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"This Is a Very Dangerous Time": Ian Bremmer on the Death of Kim Jong Il
By Aaron Task | Daily Ticker – 1 hour 10 minutes ago
The death of North Korean dictator Kim Jong Il adds a new, unexpected challenge to the global economy as 2011 comes to a close.
"This is a very dangerous time," says Ian Bremmer, president of Eurasia Group.
By his own admission, "no one knows" how the transition from Kim Jong Il will play out, Bremmer says. The key issue now is whether Kim Jong Il's designated successor, his youngest son Kim Jong Eun, will be able to consolidate power.
What is known is North Korea is an incredibly poor, incredibly isolated nuclear power led be a totalitarian regime with a sudden power vacuum at the top. "All of the things we've been most concerned about...suddenly those are real and they're much more imminent," Bremmer says.
Those fears, what Bremmer calls "tail-end events," include military attacks against South Korea, or the implosion of the North Korean regime, leading to a refugee crisis on China's southern border. In either scenario, there's a good chance both U.S. and Chinese troops will be active on the Korean peninsula, putting pressure on already strained relations between the two superpowers.
An outright shooting war between the U.S. and China is "very unlikely," Bremmer says, "but the potential for U.S.-Chinese relations to deteriorate significantly in the [event] of a bad North Korean outcome is very great."
And while Kim Jong Il's death does raise the possibility of a better outcome -- of a new regime seeking to reform North Korean society or even reunification with the South -- that hopeful scenario is months away at best, he says.
"Anyone that's taking over, the first order of business - you walk into a room and shoot the first person you see and then the first person that moves," Bremmer predicts. "There are going to be purges in North Korea because you need to establish that iron fist before you can start opening it a little bit."
Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com
http://finance.yahoo.com/blogs/daily-ticker/very-dangerous-time-ian-bremmer-death-kim-jong-161037785.html;_ylt=Avu5TM05dfc3qQsMGxPh2O6iuYdG;_ylu=X3oDMTQzdnJtaGxpBG1pdANGaW5hbmNlIEZQIEp1bWJvdHJvbiBMaXRlBHBrZwM0NTI1MzE4MC1iMjE1LTNhYzUtODM2Yi02ZGU4ZDAwMGJiZjYEcG9zAzEEc2VjA2p1bWJvdHJvbgR2ZXIDMDA1Y2I4ZTAtMmE1Yy0xMWUxLTlmZTktMDU5N2VhNzlkOGY5;_ylg=X3oDMTFvdnRqYzJoBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25zBHRlc3QD;_ylv=3
North Korean Leader Kim Jong Il, 69, Has Died
PYONGYANG, North Korea December 19, 2011 (AP)
Kim Jong Il, North Korea's mercurial and enigmatic longtime leader, has died of heart failure. He was 69.
In a "special broadcast" Monday from the North Korean capital, state media said Kim died of a heart ailment on a train due to a "great mental and physical strain" on Dec. 17 during a "high intensity field inspection." It said an autopsy was done on Dec. 18 and "fully confirmed" the diagnosis.
Kim is believed to have suffered a stroke in 2008, but he had appeared relatively vigorous in photos and video from recent trips to China and Russia and in numerous trips around the country carefully documented by state media. The communist country's "Dear Leader" — reputed to have had a taste for cigars, cognac and gourmet cuisine — was believed to have had diabetes and heart disease.
http://abcnews.go.com/International/wireStory/north-korea-leader-kim-jong-il-died-15185456#.Tu6qhlaOsbA
Should We Expect Deflation, Inflation Or Hyperinflation Over The Next Decade?
by: Thomas Lott December 16, 2011
This morning, Consumer Price Index (CPI) figures indicated that monthly prices were exactly flat in November compared with the month before. On an annual basis, CPI came in at 3.4%, a slight slowdown compared with last month. At its peak earlier this year, annual inflation got as high as 3.8%, but with economies slowing, oil falling and retail discounting, it seems that price increases are tamer.
But looking long term as an investor, having a view on inflation over the next decade is critical to successful investing. One camp is arguing that we will have very high inflation. Gold and silver price performance over the past few years clearly indicates this. With central banks simply printing fiat currencies in huge quantities, this can only lead to substantial inflation in the coming years, the argument goes. Perhaps even hyperinflation.
On the other hand, the bond market implies that inflation will be around 1.9% per year over the next decade. That is, the difference between 10-year Treasuries today and TIPs (1.95% - 0.05%) is a mere 1.9%. That is a pretty low inflation expectation and far lower than where we are today.
Without doubt, as overleveraged G-7 countries pay down debt, growth overall will slow. Government austerity measures imply more taxes, less spending and fewer jobs. This is disinflationary at the least, and can potentially lead to deflation. The deflationists argue that this overhang will persist for years as the world pays down debt, and the smart trade is to own Treasury bonds.
So, which will it be? Inflation, deflation, or is there a chance of hyperinflation?
Structural Problems in the US
Before I get to the inflation question, let me get a couple basic assumptions out of the way. First, it's highly unlikely that politicians in the United States will ever balance our budget. Maybe I am a cynic. But as I see it, a fundamental flaw we have as a country, structurally speaking, is that there is a duration mismatch between the life of a politician, and fiscal responsibility.
Since there is no balanced budget requirement under our Constitution, politicians are in fact almost encouraged to spend as much today as possible today in order to get re-elected tomorrow. Leaders that attempt to rein in spending, and act fiscally responsible, are the ones who get voted out of office. What politician would vote to cut spending and/or raise taxes to balance the budget? Being fiscally responsible is enormously unpopular. It reduces GDP growth, puts voters out of work, hurts job prospects and in the case of raising taxes, takes more money out of voters' paychecks.
GDP Properly Viewed
That brings me to GDP and how it is perceived. Without doubt, almost every person, economist or otherwise, would agree that GDP growth is the most important economic goal for a country. Yes? Well, to some extent it shouldn't be. What our leaders and central bankers don't understand, is that a country doesn't grow wealthy simply by expanding GDP. Just like you don't become wealthy because you spend more on your credit card. At the end of the day, GDP is no different than spending. In fact, GDP, by definition IS spending.
