A Long and Long Recession

They all say about the same thing: it isn’t going to be over soon. A. Michael Spence, who won the Nobel prize in economics in 2001, says we will have an unusually long and deep recession through 2010. This includes many of the countries of Europe where “banks have American-style problems with toxic assets.” Goldman Sachs has predicted a deep global recession, with worldwide gross domestic product shrinking 0.6 percent this year. The billions of dollars that have evaporated in this country will be multiplied many times over in European and Asian markets. Not just our economy, but the world economy is being reshaped.

Each day brings additional declines in the U.S. economy – some of the losses are record-setting. Many Americans are quite literally shell-shocked: their jobs gone, their savings wiped out or nearly so, and the number of homes in foreclosure unrelenting. Americans, reassured by lenders that all was well, went on a drunken binge overborrowing and overspending.

Those who whistle in the dark and say things are as bad as they are going to be, and that an upturn is just around the corner. But one need only observe that people simply aren’t buying – anything. Niall Ferguson, a professor of finance at Harvard says, “My strong suspicion is that we are now in something more like a Great Recession. It won’t produce as steep a fall in American output as the Depression did, but it may prove to be as prolonged.”

What has been proposed – and it has met with caution cynicism – are new taxes on the rich (those earning over $250,000 a year) and strict limits on tax deductions. Charitable organizations especially are already feeling the pinch. There are fewer dollars left over on payday for charitable contributions. “Payday” presupposes that the majority of Americans will remain employed. The unemployed will create a domino effect on the housing market, health care, organized labor, pension funds, and leisure activities.

I titled a recent blog, “We’re beginning to look a lot like France.” I stand corrected by Patrick Buchanan who wrote recently in Real Clear Politics, “We are not headed down the road to socialism. We are there.”

Why, then, are we being lied to and told we’re already beginning to see an upturn? It’s like losing a limb - it ain’t gonna grow back!

Job numbers to show cost of economic downturn

OTTAWA -- The coming week will feature data on last month's job situation in Canada, and it's not expected to be pretty.

Analysts are expecting a smaller number than the record 129,000 job losses Statistics Canada reported for January. But heavy losses are still expected as Canada endures a recession sparked by a full-blown economic crisis in its largest trading partner, the United States.

"Canada's employment elevator is heading down, so the only question is just how many floors it dropped in February after plunging so steeply the prior month," Avery Shenfeld, an economist with CIBC World Markets, wrote in a report released Friday.

Shenfeld's forecast is for a loss of 45,000 jobs, slightly more optimistic than the market consensus of 47,500. He estimates that will put Canada's unemployment rate at 7.5 per cent, which would be the highest since November 2003.

"January's slide was so off the charts that we expect a lighter, if still formidable, loss of 45,000 positions in February, taking the unemployment rate to 7.5 per cent," he said. "Manufacturing (losses) likely can't match January's pace, but construction could be worse, and financial services could be a new area of weakness."

Canada's job numbers are due this coming Friday, a week after figures from the U.S. showed 651,000 jobs lost there in February. That pushed its unemployment rate to a 25-year-high of 8.1 per cent.

On Tuesday, Canadians might get some hints of near-future job prospects as staffing agency Manpower Inc. releases its quarterly outlook based on employers' plans to add to or subtract from their headcounts this spring.

Coinciding with the labour-force survey on Friday, Statistics Canada will release merchandise-trade figures for January. In December, Canada ran its first trade deficit in more than 30 years - taking $458 million more in imports than what was exported - and that deficit is believed to have widened the following month.

Shenfeld is expecting a trade deficit of $1.08 billion for January, along the lines of what other analysts are saying. He's also expecting Canada Mortgage and Housing Corp. on Monday to report that housing starts were down about six per cent in February from the previous month to an annual rate of 145,000.

Millan Mulraine, economics strategist with TD Securities, has an identical forecast for housing starts.

