In Fed Minutes, Worries About Low Rates’ Effects

WASHINGTON (Reuters) — Federal Reserve officials are increasingly confident that the American economic recovery is sustainable, but they do not see employment picking up soon, according to minutes from their November meeting released on Tuesday.

What a time to be unemployed, never a pleasant experience.

Policymakers also expressed concern about possible adverse repercussions from their vow to keep interest rates low for an extended period, including unwanted speculation in financial markets. “Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates,” the central bank reported in the minutes.

Gold is over $1,100 an ounce, driven by inflation fears of gold bugs.

Some investors and policymakers have argued that the Fed’s policy of rock-bottom borrowing costs may be driving investors to beef up their bets by using the falling dollar to fund their trades. President Barack Obama, during a recent visit to Asia, was lectured on the subject by top government officials in China.

The Federal Reserve Open Market Committee, the central bank’s policy-setting body, did not believe such speculative activity had taken place to date, contending that the dollar’s decline had thus far been “orderly.”

What else they gonna say?

“Any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching,” the minutes said. The dollar dropped to a 15-month low against a basket of major currencies last week. For now, the minutes indicated policymakers are not widely concerned about inflation in the medium term. This was already evident from a string of recent speeches in which even the hawkish regional presidents of the Dallas and Philadelphia Feds have expressed dovish views on the prospects for a sustained rise in consumer prices.

Hawks being dovish.

The “central tendency” forecasts of policymakers were slightly more sanguine on the economy’s prospects but not dramatically so. Gross domestic product was expected to shrink substantially less this year than previously estimated. Similarly, the jobless rate, currently at a 26-year high of 10.2 percent, was now expected to come down more quickly than policymakers believed back in June. “Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside,” the minutes said.

There's American English, Elizabethan English, and policy-speak.

Nonetheless, there was a sense that any turnaround in the labor market would not happen quickly enough to stem the rising tide of joblessness. “The weakness in labor market conditions remained an important concern,” the minutes said. “The considerable decelerations in wages and unit labor costs this year were cited as factors putting downward pressure on inflation.”

Fed Is Split Over Timing of Rate Rise

The Fed chairman, Ben S. Bernanke, told economists in Washington on Thursday night that the central bank had the tools to reverse course on rates but gave no hint when he planned to begin.


October 9, 2009
Fed Is Split Over Timing of Rate Rise
By EDMUND L. ANDREWS

WASHINGTON — Fissures are developing among policy makers at the Federal Reserve as they debate how and when to start raising the benchmark interest rate from its current level just above zero.

With Fed officials forecasting that unemployment will average 9.8 percent in 2010, nobody appears to be arguing that monetary policy should be tightened anytime soon. The central bank’s official mantra continues to be that the overnight federal funds rate will remain “exceptionally low” for “an extended period.”

But Fed officials have hinted at new disagreement in recent weeks. The arguments go beyond the traditional split between hawks, who worry that easy money will stoke inflation, and doves, who contend that unemployment is the top problem.

The more devilish debates are about how fast to act once the decision has been made, and how to carry it out. Beyond raising the overnight federal funds rate, the Fed also has to unwind $2 trillion in special programs that prop up paralyzed banks and credit markets.

Where Ben S. Bernanke, the Fed chairman, stands in the emerging argument is a question mark. At a conference held by the Fed on Thursday evening, he assured economists that the central bank had a detailed list of tools to reverse course but offered no new hint of when he planned to begin his exit strategy.

“When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration,” Mr. Bernanke promised.

Any move to tighten monetary policy over the next year or so could set the stage for a clash between the Fed and the White House. The Obama administration has been outspoken in saying it does not want a quick end to stimulus policies, whether fiscal or monetary.

Policy makers are haunted by the results of previous miscalculations. Mr. Bernanke and others have warned that the central bank should not repeat its error in 1937, when it raised interest rates too early and helped extend the Depression for several years.

At the same time, officials at the Fed are acutely aware that it has been widely blamed for contributing to the housing bubble and the financial collapse by keeping the cost of borrowing too low for too long after the recession of 2001.

One hint of the discord came Tuesday, in a speech by Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City.