Remember this formula from Econ 101?
GDP = C + I + G + X
C = consumer spending, I = investment spending, G = government spending, and X = net exports. Net societal wealth is not driven by spending, but rather wealth is driven by saving. You get rich by building net worth, not by borrowing as much as possible to buy a giant house. Many people learned that the hard way during the US housing bubble.
Along those lines, our political leadership has been driven to increase GDP, even at the cost of borrowing billions, nay trillions of dollars now, in the pursuit of growth for growth's sake. The flaw is, when spending exceeds income, as it has in the US now for decades, eventually you go broke. Interest expense eats away at what could otherwise be money well invested in education, infrastructure, you name it. And as our government has borrowed more and more year in and year out, we as a country are now broke.
US Debt
Total government debt now exceeds $14 Trillion. The debt ceiling debacle last August resulted in a very weak plan to cut $2.5 Trillion from our deficits over 10 years. That is not nearly enough. That implies only cutting $250BB per year on average, but deficits are $1.5TT per year. Even assuming GDP grows at an annual rate of 2.5%, the US government needs to borrow another $10TT to fund the next decade's worth of deficits.
So, $14TT plus another $10TT in debt totals $24TT by the year 2021. If you include Social Security and Medicare, then the present value of these obligations becomes unfathomably large. I have seen estimates as low at $50TT, to as high as $200TT for our entitlements. In any case, you cannot ever repay even the low end of that, call it $64 Trillion ($50TT plus $14TTof total debt today) on a $15TT economy. Our fully loaded Debt/GDP of 357% dwarfs even Greece's awful Debt/GDP ratio of 160%.
In my opinion, the only likely solution our government has is to increase inflation. While European countries attempt to de-lever, US officials (and amazingly bond investors) seemingly are far less concerned about it. Call Treasury bonds the best house in a bad neighborhood. Politicians lack the will or mandate to enact tough budget-fixing measures, clearly evidenced by the recent failure of the deficit reduction "super committee."
Our flawed two-party system is also to blame. Republicans are dead set against tax increases, and Democrats are determined to spend as much as possible. One side refuses to increase the topline (revenue) and the other side refuses to cut spending (costs). That is a problem, regardless of your political persuasions.
The politically expedient solution will be to raise taxes in a stealth manner. That is via inflation, the "most pernicious" of taxes.
A Very Rough Balance Sheet of the US Government
Below, I offer a rough view of our government's balance sheet. I admit that this is simplistic, but wanted some framework to see how much inflation we needed to build back the United States' balance sheet.
Breaking it down, our government has:
Assets = $30TT. That is, the assets of our government are represented by the taxing authority on a $15TT economy. There aren't any meaningfully valuable nationalized companies or industries in the US, the government simply collects what others produce. There might be $1TT of land held by the US government, but it's still a drop in the bucket. Would we really sell our National Park System?
To get to $30TT, I assumed a 12x multiple, or 12 X 2.5TT in annual revenue. I also considered the fact that governments typically get into trouble at around 150% Debt/GDP. Which tells me that the market views 1.5x to 2.0x GDP as about the max level of debt you can put on an economy before it spirals into insolvency. I.e., here I used the high end at 2.0x GDP.
Liabilities = $55TT, that is assuming we can cut entitlements (Social Security and Medicare) by 20%. I believe a crisis will force some cuts here. I used the low end forecast for entitlement obligations of $50TT, cut them to $40TT, and added our current debt of $14TT. This could be way too optimistic, entitlements are often considered politically "untouchable."
Equity = Negative $25TT.
This is one conservative measure to calculate what the government in the United States needs in funding just to get to breakeven. We are in a very deep hole, perhaps too deep to ever climb out of. $25TT is a lot considering that the entire world's GDP is around $60TT.
Inflation
Note that this balance sheet didn't forecast the $10TT in additional debt that the government will likely take on over the next decade. The point of this is to show that as of this minute, if we raised $25TT, then we could fund Social Security and Medicare, and with a near balanced budget, have a decent balance sheet going forward.
What our central bankers have to do, since raising taxes and cutting spending seem pretty darn unlikely, is to attempt inflate our way out of this mess. Since liabilities are mostly fixed, our government's easiest escape route is to grow its assets by creating inflation. This example, while clearly a gross approximation, shows that we need to create $25BB in additional assets to at least get a grip on this country's fiscal problems.
With a $15TT economy, that means that prices would need to increase by 80% over some reasonable time span to close the gap in spending. (Unless the government decided to default on entitlement programs and/or its bonds. But that is a most improbable scenario.). The specific math is $15TT X 17% (which is total government revenue) X 1.80 (price increase needed) X a 12x multiple to get to an asset figure that is $55TT, or $25TT higher than our existing asset base of $30TT.
Over 10 years, that means to fix our balance sheet, we need to create annual inflation of 6% a year, every year for 10 years. That would create a gross change in prices of 80% compounded over that time span.
For the record, I did ignore CPI adjustments and TIPs and other cost of living adjustments to the liability side of the balance sheet, but kind of figured that productivity and natural GDP/population growth would likely be enough to offset this. I also wanted to keep this analysis relatively simple and provide a framework for discussion. Feedback is welcome.
History of Inflation and Adjustments
In the 1970, inflation doubled prices just from 1973 to 1980. That was 7% annual inflation. To me, this 6% inflation scenario makes a lot of sense. It's not too high to cause political backlash, and in any event, the BLS will report lower CPI levels. Hedonic pricing, basket weighting and owner's equivalent rent are just a few of the tools that the BLS uses to understate real inflation. While true inflation will run at 6%, CPI will be reported at 3-4%, but excluding food and energy it will appear to be in check at say 2-3%.
Case in point: this year through November, CPI was up 3.4% vs a year ago. However, excluding food & energy, CPI was reportedly only up 2.2%. I still don't quite understand why bond investors ignore food and energy prices. Just because they are volatile, doesn't mean that people don't use them. In fact, a Consumer Reports survey earlier in 2011 found that 10 of the most commonly bought grocery store items were up an average of 12.2% year over year.