"Both single-family and multi-family units should post declines," he wrote in a research note. "And with labour-market and domestic economic conditions continuing to weaken, we expect further moderation in residential-building activity."

Shenfeld said the Canadian economic data over the coming week will be "simply more evidence that the recession will be biting hard in Q1."

Such data will follow up on recent figures that showed Canada's GDP shrinking 3.4 per cent in 2008's fourth quarter.

On a brighter note, Shenfeld said he expects a relatively light week in the way of disastrous reports on the U.S. economy, which might give stock markets a "one-week respite from the torrent of bad data."

Some of the U.S. reports to be released in the coming week include February's retail sales numbers on Thursday, and that country's trade figures on Friday.

Shenfeld said U.S. retail numbers might provide a "pleasant surprise," since they won't include auto fleet sales, which contributed heavily to declines in the most recent data for auto sales. CIBC is expecting a 0.2 per cent decline in U.S. retail sales for February, somewhat more optimistic than the market consensus of a 0.5 per cent drop.

Former House Speaker Newt Gingrich hints at 2012 presidential run

Now that would be real change. Newt Gingrich may be gearing up for a 2012 run for the presidency.

The former House Speaker and conservative icon dropped hints about his political aspirations this week.

"Callista [Bisek] and I will look seriously, and we'll probably get our family totally engaged, including our two grandchildren, probably in January 2011, and we'll look seriously at whether or not we think its necessary to do it," Gingrich told the Richmond Times-Dispatch Thursday.

"And if we think it's necessary we'll probably do it," he said.

In an issue that ran last weekend, Gingrich told The New York Times magazine, that he is "a contributor to my country and to my times. If it turns out that there’s a moment when it makes sense to run, then I'll run."

On his Web site, newt.org, Gingrich sounds like a candidate, with the slogan, "Real Change Requires Real Change." But the 65-year-old remains a deaply polarizing figure after he led a Republican Congress into multiple showdowns with the Clinton Administration during his tenure as House Speaker the mid '90s.

Gingrich, however, did tell the Times-Dispatch that there are rising stars in the GOP that would be qualified to take up the mantle, including Virginia Rep. Eric Cantor.

Charlie Chaplin's son, Sydney, dies at 82

Sydney Chaplin, the oldest surviving son of film legend Charlie Chaplin and a Tony-award winning actor in his own right, has died at the age of 82, the Los Angeles Times reported on Friday.

Chaplin, who starred opposite Barbra Streisand in "Funny Girl" on Broadway, died on Tuesday at his home in the California desert community of Rancho Mirage, due to complications from a stroke, the Times reported.

The second son of Charlie Chaplin and his second wife, Lita Grey, Sydney Chaplin was born in Beverly Hills in 1926 and recalled in interviews that he didn't know his father very well as a child.

After serving in World War Two he turned to acting, co-founding the Circle Theater in Los Angeles and taking a number of stage and screen roles.

He won a Tony award for the 1950s musical "Bells are Ringing" and appeared in the last film his father directed, 1967's "A Countess From Hong Kong."

The British-born Charlie Chaplin was one of Hollywood's first and greatest stars and a pioneering filmmaker, perhaps best remembered for his "Little Tramp" character.

LOS ANGELES (Reuters)

Schwarzenegger to sign budget Friday

SACRAMENTO — Gov. Arnold Schwarzenegger this afternoon thanked the Legislature for its "difficult but courageous" vote in finally approving a $41 billion budget package of steep tax increases and spending cuts designed to prevent the state from sliding into insolvency.

"This is the perfect medicine for our ailing economy and it will boost public confidence in California, reassure the financial community, and allow us resume selling our bonds and rebuild our state," Schwarzenegger told a Capitol news conference.

"Let's be clear, that our work is not over," he added, referring to a soon-to-be launched campaign to pass ballot measures that were tied to the budget vote.

He will sign the budget — to last through June 2010 — on Friday.

