Carpe Diem

History of U.S. Bank Failures

The chart above shows annual bank failures from 1934-2007 using data from the FDIC. Several facts:

1. There have only been two years since 1934 when NO U.S. banks failed: 2005 and 2006.

2. Only 3 U.S. banks failed in 2007.

3. Besides the 2005-2007 period, there has never been another three-year period since 1934 when only 3 U.S. banks failed.

4. Even at the peak of the S&L banking crisis when more than 1,000 banks failed in 1988 and 1989, at a rate of more than 2 every business day for two consecutive years, the economy survived without going into a recession.

Bottom Line: The U.S. banking system is probably stronger and more stable today than at any time in U.S. history. A subprime crisis by itself will probably not be enough to pull the U.S. economy into a recession in 2008.

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Toyota Has 3 of the Top 10 American-Made Cars



What Are the Top American-Made Cars?

Cars.com’s 2007 American-Made Index rates vehicles built and bought in the U.S. (see the top 10 in the chart above, click to enlarge). Factors include sales, where the car’s parts are made and whether the car is assembled in the U.S. Models with a domestic-parts content rating below 75% are disqualified.

Note that Toyota has 3 out of the top 10 vehicle models, and the Camry ranks higher than the Chevy Silverado, which is one of the vehicles assembled at the Flint Truck Plant. The sign above is right across the street from the Flint Truck plant, in the parking lot of the UAW Local #659.

Just wondering, would it be OK to park a Toyota Camry with a higher domestic content than even the Silverado, in the parking lot, or would that still be considered a foreign-made auto?

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What a Country: The Number of Millionaire Households Has Almost Doubled In 5 Years

According to Phoenix Marketing International, the number of millionaire households in the U.S. has almost doubled over the last four years, from 3.3 million in 2003 to almost 6 million millionaire households in 2007 (see chart above, click to enlarge). Over the same period, the percentage of U.S. millionaire households has increased from 3.4% in 2003 to 5.25% in 2007. In other words, 1 out of every 19 American households are now millionaire households, compared to only 1 out of every 30 households in 2003. What a country!

Note: The Phoenix study defines a “millionaire household” as one having at least $1 million in liquid or investable assets, and these figures are not adjusted for inflation.

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N.J. Has Highest % of Millionaires, Michigan Is #14

The Phoenix Affluent Marketing Service announced today that New Jersey has become the state with the largest percent of millionaires to total households. Ranked second past two years, New Jersey vaulted past Hawaii, which fell to fourth in the 2007 rankings.

Phoenix’s annual market sizing analysis and aggregate wealth rankings shows that New Jersey’s ratio of millionaires to total households rose to 7.12%, up from 6.5% in 2006. Maryland is now in second place at 7.08%, up from 6.2% in 2006. Connecticut is third, with a ratio of 7.0%, up from 6.2% a year ago. Hawaii’s ratio of 6.7% was unchanged from a year ago. Phoenix defines a millionaire household as one with $1 million or more in investable or liquid assets.

To see the full list,
click here.

Comment: Isn’t it interesting that Michigan ranks #14 for millionaires (see chart above), ahead of New York, Florida, and Washington, D.C. In spite of an economic slowdown, a serious loss of manufacturing jobs, the nation’s highest unemployment rate (7.4%), there is still a lot of wealth in the state of Michigan, probably a legacy from the decades and generations of automotive-related wealth created here. Michigan also moved up four places from last year, when it ranked #18.

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Only 1 Tiny Bank Failed During Fall Subprime Crisis

The chart above is from the FDIC’s website. Notice that despite the “subprime crisis,” there was only 1 bank failure in the fourth quarter of 2007, out of almost 9,000 FDIC-insured institutions. It’s true that subprime troubles have fallen much harder on other sectors of the financial sector, but it’s also good to know that the commercial banking sector is healthy, and survived a year of credit trouble with almost no bank failures.

The only bank to fail in the fall of 2007 was the tiny Miami Valley Bank in Lakeview, Ohio, with just $87 million in assets, or 5% of the size of the average bank, which has $1.5 billion in assets. For the entire year, only 3 banks failed in 2007; and not a single bank failed in either 2005 or 2006, as I have previously documented.

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Boston Mayor: Making $ Off Of Sick People Is Sick

BOSTON GLOBEBoston Mayor Thomas M. Menino today blasted a state decision that paves the way for CVS Corp. and other retailers to open medical clinics inside their stores (see previous CD post here).