Healthcare costs are only 7% of the weighting of the index, despite the fact that healthcare expenditures are 18% of GDP, and are some of the highest inflation rate goods in the CPI basket. So, with healthcare costs skyrocketing every year, and food prices up too, I think CPI is understating true inflation by a good 1-2% perhaps.
On a side note, GDP is adjusted by a GDP deflator, which is 2.1% this year. Why is it 2.1% when CPI is 3.4% and true inflation higher? Over-reporting GDP is one means to keep our Debt/GDP ratios seemingly more attractive. Another topic altogether, but I think quite alarming.
Deflation?
The argument for deflation is that since every consumer and every government in the world is overleveraged, they are cutting spending, not borrowing money and raising taxes. The resulting diminished demand for goods, in conjunction with an oversupply of labor and capacity, can only lead to falling prices overall.
In the US, the Fed's QE programs have bolstered bank balance sheets, but banks haven't used this capital to lend to either individuals or corporations. In fact, with housing in the dumps, and corporations concerned about the economic outlook, lending will remain weak for awhile. In Europe, fiscal austerity measures will crimp spending for years perhaps, reducing GDP in the PIIGS countries, and slowing demand for goods. Inflation is rare when there is such slack in the system.
This can only lead to weakness in the economy for awhile. But even in 2008 with a near financial collapse, prices only fell 3.2% in the US. Since then, inflation has crept up a little every year: 2% in 2009, 2.4% in 2010, and 3.4% this year to date.
Given this, I generally don't buy a long term deflationary scenario. We may get another year whereby the Euro unravels and economies contract along with pricing. But I don't see it being very likely except for a one year event ala 2008. To me, the threat of deflation is the classic central bankers excuse to print more fiat currency to paper over deficits. Instead of deflation, I think the right outlook is that inflation will remain low. Perhaps for one to three years. Then it will take off.
By that time, bank balance sheets will have been repaired in the US and in Europe, money will flow much more freely (ie money velocity will pick up), lending will pick up, and I think a 6% inflationary expectation is as good as any.
Conclusion
From an investment perspective, owning long duration fixed rate bonds seems like a bad idea. Short duration bonds look far more appealing. In fact, ten year treasuries look like a short at 1.9%. Long term, the Fed HAS to create a lot of inflation to keep our government afloat. Do you wonder why oil prices are still near $100 a barrel, when the economy is barely growing even this year?
In the short term, equities and even gold feel dangerous, especially as Europe approaches a potential run on the bank so to speak. But longer term, equities, commodities and precious metals are the best place to be in an inflationary environment. With the printing presses of every major economy ready to print significant quantities of fiat dollars, yen, and pounds, taxation via inflation seems to be the G-7 country's path to fiscal responsibility.
Even the ECB won't allow a sovereign or major bank collapse, despite the seeming unwillingness to monetize debt today. But it will eventually come around to printing euros too. When it does, look to buy beaten up European stocks, and look for inflation to pop.
Disclosure: I am long GLD.
http://seekingalpha.com/article/314404-should-we-expect-deflation-inflation-or-hyperinflation-over-the-next-decade?source=email_macro_view&ifp=0
Honestly Dick I'm not 100% sure what it means.
Might not be clear until after a couple of legal challenges.
To me it seems like if you are classified as hostile to the USG your butt is theirs...
Is The Eurozone Banking System About To Collapse?
by: Cam Hui December 11, 2011
The Telegraph sounded alarm bells late Friday that the Eurozone banking system [is] on the edge of collapse. Specifically, the problem is related to a lack of acceptable collateral, or "collateral crunch", for overnight and other short-term bank funding [emphasis added]:
Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region's struggling banks, however City figures said a "collateral crunch" was looming.
"If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
The eurozone banking system is paralyzed by counterparty fears risk, where banks would rather park their excess funds with the ECB instead of lending to each other:
Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank. At the same time, banks in major eurozone countries such as France and Italy have become increasingly reliant on central bank funding. This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded "zombie" banks.
The Bundesbank is running out of money
Izabella Kaminska at FT Alphaville has was on this story early and she has covered it well. She wrote that the problem is becoming so acute that even the Bundesbank is running out of money. She explains that the ECB isn't a single central bank, but a collection of central banks [emphasis added]:
While policy is decided centrally, actual enforcement and implementation of that policy is conducted on a national central bank (NCB) level.
That means every NCB is in charge of providing liquidity to its own particular market. The Irish NCB's routine distribution of emergency liquidity assistance (ELAs) on a near enough unilateral basis (there's only the need to notify central command in Frankfurt) is a good example of how the system works.
All payment surpluses and deficits created as a result of these unilateral NCB processes are then balanced out via the so-called Target2 system (Trans-European Automated Real-time Gross settlement Express Transfer system).
Generally speaking, the system ensures that all NCBs carrying surpluses channel them over to NCBs carrying deficits.
The problem is that since the crisis unfolded, the number of NCBs handling deficits has started to outnumber the number of NCBs holding surpluses. One particular NCB — the Bundesbank — has become the key provider of funds to the whole eurosystem.
She pointed to a blog post at VoxEU which summarized Bundesbank's problem [emphasis added]:
In order to fund these loans, the Bundesbank sold its holdings of German assets. Asshown in Figure 1, between December 2007 and September 2011 the central banks of the GIIPS increased their loans to domestic financial institutions by nearly €300 billion. In contrast, the stock of gross German assets in the Bundesbank balance sheet fell sharply to its lowest level in history.
The ominous sign – which might set the stage for Act Two in the unfolding Eurozone drama – is the fact that the Bundesbank will soon exhaust the stock of securities that it can sell to fund further loans to the Eurosystem. At that point, the Bundesbank could sell its gold or increase the deposits it takes from the private sector. Most likely, however, the Bundesbank will face strong pressure from the German public against such action.
The Bundesbank having to sell its gold to fund banking liquidity??? That will make Merkel sit up and take notice.
An acute collateral crunch
Kaminska explained the collateral crunch problem in ECB as Pawnbroker of Last Resort:
While soaring Libor rates were a key indicator of market stress during the credit crunch, the best indicator of collateral crunch intensity is instead the repo rate. The lower the rate, the greater the crunch.
