Archive for January, 2010


Economy shows signs of growth

The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation’s gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation’s gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

Economists surveyed by had forecast growth of 4.7%.

Good end to a terrible year. The growth in the fourth quarter was the highest since the third quarter of 2003. The economy rose at a 2.2% annual pace in the third quarter of last year.

But even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.

The GDP report does not mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months — if not more than a year — to declare when recessions ended and began.

But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009. The Federal Reserve even used the word “recovery” in the statement following its latest meeting earlier this week.

Inventories lead the way. Much of the improvement was driven by a turnaround in inventories, the supply of goods that businesses produce in anticipation of sales. Businesses slashed inventories in late 2008 and early 2009 due to concerns about worsening economic conditions.

According to Friday’s report, 3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly.

But the U.S. consumer was somewhat of a bystander in the fourth quarter, as personal consumption grew at only a 2% annual rate in the period. Spending by consumers accounts for more than two-thirds of economic activity.

Lakshman Achuthan, managing director of Economic Cycle Research Institute, said that growth from inventories shouldn’t be dismissed since they are typically a driving force of strong recoveries.

“In late 2008 into 2009 everyone freaked out to prepare for Armageddon,” he said. “They fired everybody and stopped buying inventories. That overreaction is what’s being undone. Yes, you have to have jobs growth, but we’ll get that next, probably in January or February.”

Other economists say the turnaround in inventories isn’t enough to lead to strong growth over a sustainable period. A better labor market that would give consumers the confidence and money they need to spend is also necessary.

“I’m not dismissing the inventory gain, but now that inventories are getting more into line with final sales, then the thrust of economic growth depends on final demand picking up,” said John Silvia, chief economist with Wells Fargo Securities.

Stimulus, exports, also feed growth. Economic growth in the third quarter was greatly attributed to the federal stimulus bill passed at the beginning of 2009. But stimulus doesn’t appear to have had as big of an impact in the fourth quarter.

Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed little to growth by itself, even as non-defense spending by the federal government rose at an annual 8% rate in the quarter.

But money pumped into the economy by tax cuts, such as the first-time home buyer tax credit, coupled with spending by businesses that received stimulus dollars, did have an impact in the quarter, even if it was harder to quantify.

An 18% jump in the value of exports also played a major role in the economy’s rebound, contributing nearly 2 percentage points of growth. Silvia said exports have a chance to be a significant source of growth in the coming year, helped by the weaker dollar and stronger growth in developing economies, particularly in Asia.

Investment in business equipment and software jumped at a 13% annual rate, the biggest increase in nearly four years. That spending added almost a full point to GDP, and is often a precursor to employers starting to hire once again.



U.S., Russia said to be near arms deal

A new arms-control treaty between the United States and Russia is nearly complete, the White House said.

Progress on a pact was detailed in a brief statement Wednesday.

“President Obama spoke with President Medvedev of Russia to thank him for his hard work and leadership on the New START treaty negotiations, as the two sides have made steady progress in recent weeks,” the White House said.

“The presidents agreed that negotiations are nearly complete, and pledged to continue the constructive contacts that have advanced U.S.-Russian relations over the last year.”

Talks are expected to resume next week in Geneva, Switzerland.

Obama hailed the developments during Wednesday’s State of the Union address.

“The United States and Russia are completing negotiations on the farthest-reaching arms-control treaty in nearly two decades,” he said.

The 1991 Strategic Arms Reduction Treaty, commonly known as START, expired on December 5, but the leaders agreed to honor its spirit until a new treaty could be negotiated to replace it.

Obama and Medvedev, who met in mid-December in Copenhagen, Denmark, had hoped to sign an agreement by the end of 2009, but fell short of reaching a deal.

At the time, U.S. Assistant Secretary of State P.J. Crowley cited a few hurdles to an agreement, including the complexity of the weapons systems, agreement on the numbers of warhead reductions, and verification, but held out hope for a deal in early 2010.