Though he stopped short of calling for immediate rate increases, Mr. Hoenig made it clear that he was getting impatient.

“My experience tells me that we will need to remove our very accommodative policy sooner rather than later,” he told an audience of business executives. “Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy.”

Mr. Hoenig is not currently a voting member of the Fed’s policy committee, on which the regional Fed presidents hold rotating seats, but he presents his views at all meetings.

And he is not alone.

Richard Fisher, president of the Federal Reserve Bank of Dallas, sent a similar message in a speech on Sept. 29. “That wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction,” he told a business group.

Other Fed officials with similar views include Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond; Charles I. Plosser, president of the Philadelphia Fed; and Kevin M. Warsh, an influential Fed governor.

By contrast, some top Fed officials in Washington and New York have repeatedly emphasized that the economy is still extremely weak and that unemployment, already at its highest level since the early 1980s, will probably climb above 10 percent and remain high for several years.

“The turnaround is certainly welcome, but it shouldn’t be overstated,” Daniel K. Tarullo, a Fed governor, said on Thursday in an address to a civic group in Phoenix. “The employment situation continues to be dismal.”

William C. Dudley, president of the New York Fed, presented a detailed case that seemed aimed at responding to those calling for a quick end to low rates.

“Some observers are concerned that this expansion will ultimately prove to be inflationary,” he told an audience at the Corporate Law Center at Fordham University. “This concern is not well founded.”

Mr. Dudley noted that unemployment among working-age men was 10.3 percent — higher than in any other downturn since World War II.

On top of that, he said consumers were reeling from the “wealth shock” caused by the collapse in home prices and by losses to their stock portfolios. That could cause people to increase their saving rate, meaning less consumer spending in the short run.

Finally, Mr. Dudley cautioned that banks faced another wave of losses from loans tied to commercial real estate.

Beyond the disagreements about the relative dangers of rising prices versus rising joblessness, Fed officials are grappling with how to decide on the need for higher interest rates.

Mr. Bernanke and other officials want to see evidence that the economic recovery is self-sustaining, strong enough to generate jobs without the crutch of extremely low interest rates.

But Mr. Warsh, as a Fed governor, has begun arguing that the central bank cannot afford to wait for irrefutable evidence of a solid expansion. Mr. Warsh recently argued that the Fed should take at least some of its cue from stock prices and other financial indicators, which turn around earlier and more quickly than the underlying economy.

“If policy makers insist on waiting until the level of real activity has plainly and substantially returned to normal,” he warned in a speech on Sept. 25, “they will have almost certainly waited too long.”

Mr. Warsh and some other Fed officials also argue that when the time does come to change gears, the central bank may have to raise rates almost as fast as it slashed them when the crisis began.

It remains unclear whether Mr. Bernanke agrees with that idea, though he and other Fed officials have emphasized that they have planned carefully for the Fed’s exit strategy and have all the tools in place to reduce the special support programs quickly.

Memo from Larry

Memo to Congress.
From: Larry Summers
Re: We fixed the Economy

Mr. Summers does not lack in confidence, yet this spin control is important.

We have traveled a remarkable distance over the past six months in pulling our economy
back from the brink of economic catastrophe. The wide-ranging efforts taken by the
Obama Administration, working closely with the 111th Congress – implementing the
Recovery Act, restoring confidence in the financial system, providing assistance for
responsible homeowners and pressing to get credit flowing to small businesses – have
helped pull the economy out of a nosedive, and have put us on a path toward a sustained
economic recovery. While we still have a long way go, we are far closer to that recovery
today than we were in January.

Where We Were
What We Have Done
Where We Are Now

Business news

JPMorgan and Morgan Stanley Repay TARP Funds The two big financial firms joined a growing list of companies exiting the federal rescue program created last fall as Wall Street firms were collapsing.

Eddie Bauer Expected to File for Bankruptcy The outdoor-clothing chain plans to file for bankruptcy and seek a sale to CCMP Capital, a private equity firm, a person briefed on the matter said.

Higher Quarterly Loss for FedexThe company said that it lost $876 million in the fourth quarter, weighed down by one-time charges, but the results beat analysts’ expectations.