The wider the spread between Libor and the secured (repo) rate, the greater the general distress in the market. The following chart reveals just how good an indicator of general market stress it is:
Also see What the repo markets *want* the ECB to do, specifically the ECB's policy of requiring different levels of haircut for different kinds of collateral:
[W]hile the ECB's haircut policy might have been seen as prudent at the time, in a single monetary union — where markets are already reflecting preferences for certain types of Eurozone debt — having the ECB treat government collateral differently only intensifes the phenomenon.
The ECB should, by all definitions, treat all government debt the same.
While some of the technical steps the ECB took last week took some pressure of the money markets, they weren't enough. See Nomura on Draghi's failure to address the collateral problem. Kaminska wrote that bank funding has a greater effect on the perception of the European sovereign solvency [emphasis added]:
[T]here are many reasons to think that the trend towards `quality' collateralised funding is having as much of an impact on the valuation of bonds in both private and central bank funding markets, as the perception that European sovereigns might be insolvent.
This has the makings of a Lehman moment for the European banking system. Here are some of the signs of a imminent bank collapse. First, I would continue to watch for signs of stress in the money market, such as the LIBOR vs. the secured (repo) spread. For investors without access to Bloomberg and other services with money market data, here is a quick and dirty way of watching for signs of rising stress in the banking system.
The Four Horsemen of the Euro Banking Apocalypse
Watch the stocks of stressed banks. There are four that appear to be under severe stress from a list that I detailed previously here. The first is Commerzbank (CRZBF.PK), which has already undercut its Lehman Crisis 2009 lows and is in the prospect of testing its recent lows as another support level. If that low doesn't hold, then that may be one of the first Signs of the European Banking Apocalypse.
I would also watch the shares of Credit Agricole (CRARF.PK), which has also been subject to rumors of severe banking problems.
Societe Generale (SCGLF.PK), another French bank, has also been the subject of insolvency rumors. In all cases, these banks have undercut their 2009 lows in 2011, but SocGen shares have managed to rally above that level.
The last one to watch is the shares of Intesa, the Italian bank:
In all these cases, the shares have fallen below their 2009 Lehman Crisis lows in 2011. In all but one, they are in the process of testing the 2011 lows as the final support - a sort of final trip-wire to a European banking crisis. As many of these stocks trade in ADR form in the US, many of my American may be tempted to monitor the performance of the ADR instead. I would recommend that you watch the euro-denominated price as that is more liquid and I have provided the Yahoo finance link to those prices.
There are a number of other troubled bank stocks to watch, but these have not undercut their 2009 lows. In no particular order, these include the Royal Bank of Scotland (RBS), KBC (KBCSY.PK), Unicredit (UNCIF.PK), BNP Paribas (BNOBF.PK) and Banco Santander (BSTNF.PK).
Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.
http://seekingalpha.com/article/313085-is-the-eurozone-banking-system-about-to-collapse?ifp=0&source=email_macro_view
Indefinite military detention for U.S. citizens now in the hands of a secretive conference committee
December 8, 2011 - by Donny Shaw
If Congress does not pass a Department of Defense Authorization bill that Obama will sign by the end of the year, almost all of the U.S. military's activities around the world would be jeopardized. At this point, the House and Senate have both passed their versions of the bill (H.R.1540 and S.1867), but they have disagreement on several provisions, including a provision opposed by the Obama Administration that would require the military to indefinitely detain terrorism suspects, including American citizens living in the U.S., without charge or trial.
With the House having voted 406-17 to "close" portions of the meetings and avoid public scrutiny, members from both chambers and both parties are meeting in a secretive conference committee to work on reconciling the differences between the House and Senate versions of the bill. On the military detention provision, their main task is going to be to find a solution that can pass both chambers (again) and not draw a veto from President Obama.
Contrary to popular perception, the Obama Administration is not strongly opposed to the provisions in the bills that would authorize indefinite military detentions for U.S. citizens. Here's what the Administration had to say in a Statement of Administrative Policy on the Senate bill:
Section 1031 attempts to expressly codify the detention authority that exists under the Authorization for Use of Military Force (Public Law 107-40) (the "AUMF"). The authorities granted by the AUMF, including the detention authority, are essential to our ability to protect the American people from the threat posed by al-Qa'ida and its associated forces, and have enabled us to confront the full range of threats this country faces from those organizations and individuals. Because the authorities codified in this section already exist, the Administration does not believe codification is necessary and poses some risk. After a decade of settled jurisprudence on detention authority, Congress must be careful not to open a whole new series of legal questions that will distract from our efforts to protect the country. While the current language minimizes many of those risks, future legislative action must ensure that the codification in statute of express military detention authority does not carry unintended consequences that could compromise our ability to protect the American people.
In other words, they'll take it and recommend that Congress passes clarifying legislation in the future, which, of course, will never happen. What they oppose is the provision that would mandate that power be used for all terrorism suspects besides U.S. citizens. From the same statement:
The Administration strongly objects to the military custody provision of section 1032, which would appear to mandate military custody for a certain class of terrorism suspects.
As you can read for yourself here, Section 1031, affirming the "authority of the armed forces of the United States to detain covered persons…" does not contain an exemption for U.S. citizens. Section 1032, mandating the military detention authority be used for terrorism suspects, does, but that is the section that the Obama Administration says must be removed or else he will veto. The Administration has been stressing the need for flexibility in their powers to collect information and incapacitate terrorists, which likely means that they want to retain the power to detain suspects outside the context of war and the Geneva Convention protections that would apply. The secretive conference committee may still be able to overcome Obama's veto threat while also codifying the power to indefinitely detain U.S. citizens without having to charge them or give them a trial.
http://www.opencongress.org/articles/view/2447-Indefinite-military-detention-for-U-S-citizens-now-in-the-hands-of-a-secretive-conference-committee-
Important part?
" (2) A person who was a part of or substantially supported al-Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of such enemy forces"
http://www.opencongress.org/articles/view/2438-Read-the-Military-Detention-Bill-
This statement couldn't be more dead on...
Our politicians are corrupt?
Shocking!!