The breakthrough, after more than five full days of sometimes round-the-clock negotiations in the Legislature, came around 1 a.m. when Senate Democrats agreed to meet the key demands of GOP Sen. Abel Maldonado in exchange for his vote to support $14 billion in temporary tax increases. The deal pushed the budget plan over the two-thirds threshold it needed to pass.

At the last minute, the tax hike was reduced to $12.8 billion by eliminating a 12-cents-per-gallon excise on gasoline that Maldonado had opposed — funding that will be made up with California's share of federal economic stimulus money.

About three hours after the compromise agreement hatched between legislative Schwarzenegger, the Senate and Assembly began voting on the budget package, which consisted of more than two dozen pieces of legislation, and the state's historic budget standoff came to an end. The impasse lasted more than three months and halted funding for public works projects across California, delayed tax refunds for millions of taxpayers, and caused the state's credit rating to be downgraded.

Tax refunds and other payments are now on track to be released in late February or early March, according to state Controller John Chiang.

"Today's budget agreement is a long overdue step that does not immediately fill our treasury that has run dry," Chiang said in a statement. "Because I have been forced by this situation to delay paying $3.3 billion this month to local governments, state contractors and even taxpayers themselves, the State still owes them the gratitude for their patience and for shouldering the real burden of gridlock."

The budget compromise deal between Maldonado, a moderate Republican whose district includes parts of Silicon Valley, and Senate President Pro Tem Darrell Steinberg, D-Sacramento, cleared the way for votes early this morning to put California on sound financial footing again.

The agreement involved some raw political horse-trading.

In exchange for Maldonado's vote to raise taxes, Democrats agreed to place on the June 2010 ballot a pair of political reforms long sought by the senator: an overhaul of the state's electoral system to do away with partisan primaries and a refusal to raise lawmakers pay when the state is running a deficit.

One assemblyman called the deal "blackmail, extortion, and skulduggery." Another labeled it "political ransom." But with no end in sight to the budget nightmare, Steinberg and other Senate Democrats decided to swallow hard and meet Maldonado's demands.

"I'm a realist and I understood we needed a two-thirds vote," Sen. Elaine Alquist, D-San Jose, said of the tradeoff. "I did what I had to do."

Many legislators from both parties oppose a so-called "open primary" that would allow Democrats and Republicans to run in the same primary elections, with the top two vote getters advancing to the general election even if both are from the same party. (Alquist is a rare supporter of the system within her party.) Democrats also agreed to eliminate the proposed gas tax, part of a host of tax increases that led to a Republican revolt.

Schwarzenegger helped negotiate the agreement over lunch and cigars with Maldonado on Wednesday afternoon.

Amid those discussions, U.S. Sen. Barbara Boxer warned that the stalemate could jeopardize the state's share of the multibillion-dollar federal stimulus package.

Republicans shook up the Capitol early Wednesday with the surprise ouster of Senate Minority Leader Dave Cogdill of Fresno. Cogdill — who was once firmly against taxes but in the past week agreed to raise them — was replaced by Sen. Dennis Hollingsworth, whose district includes parts of Riverside and San Diego counties. The new Senate Republican leader immediately vowed to fight the tax increases that are a cornerstone of the proposed budget solution.

"Anyone that runs around and says that this can be done without raising taxes, I think, has not really looked at it carefully, or has a math problem and has to go back and take Math 101," a frustrated Schwarzenegger told reporters.

Two-thirds vote

But the leadership shift did little to change the course of the budget-vote standoff, which could be resolved only with a two-thirds majority vote, including three Republicans in each chamber. Even after his ouster, Cogdill remained committed to raising taxes, as did Sen. Roy Ashburn, R-Bakersfield, which left Schwarzenegger and legislative leaders to rely on Maldonado.