MySpace Set to Lay Off 400 Workers

MySpace was once the pre-eminent social networking site, but recently it has lost some luster to Facebook.

Stalking a Weaker Wall Street

By GRAHAM BOWLEY

After a year of tumult on Wall Street, overseas banks are coming in for cheap assets, solid talent and the possibility of raising their profiles on a global scale.

Greenberg Defends Sale of A.I.G. Stock in Trust

By MARY WILLIAMS WALSH

Maurice R. Greenberg, former chief of A.I.G., testified that he was entitled to remove $4.3 billion in the company’s stock under certain conditions.

Advertising

Kickin’ Down Madison Ave., Feelin’ Groovy

By STUART ELLIOTT

Macy’s, General Mills, and Procter & Gamble are among companies with 2009 ad campaigns recalling aspects of the ’60s.

Shut the light, close the door

Well, it's all over. Newt says so.

Newt Gingrich, the former Republican House speaker, says the GOP will have to widen its tent if it wants to be competitive -- his party has room for both Dick Cheney and Colin Powell, Gingrich told fellow Republicans at a fundraiser last night.

And, as for Rush Limbaugh's wish that President Barack Obama's agenda fails, the former speaker suggested that Obama's plan to right the economy with stimulus spending and government intervention in matters such as the reorganization of General Motors has "already failed."

9.4%

Jobless Rate Jumps; Pace of Losses Slows

The economy shed 345,000 jobs last month, well below expectations and the smallest loss since September 2008. The jobless rate, however, jumped to 9.4%.

Phew! That's not good

Private-sector GDP forecasts for Germany are worse than the government's current predictions. Below, Economy Minister Karl-Theodor zu Guttenberg and Finance Minister Peer Steinbrueck in Berlin last week.


A picture is worth a thousand words; what word does this picture evoke?

Peer is skeptical; Karl looks as if he wishes he could leave.

President Campaigns for Budget

President Obama, escaping the mounting uproar in Washington over executive bonuses at the American International Group, came here Wednesday for a raucous town-hall-style meeting where he promised that his $3.6 trillion budget and recovery plan would put the country’s economy back on track.

He's salesman-in-chief. In full campaign mode.

“Washington is all in a tizzy over who’s at fault,” Mr. Obama said. “Some say it’s the Democrats’ fault, the Republicans’ fault. Listen, I’ll take responsibility. I’m the president.”

Dodd said the Treasury struck a clause from the bill, resulting in the AIG bonuses. Finger-pointing is a national sport in Washington, indeed in politics. At least the President is assuming responsibility. It doesn't solve anything, but it is helpful.

Behind the Curtain at G.E.

So this is what it has come to. General Electric appears to be in trouble.

I bought it at $22.50, soon after Warren Buffett bought preferred shares. GE is now at 7 bucks a share. The bears are pummeling it, warning of defaults, of it losing its AAA rating, that GE Capital is going to hit the wall.

Earlier in the week Jeffrey Immelt, the chief executive, released his annual letter to shareholders, pointing out that the company had $18 billion in profit last year. Investors shrugged.

Last year doesn't count.

“It has too much debt and not enough tangible common equity,” holds a bear, Charles Ortel. Tangible common equity — equity minus good will and other intangibles — is the once obscure, now critical barometer of a bank’s capital.

last night I saw a commercial for GMAC Bank. Bank? It's a finance company, yet it has become a bank. GE Capital appears to have similarly morphed into a bank.

“The last time G.E. cut its dividend was during the Great Depression,” Jerry Useem, who used to cover G.E. for Fortune magazine, pointed out. He was quiet for a minute. Then he added, “If G.E. is in trouble, God help us all.”

GM: 'Substantial doubt' about survival

Guess which way the market is going, based on this story: GM: 'Substantial doubt' about survival

CNNMoney.com - 4 hours ago

Automaker's annual report says it hopes to get $7.7 billion from the government to remain viable. By Chris Isidore and Ben Rooney, CNNMoney.

GM, auditor express doubts over survival MarketWatch

'Substantial doubt' for GM future BBC News

This way:

Ex-G.M. Workers Try to Reboot Their Lives

Robert Phelps, right, in a culinary class. He worked at Lear, an auto supplier, in Janesville for 13 years before being laid off.