On the Continuing Zombification of the US Economy
By Bill Bonner
11/04/11 Paris, France – We have been exploring the zombification of the US economy. Major industries — finance, health, education and defense — have been taken over by zombies, parasites whose real interest is to transfer wealth to themselves, from the part of the economy that remains productive.
As the economy becomes more zombified, the part of it dominated by these non-productive industries increases, leaving fewer resources for the productive part. And as the productive part weakens, so does the entire economy’s ability to produce real wealth, or grow its way out of debt.
How much of the economy is now in zombie hands?
Cindy Williams, of MIT’s Security Studies Program, figures that the US now devotes about 6.2% of its GDP on “defense” and related activities, including international affairs, homeland security, veterans affairs, and intelligence. She was not trying to figure out how much the nation could spend effectively, only on what it could afford. That, she calculates, is between 2.1 percent and 3.4 percent of GDP.
If this is true, we could say that about 3% of GDP is either wasted, unnecessary, or unaffordable. That’s about $450 billion right there.
As to health care…we can assume that the standard of health care is acceptable in those countries where people live much the way Americans live…and tend to live longer. In those countries — mostly in Europe — people spend about half as much as they do in the US, giving us an overspending of about $2,500 per person, or about 5% of GDP…or about $750 billion.
Education expenditures are twice what they were, in real terms, when US students got the same results they get now. The US currently spends about 6% of GDP on education. This suggests that 3% is wasted. That’s another $450 billion.
As for finance, it is impossible to measure how much of it is worthwhile and how much is just money-shuffling and debt mongering. But we will take a guess anyway. In 1940, the financial industry accounted for just 2% of the economy. By 1960, it was about 3%. Today, it is 8% or 9%. Before the big run-up in debt began — in 1980 — the financial industry probably averaged about 4% of GDP. The extra 4% is arguably wasted…it merely transfers money from the wealth-producing parts of Main Street to the wealth collecting parts of Wall Street. Four percent of GDP is another 600 billion, or so.
Adding it up, education, health and defense together may be costing the nation $1.65 trillion — almost exactly the amount of the 2011 deficit. In other words, if the squandering were stopped, the US budget would be in balance.
Add the waste in the financial industry, and you are up to $2.25 trillion — or 15% of GDP. Compare that to the IMF’s calculation of total national savings at 10% of GDP. (We don’t know how the IMF got this figure…it seems high.) And now let’s return to our small farmer to try to understand what these numbers mean.
The small farmer wants to get richer. So, he creates a surplus of 10% per year. This he will invest in greater production so as to increase his output (his wealth) year after year. But he invests poorly. He plants in swampy areas. His seed gets wet and rots. Birds eat his grain before he harvests it…then, he waits too long, and much of the harvest is lost.
Imagine that he squanders 15% of his output. Result? He grows poorer, not richer, at a rate of 5% per year.
That is the price of a zombie economy. You get poorer. If the economy appears to grow, it is usually growth in unproductive industries. If people appear to live well, it is because they are living off the accumulated capital of the past.
At the present pace, over the next 10 years, the real value of America’s output will fall nearly in half. Measured in terms of output, Americans will be only half as wealthy as they are today.
Get ready for it, dear reader.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: On the Continuing Zombification of the US Economy http://dailyreckoning.com/on-the-continuing-zombification-of-the-us-economy/#ixzz1cqgLa2bW
Anybody still doing business with Chase, Citibank, BOA or Wells Fargo deserves what they get.
The issue is that the healthcare "industry" just openly steals all the money spent on insurance.
So if you actually need care- you have to pay for all of it anyway?
So what if we all stopped giving our money to thieves, who steal it, put the money in an account and just paid for healthcare when we need it?
Toss in a catastrophic care plan and you could actually take control of your healthcare and give the insurance industry and the government the middle finger(which is very polite considering what they really deserve is two to the chest and one in the head).
"Austerity" is also another word for nothing left to lose.
I think many governments with be getting a lesson on that definition from citizens over the next several years.
But then again decades of floridation, gmo-ing, mercury rising, etc may have left most too stupid and slothful to do anything.
Maybe when the lights go out all we'll get is a collective huh? or duh? followed by a slow drooling death while waiting in a chair for "someone” to come and save us.
Think about companies and the people associated with them who like to lecture about how we need to pay our fair share.
Then go look at the tax rates the companies that the fair sharers are associated with actually pay.
Anyone else notice a trend?
The chastisement of the American saver – Federal Reserve offers a higher interest rate to banking reserves than too big to fail banks offer American savers.
Posted by mybudget360 in bailout, banks, central banks, debt, government, income, savings, us treasury, wall street
Americans are facing a banking system that is largely designed to go against their best economic interest. Even a decade ago people were able to find a savings account or a certificate of deposit that would keep up with the rate of inflation. Today, most typical savings accounts at too big to fail banks offer essentially a zero percent interest rate. Mattress savings. And the true rate of inflation on items like food, education, and fuel is far outpacing in household gains. This is the dilemma. If you put your money into the banking system you will surely lose because of the erosion of money thanks to our central banking policies. The Federal Reserve has purposely created a negative interest environment to get people to spend again and restart the economy. The unfortunate point is that banks have plenty of excess reserves thanks to trillions of dollars in bailouts yet fail to lend it out largely because the public is seeing household incomes shrink. The last decade growth was largely debt based. The banking system essentially is punishing the American saver with whatever little amount they try to sock away.
Money market rates trickle lower
Some of the higher yielding savings accounts come in the form of money market funds. Yet even this category has gotten slammed in the last few years:
The typical money market account is down over 80 percent since 2006. It isn’t like inflation has suddenly disappeared or that our debt problems have gone away like dust in the wind. To the contrary the economy has gotten much more mired in a stagnating funk.
Many of the bailouts were designed to fix the toxic balance sheets of the perpetually dysfunctional banking system. The guise was always to help the middle class American but the results are rather obvious as the middle class gets more and more pushed to the side and corned into a life of debt serfdom. Banks have plenty of money to deploy if they saw fit thanks to these bailouts:
These excess reserves, roughly $1.6 trillion are readily available to lend out to the American public. So are the too big to fail reluctant to lend? First, their balance sheets are mired with toxic loans in residential and commercial real estate. Banks realize that they will be eating into this capital as the years go by and they realize their losses if they only followed basic accounting standards which 90 percent of Americans have to adhere to. Also, these reserves earn banks an interest rate, even a higher rate than they pay out to their poor customers with weak savings accounts. The incentive is largely to hoard and pursue a clandestine bailout. While people get their attention diverted to a few million dollars here and there, the true robbery is here with trillions of dollars deployed to the financial system.