Clinton calls for more aid to Haiti


By Paul Armstrong, CNN
January 28, 2010 2:33 p.m. EST

Davos, Switzerland (CNN) — Former U.S. President Bill Clinton has warned that many Haitians still face a daily struggle to find food and water two weeks after the island was decimated by a 7.0-magnitude earthquake that killed an estimated 150,000 people.

Now a U.N. special envoy to Haiti, Clinton told a special session of the World Economic Forum in Davos Thursday that the impoverished Caribbean nation lacked the most basic supplies, together with the vehicles to distribute it all.

“If there’s anybody who knows where I can get pick-up trucks or something slightly bigger, I need 100 yesterday. They do,” he said.

“There are serious, unmet food and water needs and part of it is that a distribution system just does not exist.

“It is simply not enough, even if we had all the food and water we needed every single day, to distribute aid from only 15 sites.” He said more than a 100 sites were required.

“I want the people of Haiti not to have to worry about whether they can eat today or get water today… I want them to at least be able to know that from one week to the next they have a place to sleep, that it’s safe and it’s sanitary.”

Clinton also paid tribute to Haiti’s people as he gave the assembled delegates a sense of the scale of the tragedy.


Analysts view tone of Obama’s speech

When it comes to word choice, President Obama is less positive than any president in modern time, according to a scholar who has dissected the language of State of the Union speeches since Harry Truman’s 1946 address.

James Pennebaker, professor and chairman of the psychology department at the University of Texas-Austin, theorizes that the language that presidents use in these high-profile speeches reflects their overall mood and state of mind.

The president isn’t negative per se, Pennebaker said, but he doesn’t use as many words such as “happy,” “excited,” “enjoyed,” “good” and “nice” that have positive tones, making his tone more somber.

Deborah Tannen, linguistics professor at Georgetown University, disagreed somewhat. She said she thought the tone was positive and optimistic, with a serious overtone.

“I felt like it was serious, because he realized that people are worried and that it’s a serious time. We are facing serious problems,” she said.

But a person who inspires optimism and hope in others doesn’t necessarily exude positive emotions, Pennebaker said. Instead, Obama has shown himself to be “cool in every sense of the word,” Pennebaker said.

“He is a guy that many of us really admire. He’s the cool guy at the high school dance. He’s not giggly and funny. He’s cool. And a cool person can really symbolize optimism for the future, and this person can be a good and strong leader, but they don’t have to be the class clown. They don’t have to be laughing and saying they’re happy or that things will be great,” he said.

Obama‘s speeches also indicate that he is the most complex thinker of the presidents Pennebaker has studied, with John F. Kennedy as the runner-up, he said. That’s because Obama frequently presents an idea and re-evaluates it from a variety of perspectives in subsequent sentences.

Obama is also a more dynamic thinker than he is categorical, Pennebaker said. He does not tend to break things down into components, as other politicians such as George W. Bush have done, but looks at the history of the topics he speaks about.

For example, at the very beginning of his speech Wednesday night, Obama said that while it is tempting to assume America was always destined to succeed, the country’s history shows otherwise.

“But when the Union was turned back at Bull Run and the Allies first landed at Omaha Beach, victory was very much in doubt. When the market crashed on Black Tuesday and civil rights marchers were beaten on Bloody Sunday, the future was anything but certain,” he said.

Obama, despite criticisms from both ends of the political spectrum, is seen by most Americans as being trustworthy, polls show, and the State of the Union address largely reflected why, one expert said.

“He was very forthright and honest, taking responsibility to some extent for ‘Change we can believe in’ not coming fast enough,” said Paul Rutledge, a professor of political science at the University of West Georgia. “To his credit, I think he took too much of the blame for this,” Rutledge said.

Generally, the way he spoke this year was similar to the way he spoke at his inaugural address last year and even during the campaign, Pennebaker said.

“You don’t see any giant jumps in terms of the way he’s thinking, feeling, relating to others,” he said.