Schwarzenegger has expressed his support for a nonpartisan primary, and the governor later vowed to push for a ballot measure to create such a system. So Democrats calculated that placing the measure on the ballot, where interest groups would likely spend tens of millions to defeat it, was worth the price of passing the budget.

Years of overspending and months of declining revenue have pushed California to the brink, which the budget plan would fix by cutting — according to figures amended in the pre-dawn hours this morning — $14.9 billion in spending, $12.8 billion in taxes and $11.4 billion in borrowing. Those increases include a temporary 1-cent sales tax beginning in April, a personal income tax surcharge, and a vehicle license fee increase.

Before the compromise was reached, the budget called for $15.1 billion in cuts and $14.4 billion in tax increases.

The budget is intended to close a projected $40 billion deficit through mid-2010. It includes a tax break that benefits the high-tech and biotech industries. Parts of the plan depend on a series of ballot measures voters will be asked to approve in a special election in May. One proposition would seek to expand the state lottery and borrow $5 billion against the expected increased revenues.

Another would impose a cap on future state spending of roughly 4 to 6 percent annually. If voters approve the spending limit, most of the taxes would last for four years. If it fails, the taxes would expire after two years.

The overall budget deal involved major tradeoffs for both parties that they would never have agreed to absent the state's financial crisis. For Democrats, the spending cap was high on that list. Republicans who voted for billions in new taxes acknowledged that it could be a career-ender.

"I don't think anybody's happy with this," said Sen. Denise Moreno Ducheny, "other than we get to go home and sleep."

Caroline Kennedy interested in Hillary Clintons Senate seat

Appleton/News

Caroline Kennedy speaks at the 2008 Democratic Convention in Denver.

Arbogast/AP

[Barack Obama with Caroline Kennedy earlier this year.]

Caroline Kennedy has her eyes on the prize - the U.S. Senate seat Hillary Clinton will leave when she becomes secretary of state.

Kennedy, the daughter of former President John F. Kennedy, has called Gov. Paterson to discuss the two-year appointment and is "seriously considering" the job, her cousin, Robert F. Kennedy Jr., told the Daily News.

RFK Jr., whose father once held that Senate seat, said Caroline Kennedy and Paterson have spoken several times. He said the whole Kennedy clan would support her if she takes the seat and then runs for election in 2010.

"If she ran [in 2010], you would see the whole state flooded with Kennedys campaigning for her," RFK Jr. said. "There would be Kennedys no one even heard of. Our whole family would be delighted."

The Associated Press quoted two sources as saying Caroline Kennedy and the governor are expected to meet privately to discuss the matter today, when Paterson travels to Washington for a dinner.

RFK Jr. said that although his 51-year-old cousin has shied away from politics, she's more open to the idea now because her kids are grown.

Paterson told New York 1 Friday night he "took a call" from Caroline Kennedy on Wednesday. He refused to detail the conversation, though he said, "We talked about a number of things, and the seat did come up in the conversation."

Paterson spokesman Errol Cockfield said the governor is seeking counsel from various people and "will move quickly to fill [the] Senate seat once the position becomes officially vacant."

Clinton has said she won't resign until after she is confirmed. Cockfield denied Paterson and Caroline Kennedy had plans to meet today.

A senior Democrat said a Kennedy in that seat is Sen. Chuck Schumer's "nightmare" because he again would be overshadowed by a junior colleague. "He would hate that."

On the other hand, President-elect Barack Obama, who won the endorsement of much of the Kennedy clan, including Caroline Kennedy, is clearly a fan. She campaigned for Obama, worked on the vice presidential search committee and spoke at the convention.

Obama spokesman Stephanie Cutter said the President-elect "has a very high regard for Caroline Kennedy. He has not spoken with Gov. Paterson or Caroline Kennedy about the race."

Caroline Kennedy, who could not be reached for comment Friday night, would be an immediate front-runner, Democrats said. She is the cousin of the ex-wife of Attorney General Andrew Cuomo, who is also considered a possibility for the Senate seat.