The pangs of unemployment
While talk of a recovery is largely tied to Wall Street gains, on the ground the sentiment is anything but:
The median duration of unemployment is the highest it has been since records started being kept in the 1960s. The current median duration is twice as high as the painful recessions brought on during the early 1980s. Much of this has to do with a disappearing middle class and the growing inequities in our system. In previous recessions jobs were temporarily lost but many people were able to get back on track once the recovery picked up steam and momentum. Today, most of the recovery gains have gone to the top one percent and an outsized amount has gone to the glorified gamblers on Wall Street who have turned our economy into a casino.
I stumbled upon this chart which boarders on the absurd regarding banking derivatives:
Source: Htnarea
The biggest U.S. banks have some $231 trillion in derivative exposure as of December of 2010. This market is a black hole and is like the Wild West of trading. Global GDP is roughly $58 trillion! These kind of absurd bets, many that do cancel each other out, largely show how out of control and leveraged our financial system has become. When you have people on Wall Street day trading and speculating making half a million dollars a year in their twenties betting on people being foreclosed on, you need to ask yourself what is the true purpose of our banking system? At the moment it is largely a theft on the American public. The financial system’s main mission should be to allocate capital to areas of greatest growth in the real world economy. Yet these derivative markets are based on non-realistic side bets. One issue with subprime mortgages for example wasn’t necessarily the bad mortgages. That is an easy issue to resolve. Debt goes bad, bank takes home back. Yet what caused systemic risk were the multiple bets on top of the principal loan amount that caused system wide problems.
People trying to save what they can
Since the recession hit people have been trying to save what they can:
Yet with almost no return in regular savings accounts most people are losing value on their purchasing power as each day goes by. So they are left with an option of spending what they have or diving into the stock market casino that lives for the day trade and high frequency action. The market is no longer about the long-term but how quickly you can rob someone and turn a quick profit on a bet or inside information based on algorithms. Then you wonder why so many people have a distrust of the current system.
http://www.mybudget360.com/the-chastisement-of-american-saver-federal-reserve-offers-higher-interest-rate-to-banking-reserves-too-big-to-fail-offer-interest-rates-near-zero/#more-3463
Monster Prediction From BofA: Another US Debt Downgrade Is Coming In Just A Few Weeks
Joe Weisenthal | Oct. 22, 2011, 7:04 AM
Image: www.flickr.com
In an analyst note, Bofa/ML Ethan S. Harris drops a bit of a bombshell prediction:
We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.
This is quite a stunning prediction, mainly because nobody is talking about this. And though the experts were 100% wrong in thinking that a downgrade would increase borrowing costs, it did cause a major market jolt when it happened, leading to a major blow to confidence in August and September.
Another round of that would certainly not be helpful.
Hense Harris' note is titled "Enjoy It While It Lasts." We have a nice little upswing in economic data, but next year could be rough again, when these confidence shocks hit.
As for the immediate term, Harris sees 2.7% GDP for Q3 (the advance estimate for which will be released this coming Thursday) and 2.3% GDP for Q4.
http://www.businessinsider.com/huge-prediction-from-bofa-another-us-debt-downgrade-is-coming-in-just-a-few-weeks-2011-10
Can Hyperinflation Happen Here?
by: John Mauldin October 16, 2011
"Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans."
- R.H. Tawney, Religion and the Rise of Capitalism, 1926
"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
- John Maynard Keynes, Economic Consequences of Peace
"Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter… However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50."
- Stefan Zweig, The World of Yesterday, 1944.
The beginning of the end of the Weimar Republic was some 89 years ago this week. There is a stream of opinion that the US is headed for the same type of end. How else can it be, given that we owe some $75-80 trillion dollars in the coming years, over 5 times current GDP and growing every year? Remember the good old days of about 5-6 years ago (if memory serves me correctly) when it was only $50 trillion? With a nod to Bernanke's helicopter speech, where he detailed how the Fed could prevent deflation, I ask the opposite question, "Can`it' (hyperinflation) really happen here?" I write this on a plane flying to NYC, with a tighter deadline than normal, so let's see how far we can get. More on where I'm heading at the end of the letter.
Can "It" Happen Here?
I was inspired for this week's letter by a piece by Art Cashin (whom I will get to have dinner with Monday). His daily letter always begins with an anecdote from history. This week it was about Weimar, told in his own inimitable style. So without any edits, class will commence, with Professor Cashin at the chalk board.
An Encore Presentation
By Art Cashin
Originally, on this day (-2) in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money.
But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity).
So, on this day government officials decided to bring figures in line with market realities. They devalued the mark. The new value would be 2 billion marks to a dollar. At the start of World War I the exchange rate had been a mere 4.2 marks to the dollar. In simple terms you needed 4.2 marks in order to get one dollar. Now it was 2 billion marks to get one dollar. And thirteen months from this date (late November 1923) you would need 4.2 trillion marks to get one dollar. In ten years the amount of money had increased a trillion fold.
Numbers like billions and trillions tend to numb the mind. They are too large to grasp in any "real" sense. Thirty years ago an older member of the NYSE (there were some then) gave me a graphic and memorable (at least for me) example. "Young man," he said, "would you like a million dollars?" "I sure would, sir!" I replied anxiously. "Then just put aside $500 every week for the next 40 years." I have never forgotten that a million dollars is enough to pay you $500 per week for 40 years (and that's without benefit of interest). To get a billion dollars you would have to set aside $500,000 dollars per week for 40 years. And a…..trillion that would require $500 million every week for 40 years. Even with these examples, the enormity is difficult to grasp.
Let's take a different tack. To understand the incomprehensible scope of the German inflation maybe it's best to start with something basic….like a loaf of bread. (To keep things simple we'll substitute dollars and cents in place of marks and pfennigs. You'll get the picture.) In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents. [Double in value, or a "mere" 12% compound inflation –JM.] Now the fun begins.