JANESVILLE, Wis.— Kevin Corkhill grew up in a time and place where manufacturing was king. But ever since he was laid off from the gargantuan General Motors plant here, Mr. Corkhill seems bewildered by what the future holds.




He still has not decided whether to try to transfer to another G.M. plant, change occupations or return to school. Visiting the local United Automobile Workers hall recently, Mr. Corkhill stopped by a musty display case to show his 8-year-old son a black-and-white photograph inside — it was Mr. Corkhill’s grandfather carrying an artillery shell made at the plant during World War II.

“My grandfather worked here, and my father worked here,” he said. “The one thing my father told me is you work hard to make things better for the next generation, but now I worry we won’t be able to do that anymore.”

He turned his head to hide his tears from his son.

In this city, the loss of the 90-year-old G.M. plant and its 2,500 jobs has created a swirling mixture of anger, confusion, worry and hurt, underscoring how the recession is raising anxiety among workers nationwide. Combined with the shuttering of several nearby suppliers, the G.M. closing meant a loss of 4,000 jobs in this city of 64,000.

Their union contract has given these workers more relief than many.

With few local employers hiring, more than 1,000 of those laid off have returned to school, seeking to reboot their lives by studying welding, nursing, cooking and other fields, thanks, in part, to the contract’s tuition assistance.

The contract also provides a substantial financial cushion: 48 weeks of unemployment benefits at three-quarters pay, and health insurance. But when that runs out, it will be hard for them to find jobs paying close to the $28 an hour they averaged assembling Chevy Tahoes and Suburbans and GMC Yukons.

“We found that 76 percent of the laid-off people we’ve worked with made $20 or more an hour,” said Robert T. Borremans, executive director of the Southwest Wisconsin Workforce Development Board, which helps retrain and find jobs for laid-off workers. “There aren’t many $20-an-hour jobs in the area. If people need that much to maintain their lifestyle, they’ll need to look elsewhere.”

The hope is that things will be better a year from now. “What surprises me is how resilient and optimistic a lot of people have been,” said Mr. Borremans, whose agency nearly fills a shuttered Kmart. “They’re willing to work and rebuild.”

Many are moving on. Kimberly Pope, after 30 years at G.M., where she worked as an electrician, has applied to train as a radiology technician. Bill Truman, a laid-off truck driver for a G.M. supplier, is planning to study logistics and warehouse management. Diane Kudrna, one of 800 workers at the recently shuttered Lear factory here that made S.U.V. seats, has become a $12.50-an-hour veterinarian’s assistant.

And Robert Phelps, after 13 years at Lear, has plunged into a two-year culinary program at Blackhawk Technical College, eager to pursue his long-deferred dream of opening his own restaurant or catering service. Returning to school became financially possible, he said, only because his wife recently landed a job as a secretary for the school district.

“Things happen for a reason,” Mr. Phelps said. “I strongly feel there was some intervention here. The plant shutdown opened up a lot of doors for me.”

Blackhawk Tech’s enrollment has jumped by 1,800 over last year, a 23 percent increase.

“One-third to one-half of the people laid off will come our way,” said Eric Larson, the school’s president. “They’re looking for short-term education that will lead to high-wage jobs. My concern is, ‘Will the jobs be there once we get them retrained?’ ”

John Beckord’s job is to help make sure there are jobs. As the president of Forward Janesville, an economic development agency, he is optimistic, boasting that Janesville is centrally located between Milwaukee, Chicago and Minneapolis and has a hard-working, well-educated work force. Janesville just spent $72 million renovating its two high schools, and there are three state colleges within 10 miles.

“You have an eager local government that is willing to roll out the red carpet for companies, not the red tape,” Mr. Beckord said.

That may not be enough to attract business in a downturn. For that reason, many workers with 20 or more years at G.M. are trying to transfer to other G.M. plants and reach 30 years, which would entitle them to a full pension of $36,000 a year. Problem is, beleaguered G.M. is hiring few transfers.

Workers fear their generous safety net will prove inadequate if the recession is long and deep. What will happen to their families if they cannot find new jobs before their benefits run out?