See how Pennebaker and colleagues track language in speeches

Presidents tend to be consistent in their speaking regardless of what is going on in the country, Pennebaker said.

After the September 11 attacks, President George W. Bush continued to use positive-emotion words at relatively high rates. Pennebaker’s team also analyzed blog posts from that year and found that people’s emotions reflected on the blogs were back to their pre-9/11 state within four days.

“If there’s something bad that happens, you bubble back up to your emotional state surprisingly quickly,” he said.

Obama’s word choice also reveals that he is a bit more psychologically and emotionally detached than some other presidents, perhaps on par with Ronald Reagan, he said. It’s not necessarily that he’s hiding his feelings, but he does not present himself as an emotional person.

He also consistently seeks to exude confidence, as most leaders do, while still acknowledging some of the setbacks his administration has faced.

“I think all of these thing have a chance to restore some of the public confidence in his administration, although what seemed to be a mea culpa for not delivering fast enough really could go either way – might be a Republican soundbyte for 2010,” Rutledge said.

“If you sit down and talk with him, you’re not going to get a sense of what his deep emotional feelings are,” Pennebaker said. “Whereas if you sat down with Bush and Clinton, they would give you signals of how they felt.”

The subtleties that Pennebaker studies are nearly impossible to hear just by listening to a speech, he said. He uses a computer algorithm to calculate the percentage of total words in a speech that reflect a variety of categories, such as “positive emotionality” and “dynamic thinking.”

One parameter is the number of function words — pronouns, prepositions and articles — a person uses, which can say a lot about his or her mindset, Pennebaker said. For instance, someone who thinks a lot about people and is social would use a lot of pronouns. Someone who wants to avoid the press tends to use “I” a lot, he said.

Although presidents generally don’t write their own speeches, they do approve them, and speechwriters must know them very well, Tannen said.

“It’s as much his own words as any speech is going to be these days,” she said.


Bank bosses talk about financial crisis

 Four top bank chief executives told a panel probing the financial crisis Wednesday that they made mistakes but didn’t realize how bad they were at the time.

In a heated exchange in Washington with the head of the Financial Crisis Inquiry Commission, Lloyd Blankfein, Goldman Sachs’ CEO, agreed the banks had assumed too much exposure to risk at the height of the crisis, and he wished he could go back and change things.

“Anyone who says I wouldn’t change a thing, I think, is crazy,” Blankfein said. “Knowing now what happened, whatever we did, whatever what the standards of the time were — It didn’t work out well.”

“Of course, I’d go back and wish we had done whatever it took not to find ourselves in the position we found ourselves in,” he added.

The remarks came during a hearing of the Financial Crisis Inquiry Commission, a 10-member panel appointed last summer by Congress. Testifying were chiefs of some of the best-known and largest banks: Goldman Sachs (GSFortune 500), Morgan Stanley (MSFortune 500), J.P. Morgan Chase (JPMFortune 500) and Bank of America (BAC,Fortune 500).

The panel’s chairman, Philip Angelides, said he wanted to hear about the banks’ role in creating the crisis and benefiting from the Troubled Asset Relief Program, which was set up to provide them with liquidity.

During the hearing, Angelides cast doubt on Blankfein’s defense of Goldman Sachs’ actions in the mortgage markets — such as buying parts of risky mortgages and then placing bets against such morgages — as part of their job as a “market maker.”

“It sounds to me a little like selling a car with faulty brakes and then buying an insurance policy on the buyers of those cars,” Angelides said. “It doesn’t seem to me that that’s a practice that inspires confidence.”

Blankfein responded that Goldman was just selling what investors wanted.

“These are the professional investors who want this exposure,” he said. “Even today, people are coming for exposure to these very products. .. That’s what a market is.”

The chief executives — Blankfein, John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase, and Brian Moynihan of Bank of America — testified under oath, standing up for a swearing-in during the public session.