In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed [as if a roughly 8 billion times rise in cost wasn't already collapse! Hint of irony here. – JM]
Let's go back to "marks". In 1913, the total currency of Germany was a grand total of 6 billion marks. In November of 1923 that loaf of bread we just talked about cost 428 billion marks. A kilo of fresh butter cost 6000 billion marks (as you will note that kilo of butter cost 1000 times more than the entire money supply of the nation just 10 years earlier).
How Could This All Happen?
In 1913 Germany had a solid, prosperous, advanced culture and population. Like much of Europe it was a monarchy (under the Kaiser). Then, following the assassination of the Archduke Franz Ferdinand in Sarajevo in 1914, the world moved toward war. Each side was convinced the other would not dare go to war. So, in a global game of chicken they stumbled into the Great War.
[Side note: So convinced were the bond markets that war was not possible that bonds were still selling at normal prices. War was simply inconceivable. Bad call. - JM]
The German General Staff thought the war would be short and sweet and that they could finance the costs with the post war reparations that they, as victors, would exact. The war was long. The flower of their manhood was killed or injured. They lost and, thus, it was they who had to pay reparations rather than receive them.
Things did not go badly instantly. Yes, the deficit soared but much of it was borne by foreign and domestic bond buyers. As had been noted by scholars….."The foreign and domestic public willingly purchased new debt issues when it believed that the government could run future surpluses to offset contemporaneous deficits." In layman's English that means foreign bond buyers said – "Hey this is a great nation and this is probably just a speed bump in the economy." (Can you imagine such a thing happening again?)
When things began to disintegrate, no one dared to take away the punchbowl. They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive.
Currencies, Culture and Chaos
If it is difficult to grasp the enormity of the numbers in this tale of hyper-inflation, it is far more difficult to grasp how it destroyed a culture, a nation and, almost, the world.
People's savings were suddenly worthless. Pensions were meaningless. If you had a 400 mark monthly pension, you went from comfortable to penniless in a matter of months. People demanded to be paid daily so they would not have their wages devalued by a few days passing. Ultimately, they demanded their pay twice daily just to cover changes in trolley fare. People heated their homes by burning money instead of coal. (It was more plentiful and cheaper to get.)
The middle class was destroyed. It was an age of renters, not of home ownership, so thousands became homeless.
But the cultural collapse may have had other more pernicious effects.
Some sociologists note that it was still an era of arranged marriages. Families scrimped and saved for years to build a dowry so that their daughter might marry well. Suddenly, the dowry was worthless – wiped out. And with it was gone all hope of marriage. Girls who had stayed prim and proper awaiting some future Prince Charming now had no hope at all. Social morality began to collapse. The roar of the roaring twenties began to rumble.
All hope and belief in systems, governmental or otherwise, collapsed. With its culture and its economy disintegrating, Germany saw a guy named Hitler begin a ten year effort to come to power by trading on the chaos and street rioting. And then came World War II.
That soul-wrenching and disastrous experience with inflation is seared into the German psyche. It is why the populace is reluctant to endorse the bailout. It is also why all the German proposals have each country taking care of its own banks. (It gives them more control.) The French plans tend to socialize the bailout. There's more disagreement in these plans than the headlines would indicate.
To celebrate have a Jagermeister or two at the Pre Fuhrer Lounge and try to explain that for over half a century America's trauma has been depression-era unemployment while Germany's trauma has been runaway inflation. But drink fast, prices change radically after happy hour.
What Causes Hyperinflation?
We spent a whole chapter writing about inflation and hyperinflation in Endgame, which I think highlights the topic rather well. Let me quote a few paragraphs.
We know that the world is drowning in too much debt, and it is unlikely that households and governments everywhere will be able to pay down that debt. Doing so in some cases is impossible, and in other cases it will condemn people to many hard years of labor in order to be debt-free. Inflation, by comparison, appears to be the easy way out for many policy makers.
Companies and households typically deal with excessive debt by defaulting; countries overwhelmingly usually deal with excessive debt by inflating it away. While debt is fixed, prices and wages can go up, making the total debt burden smaller. People can't increase prices and wages through inflation, but governments can create inflation and they've been pretty good at it over the years. Inflation, debt monetization and currency debasement are not new. They have been used for the past few thousand years as means to get rid of debt. In fact, they work pretty well.
The average person thinks that inflation comes from `money printing.' There is some truth to this, and indeed the most vivid images of hyperinflation are of printed German Reichmarks being burnt for heat in the 1920s or Hungarian Pengos being swept up in the streets in 1945.
"You don't even have to go that far back to see hyperinflation and how brilliantly it works at eliminating debt. Let's look at the example of Brazil, which is one of the world's most recent examples of hyperinflation. This happened within our lifetimes. In the late 1980s and 1990s it very successfully got rid of most of its debt.
Today Brazil has very little debt as it has all been inflated away. Its economy is booming, people trust the central bank and the country is a success story. Much like the United States had high inflation in the 1970s and then got a diligent central banker like Paul Volcker, in Brazil a new government came in, beat inflation, produced strong real GDP growth and set the stage for one of the greatest economic success stories of the past two decades. Indeed the same could be said of other countries like Turkey that had hyperinflation, devaluation, and then found monetary and fiscal rectitude.
In 1993 Brazilian inflation was roughly 2,000%. Only four years later, in 1997 it was 7%. Almost as if by magic, the debt disappeared. Imagine if the US increased its money supply which is currently $900 billion by a factor of 10,000 times as Brazil's did between 1991 and 1996. We would have 9 quadrillion USD on the Fed's balance sheet. That is a lot of zeros. It would also mean that our current debt of thirteen trillion would be chump change. A critic of this strategy for getting rid of our debt could point out that no one would lend to us again if we did that. Hardly. Investors, sadly, have very short memories. Markets always forgive default and inflation. Just look at Brazil, Bolivia, and Russia today. Foreigners are delighted to invest in these countries.