Some pray that before their 48 weeks of unemployment benefits run out, G.M. will reopen the plant, enabling them to return to their jobs.

Others call that a pipe dream; Mr. Borremans termed it “reality avoidance.”

Mr. Corkhill, the grandson of the World War II veteran, had hoped to transfer to another plant, but has become pessimistic about his chances. To make ends meet, he has eliminated his telephone landline and cut back on premium cable television.

“I’m very angry about the whole economic picture,” he said.

The mood was far different last February when a candidate named Barack Obama campaigned at the plant, trumpeting a $150 billion jobs plan and saying that with some retooling and federal aid, “this plant will be here for another 100 years.”

But soon oil prices soared, the economy swooned and a 40 percent drop in S.U.V. sales sealed the plant’s fate.

Ms. Pope, the former G.M. electrician — proud that she sent her two children to Marquette University and the University of Wisconsin — worries now that “there won’t be opportunities for people like myself to make a middle-class income because the industrial base is so eroded. The jobs that pay $25, $30 an hour where you can afford to help your kids through college and not worry about money, those jobs are becoming more and more scarce. G.M. gave me a wonderful opportunity and my kids a wonderful opportunity, and I don’t see those opportunities around anymore.”

That is why Andy Richardson, president of the U.A.W. local here, and a 24-year G.M. man, hopes to transfer to another plant. He plans to move without his family — his wife has a good job at a credit union, his two daughters are star athletes, and he thinks selling their house would be impossible.

“I want to be able to come back on weekends or every other weekend,” he said. “I’ll miss my family.”

He hopes to transfer no more than five hours away, perhaps to Fort Wayne, Ind., or to Lansing, Mich. He, too, tried to hide his tears.

Maine Senators Break With Republican Party on Stimulus

Senator Susan Collins of Maine was one of three Republican senators who voted for the economic stimulus bill. "People don't want us to be the party that just says no," Ms. Collins said.




Senator Olympia J. Snowe, Republican of Maine.

Arlen Specter, who also broke rank to back the measure.

Senators Susan Collins and Olympia J. Snowe are not close friends, but they have plenty in common. They both represent Maine. They share a centrist ideology. They are proper and genteel. And they can drive their Republican colleagues to distraction.

I believe only Maine and California have two female Senators.

On one of the biggest bills ever to confront lawmakers, the two senators, surviving members of the vanishing breed of New England Republicans, are wielding outsize power. Along with Senator Arlen Specter of Pennsylvania, the third Republican who broke from the pack and provided a crucial vote for initial passage on Tuesday, the two Mainers find themselves holding virtual veto control over the legislation as it enters crucial negotiations between the House and Senate.

Specter I do not like. All politicians are opportunists, by nature, but he is really opportunist. And he can be nasty.

“I like them both, but I wouldn’t want them to buy me a car,” said Senator Lindsey Graham of South Carolina, who noted the compromise engineered by Ms. Collins had produced an $838 billion Senate version of the $819 billion House bill.

Graham is a weasel.

It also reflects the political reality that the nature of a Republican from Maine, a state where President Obama received almost 58 percent of the vote, is much different from that of the conservative Southern and Western lawmakers who constitute much of the rest of the Senate Republican side.

As Maine goes ...

“I think it is safe to say that Republicans in the Northeast are not exactly the same as Republicans in the Deep South,” said Senator Mitch McConnell of Kentucky, the Republican leader.

McConnell makes Graham seem likable.

Senator John McCain, the Arizona Republican who has worked closely with Ms. Collins over the years, did not mention any names, but he was clearly dismayed at the talks and what they produced.

And McCain makes McConnell ... no, never mind. He's right there.

“This is not a bipartisan agreement,” Mr. McCain said Monday on the Senate floor. “This is three members of the Senate — none on the House side — who have joined Democrats for a partisan agreement. It is unfortunate because we are now committing an act of generational theft.”

Generational theft? What did Ronald Reagan do? And what did the 2000-2008 Republicans do? Gimme a break.

Senators Susan Collins, Harry Reid, Arlen Specter, Olympia J. Snowe and Joseph I. Lieberman left a meeting on Wednesday after an agreement was reached on the economic stimulus bill.

