missed this news).