The hearing lasted more than three hours and most of the testimony revolved around bad lending in the housing market.

Dimon said that one of the the banks’ “big misses” was failing to “stress test” the housing market.

“We didn’t stress test housing prices going down by 40%,” Dimon said.

It has been suggested that this lack of accountability could be remedied if all of the firms and individuals involved in the creation of financial instruments had to “eat their own cooking.” That would, for example, require that the bulk of their fees not be taken in cash, but in the securities they created, which they would be required to hold unhedged until maturity.

One commissioner asked Morgan Stanley’s Mack if investment banks could have remediated the volume of illiquid toxic securities by eating “their own cooking,” and taking fees for financial transactions via toxic securities, instead of cash. Mack said his firm did hold some of those securities.

“We did eat our own cooking and we choked on it,” Mack said. ” We kept positions and it did not work out.”


State of the union speech anticipated


President Obama has faced tough criticism for his handling of the economy.
President Obama has faced tough criticism for his handling of the economy.

Tune in to CNN and tonight to watch President Obama’s State of the Unionaddress. and Facebook are partnering up, allowing you to participate in the conversation as you watch online at Prime-time coverage with the best political team on television begins tonight at 8 ET.

Washington (CNN) — Hours away from what is arguably the most important address of his short presidency, President Obama will huddle with his top speechwriters to go over the latest revisions to his State of the Union address, according to White House spokesman Robert Gibbs.

Later Wednesday, Gibbs said, the president will get behind a podium to practice for his 9 p.m. address to the nation.

Aides say the speech will focus on job creation, helping the middle class, fighting the deficit and health care reform. But Gibbs said the president will also take responsibility for the political climate that has left a lot of Americans angry and frustrated, and he will express disappointment at how difficult it is to change the way Washington works.

Obama’s first State of the Union address comes against a backdrop of an American people nervous about the pace of economicrecovery.

In the days leading up to the speech, the White House started to lay out some of the measures Obama plans to take, announcing this week that the president will propose a three-year freeze on discretionary spending and that his middle-class task force recommended further tax credits and economic support measures.

On the eve of the speech, aides said the president would freeze salaries and bonuses for White House staffers.

The Republican response to the address will be delivered this year by newly minted Virginia Gov. Bob McDonnell, who won a tough election battle last year against Democrat Creigh Deeds.

House Minority Leader John Boehner, R-Ohio, said the test at Wednesday night’s speech will be whether Obama will offer merely a “rhetorical pivot, or are they really going to do something?”

But Boehner, wary of disrupting what he called the political wind at Republicans’ backs, is also warning his GOP rank and file to be respectful. The last time the president addressed Congress, Rep. Joe Wilson, R-South Carolina, famously yelled “you lie” at Obama.

“You invite someone to your home, you should be respectful and considerate,” Boehner said at a Wednesday morning breakfast.

Still, Boehner gave some insight into just how politically polarized Washington is right now by revealing that, besides occasional White House meetings with congressional leaders, he has “zero” private dialogue with the president or his top aides.

“I have not talked to Rahm Emanuel in a year,” Boehner said of the president’s chief of staff, a former House member. “It’s really shocking. … There’s just no interaction.”

The House GOP leader was careful to emphasize that he has a “great” relationship with House Speaker Nancy Pelosi but said, “we never talk about anything real. She and I talk about policy? I mean, why bother? And we both recognize it.

“The idea that they’re going to ask us for $500 million to fix up this prison in Illinois, and they’re going to ask us to change the law to allow them to bring these detainees here, is not going to pass the Congress. It’s not gonna happen,” Boehner said.

Looking ahead to some of the substance of Obama’s State of the Union address, Boehner called the idea to freeze some discretionary spending “a modest step in the right direction.”

Guests in the first lady’s box will include Kim Munley and Mark Todd, police officers who apprehended the Fort Hood shooting suspect in Texas last year. Other notables will include several military service members, students and dignitaries.