That was in the morning. In the afternoon

Taking on Critics, Obama Puts Aside Talk of Unity

President Obama has made a show of reaching across the aisle since taking office, inviting three Republicans into his cabinet and wining and dining other opposition leaders. But by Monday, he sounded like a candidate back on the trail, railing against the status quo and dismissing critics as apostles of a failed philosophy.

I was glad to see some steel in him, using his campaign style to get his point across: we elected him to run the country, not the Republicans. We want action, not obstruction.

“It’s a little hard for me to take criticism from folks about this recovery package after they presided over a doubling of the national debt,” he said at the news conference. “I’m not sure they have a lot of credibility when it comes to fiscal responsibility.”

Precisely.

Interactive Feature Analyzing Obama’s Press Briefing

One-party rule

So much for the much-feared One-party rule that McCain and Palin fomented fear about (well, tried to foment).

Senate Allies Fault Obama on Stimulus Democrats are criticizing Obama's plan to include tax cuts in his stimulus package.

President-elect Barack Obama’s economic recovery plan ran into crossfire from his own party in Congress on Thursday, suggesting that quick passage of spending programs and tax cuts could require more time and negotiation than Democrats once hoped.

Again, he is still not even President, yet, and already his own party is criticizing him. This after the lame show that Harry Reid put on about seating Roland Burris, first declaring there was no way he'd get seated, no way anyone nominated by Blagojevic, then saying that Burris was a nice way and might just get seated, if he met all required conditions, undermined by Senator Feinstein declaring Burris okay with her (she who concurrently complained of not being consulted about Leon Paneta being nominated to head CIA).

Democrats always manage to find a way to muck things up when they are in power.

Senate Democrats complained that major components of his plan were not bold enough and urged more focus on creating jobs and rebuilding the nation’s energy infrastructure rather than cutting taxes.

Imagine Senate Democrats complaining of someone not being bold enough; staggers the imagination.

Obama Warns of ‘Trillion-Dollar Deficits’

Bill Gross of Pimco wrote of trillion dollar deficits back in July.

Doug Mills/The New York Times

The Caucus

Obama Warns of ‘Trillion-Dollar Deficits’

By JEFF ZELENY 3:04 PM ET

Meeting with his economic team in Washington on Tuesday, Barack Obama warned that the country faced the prospect of “trillion-dollar deficits for years to come.”

Mexican Shop up North for Bargains

Agustin Acuna loaded Mexicans’ bags for the return trip from Tucson.

Mexican shoppers with fists full of cash and long Christmas lists are pouring across the border into hotels, restaurants and shopping malls here, providing an economic boost in a downward spiraling economy.

The families, mostly middle- and upper-income, are traveling hundreds of miles to take advantage of a much wider selection of products at substantially lower prices than can be found in their hometowns in the Mexican states of Sonora and Sinaloa — even after the recent 30 percent devaluation of the Mexican peso against the dollar.

For many, it is a long journey by car that includes multiple searches at Mexican police roadblocks, followed by a huge traffic jam at the border crossing in Nogales, where delays of two hours or longer to enter the United States are common. But even with the exasperation, Mexican shoppers said it was still worth making the trip.

“We can find everything we want and it’s much cheaper,” said Aurelia Peralta, a 38-year-old homemaker from Hermosillo, a city of 700,000 about 200 miles south of Tucson. Pointing to the Guitar Hero World Tour display model her teenage son was playing, she said popular Christmas gifts cost twice as much in Hermosillo.

I know that Mexicans travel back by airplane laden with consumer goods; I've seen them on our trips to Mexico. But this is news to me.

Making Mexican shoppers feel welcome is an increasingly high priority for businesses in Tucson.

The numbers are staggering. Mexican visitors spend more than $300 million a year in the Tucson metropolitan area, according to a study in 2002 by the Economic and Business Research Program at the University of Arizona.

But it is more than that.

Tucson attracts more than 3.46 million visitors from Mexico each year and the city’s convention and visitors bureau is aggressively marketing the city across the border in the neighboring Mexican state of Sonora. J. Felipe Garcia, vice president of community affairs and Mexico marketing for the Metropolitan Tucson Convention and Visitors Bureau, said a steady number of Mexican visitors are continuing to shop in the United States despite the economic troubles that are also gripping Mexico, where retail sales are falling along with the value of the peso.