In a statement, the mayor said the decision yesterday by the state Public Health Council “jeopardizes patient safety. Limited service medical clinics run by merchants in for-profits corporations will seriously compromise quality of care and hygiene. Allowing retailers to make money off of sick people is wrong.

Hey, wait a minute Mr. Mayor. Doesn’t CVS also sell aspirin, Nyquil, Ibuprofen, Alka-Seltzer, Benadryl, Sudafed, plus hundreds of prescription products at its pharmacies? Isn’t that making money off of sick people? Aren’t MDs and nurses making money off of sick people? And aren’t‘ grocery stores making money off of hungry people? Isn’t selling water making money off of thirsty people?

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DJIA Above 15,000 By Year End?

Interesting chart above (click to enlarge) showing the performance of the U.S. stock market in election years (green line) vs. non-election years (blue line) from 1900-present, showing about a 10% average annual stock market return in non-election years, vs. about a 14% annual return in election years. In that case, we can expect the DJIA to reach 15,000 by the end of 2008, and an S&P500 close to 1700 by year end, assuming this is a typical year for the stock market during an election year.

(HT: Fancy Plaid Pants)

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More Retail Clinics: Health Care When You Want It

BOSTON GLOBE: After state regulators cleared the way yesterday for store-based medical clinics, CVS Corp. said it plans to open more than two dozen inside Massachusetts drugstores this year, dispensing treatment for bronchitis and earaches a few aisles away from shelves of candy and nail polish.

The vote by the Public Health Council marked a signal and controversial shift in the healthcare landscape: The CVS MinuteClinics will be for-profit operations staffed by nurse practitioners only, in a state where medical treatment historically has been the province of not-for-profit hospitals and physicians working in mostly large group practices. Other pharmacy chains and retail stores, as well as hospitals and community health centers, could also open limited service clinics.

No appointments are necessary, visits typically last 15 minutes, and clinics will be open nights and weekends. Treatment for common illnesses typically costs $59 or $69 at MinuteClinics in Connecticut. In Massachusetts, insurance companies are expected to cover the visits as they do in other states.
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Steven Landsburg: The Case for a National Sales Tax

University of Rochester economist Steven E. Landsburg (author of Armchair Economics) comes out in support of Huckabee’s national sales tax in his most recent Slate.com column titled “Huckabee’s Tax Plan Is Brilliant: So why is it getting trashed?”:

A national sales tax is the exact equivalent of an income tax with a provision for unlimited IRA contributions (and no withdrawal penalties). The merits and demerits of the Huckabee tax plan are identical to the merits and demerits of a vastly liberalized IRA policy.

A lot of economists, myself included, think that there’s a lot to be said for unlimited IRAs. Any conceivable tax system discourages work, which is unfortunate but unavoidable. But the current system also discourages saving, which is avoidable. A liberalized IRA policy—or, equivalently, a sales tax—eliminates that problem.

Bottom line: Unlimited IRAs, coupled with somewhat higher tax rates, have advantages and disadvantages, but the advantages are bigger. And whatever can be said about unlimited IRAs coupled with somewhat higher tax rates can equally be said of a national sales tax.

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Globalization Makes US Economy Recession-Proof?

The chart above (click to enlarge) shows annual world real GDP growth from 1980 to 2008 (IMF estimates growth of 4.8% for 2008), using data from the IMF, along with shaded areas of years during which the U.S. economy was in a recession. During the last four U.S. recessions (1980, 1982, 1990-91, and 2002), world GDP growth fell below 3%, and averaged only 2.1%.

Assuming that world GDP grows at the IMF’s forecast of 4.8%, it would either be: a) inconceivable that the U.S. economy could go into a recession with such strong growth in the rest of the world, or at least b) unprecedented that we could suffer a recession while the world economy continues to grow at almost 5%.

I think it is worth considering that in previous U.S. recessions like in 1980, 1982 and 1990-91, there was no, little, or at least much less support from the global economy and emerging markets like there is today. For example, during those recessions, there was no support for the U.S. economy from countries like India, Brazil and China like there is today. And even compared to 2001, the world economy today is much stronger, more integrated, growing much faster; and the strong growth in the emerging markets is providing much more support for the U.S. economy than ever before.

Perhaps the dynamics of the U.S. business cycle are different now because of globalization, increased integration of world markets, and the unprecedented growth of emerging markets like the BRIC countries. Is it possible that globalization has made the U.S. economy recession-proof? At the very least, it’s something to think about, and I don’t think it has received much attention.