Curious that the dude who works for the Tucson Bureau is named Felipe Garcia. Telling.

The survey, which will be updated next month, found that Mexican tourists spent close to $1 billion in Arizona, far more than the $330 million spent by Arizonans in Mexico. The co-author of the 2002 report, Vera Pavlakovich-Kochi, said the report to be released in January by the Arizona Office of Tourism is one of four studies conducted over the last 30 years that have found that Mexican visitors have “very significant economic importance to Arizona.”

Quite a trade imbalance for Mexico: $330 million in, $1 billion out. And quite a name: Pavlakovich-Kochi.

Fernando Escalante, 39, is one of those Mexican shoppers who shrugged off bad economic news and brought his family to Tucson to shop. Mr. Escalante, the owner of a heating and air-conditioning business in Hermosillo, said he is spending less money this year but getting more merchandise because prices are much lower. Mr. Escalante said Mexicans are in a better position to weather economic turmoil because many own their homes outright and do not carry large amounts of credit card debt. “If we have it, we own it and we have already paid for it,” he said.

Interesting sociology: Mexicans are used to instability, and use credit far less than USers.

How bad? This bad

This is panic defined.

Headline: Treasury Bills Trade at Negative Rates as Haven Demand Surges.

Story starts: Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression. The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

People are actually willing to buy Treasury securities at a loss in order to protect their money. Time to buy the market; this is wholesale panic.

If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.

Investors are willing to pay the US 25 bucks to take their money. 10 year bonds are yielding around 2.67% -- and 340 year bonds are yielding 3.06%; meaning 20 years gets an investor a third of a percentage point. That is skewed. What a time to arbitrage.

Bad economic times continue

While away on vacation last week, I stayed current on the news. Higher unemployment numbers, car companies pleading for federal funds to continue in business, Bush out on a lame duck, er, on a limb -- nah: lame duck fits him better, Obama in transition to the Presidency, the Mumbai attacks.

This item caught my attention yesterday: workers laid off by an Illinois company, Republic Windows and Doors, are occupying the plant until they get paid; the company can't pay them because its line of credit was cut off by its bank, Bank of America.

Finally workers grumbling, resisting a little, and not just complaining that jobs are disappearing and our standard of living continues to deteriorate while billions of dollars are thrown at financial companies to stave off disaster. And B of A sure made a stupid business decision. Its reputation is going to take a hit, I hope.

The United Electrical, Radio and Machine Workers, which represents 260 workers at the factory, is protesting the closing, saying workers were not given the 60 days' notice of a mass layoff as required by federal law, and has been told workers will not receive their vacation pay. The union is directing its ire at Bank of America, not Republic.

So the workers have occupied a plant, and are not leaving until they get their monies. Now politicians are jumping on the populist bandwagon.

Illinois will no longer do business with Bank of America until the bank restores credit to the shuttered factory here where workers are continuing their sit-in, Gov. Rod R. Blagojevich announced Monday.

Scott Olson/Getty Images

Representative Richard J. Durbin talked to reporters after visiting workers occupying the Republic Windows and Doors factory in Chicago on Monday.

Durbin is actually a Senator.

The workers, who were laid off last Friday, continued their sit-in for the fourth day Monday, as they awaited the meeting, which was to be held downtown. The meeting was the first sign of progress in the peaceful, yet dramatic labor situation that has captured the attention of a nation reeling from the recession and the loss of more than 600,000 manufacturing jobs.

In November the economy lost over half a million jobs. Paulson and Bush look inept. Pundits and media types are clammoring for Obama to take charge, and he isn't even president.

Bankruptcy vs. Bailout

Buffett is buying

The Oracle of Omaha has turned into a buyer.

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

A long-term outlook. I own P&G, Goldman Sachs, and GE, 3 companies he has a stake in: I bought P&G four years ago, Goldman Sachs a year and a half ago, and GE just recently. All three are solid companies with a strong franchise, a good name, and a track record of success. I intend to keep them long-term.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

I'm in.