The endgame is not complicated under inflation/hyperinflation. Deflation is not inevitable. Money printing and monetization of government debt works when real growth fails. It has worked in countless emerging market economies (Zimbabwe, Ukraine, Tajikistan, Taiwan, Brazil, etc.). We could even use it in the US to get rid of all our debts. It would take a few years, and then we could get a new central banker like Volker to kill inflation. We could then be a real success story like Brazil.
Honestly, recommending hyperinflation is tongue in cheek. But now even serious economists are recommending inflation as a solution. Given the powerful deflationary forces in the world, inflation will stay low in the near term. This gives some comfort to mainstream economists who think we can create inflation to solve the debt problem in the short run. The International Monetary Fund's top economist, Olivier Blanchard, has argued that central banks should target a higher inflation rate than they do at present in order to avoid the possibility of deflation. Economists like Paul Krugman, a Nobel Prize winner, and Olivier Blanchard argue that central banks should raise their inflation targets to as high as 4%. Paul McCulley argues that central banks should be `responsibly irresponsible.'
Peter Bernholz wrote the bible on inflation and hyperinflation, called Monetary Regimes and Inflation: History, Economic and Political Relationships. He writes about 29 periods of hyperinflation. What causes such a spectacular increase in prices? Bernholz has explained the process very elegantly.
Bernholz argues that governments have a bias towards inflation. The evidence doesn't disagree with him. The only thing that limits a government's desire for inflation is an independent central bank. After looking at inflation across all countries and analyzing all hyperinflationary episodes, the lessons are the following:
1. Metallic standards like gold or silver standard show no, or a much smaller, inflationary tendency than discretionary paper money standards
2. Paper money standards with central banks independent of political authorities are less inflation-based than those with dependent central banks.
3. Currencies based on discretionary paper standards and bound by a regime of a fixed exchange rate to currencies, which either enjoy a metallic standard or, with a discretionary paper money standard, an independent central bank, show also a smaller tendency towards inflation, whether their central banks are independent or not.
Bernholz examined twelve of the twenty-nine hyperinflationary episodes where significant data existed. Every hyperinflation looked the same. `Hyperinflations are always caused by public budget deficits which are largely financed by money creation.' But even more interestingly, Bernholz identified the level at which hyperinflations can start. He concluded that `the figures demonstrate clearly that deficits amounting to 40 percent or more of expenditures cannot be maintained. They lead to high inflation and hyperinflations….' Interestingly, even lower levels of government deficits can cause inflation. For example, 20% deficits were behind all but four cases of hyperinflation.
Stay with us here, because this is an important point. Most analysts quote government deficits as a percentage of GDP. They'll say, `The US has a government deficit of 10% of GDP.' While this measure makes some sense, it doesn't tell you how big the deficit is relative to expenditures. The deficit may be 10% the size of the US economy, but currently the US deficit is over 30% of all government spending. That is a big difference.
A Very Frank Idea
I am confronted all the time on the road by investors who want to know my basis for stating that we will not see hyperinflation in the US. I am good friends with many who believe it is the only way the US can end up, given the size of the current off-balance-sheet debacle. "End of America" Porter Stansberry, Doug Casey and David Galland (see below), Peter Schiff, Bill Bonner, and a host of gold bugs see no other way out. They look at history as written by Bernholz and see the proverbial writing on the wall. It is totally decipherable by them. I remain very unconvinced.
The US Federal Reserve system is different from most central banks, whether it is independent or not. It is composed of 12 separate regional banks, each of which has its own board, which appoints its regional president. The regions each get a certain number of rotating votes in the FOMC meetings, along with the appointed Fed governors. But they all get to participate in FOMC meetings and offer opinions. And the presidents certainly talk with each other. The last two meetings have seen the unusual circumstance of three dissenting votes.
These regional boards comprise local business leaders, some academics, and community leaders. They have to go back and work and live in their communities. They don't get to retire to an ivory tower and tenure, like many Fed governors. They see the real world, or at least their parts of it, and the boards have become very diverse over time.
Hyperinflation requires a central bank to willingly commit economic suicide. Typically, that happens at the behest of an authoritarian government. Under our current system, I can't see that happening. The hue and cry would be very loud and long and early. If you think Fisher et al. are vocal today, think about their response to really aggressive printing. I am not talking about something on the order of QE2, a BB gun as compared to a bazooka. I am talking about real printing.
It is not just a few vocal regional Fed presidents, of whom Fisher is the most eloquent. Even Bernanke has been talking about the limits of monetary policy and the need for the fiscal house to be put in order.
If Bernanke and his fellow Keynesians could whip up 4-5% inflation for a few years, would they do it? I think so, although they would publicly demur. But that is a far cry from 10% and even further from the 50% that would be needed to really ignite hyperinflation. I doubt they have the stomach for that, even in the face of a serious recession. The memories of the '70s are still part of our genetic make-up.
But could they print a whole lot more than one can imagine now, without unleashing the inflation demon? The simple answer is yes, and for that rationale we go back to the '30s and Irving Fisher, who gave us the classic equation of the link between money supply and inflation and the velocity of money (how fast money moves through an economy).
Inflation is a combination of the money supply AND the velocity of money. In short, if the velocity of money is falling, the Fed can print a great deal of money (expanding its balance sheet) without bringing about inflation. Remember the above instance, where workers wanted to get paid twice a day? That was a case of both rising money supply and rising velocity of money, a deadly combination. I have written several e-letters about the velocity of money, if you want more in-depth analysis. If this is something you do not understand, I suggest you take the time; otherwise you will not get the background of the argument. Here are a couple links to letters where I explain the velocity of money (see here and here).
When do we see a seriously falling velocity of money? At the end of debt supercycles, where deleveraging is the order of the day. Which is where we are today in the US. Look at the graph below (from my friend Lacy Hunt at Hoisington Asset Management). Notice that the late '70s saw a rising money supply and rising velocity of money. And voila, we got inflation in the US. Notice that now velocity is falling and, as Lacy points out, the velocity is mean reverting over very long periods of time, so we can expect it to go lower. Also remember that the US government (at the federal level) has yet to really begin to get its fiscal house in order. (Although state and local government have combined to cut deficits $200 billion a year through a combination of spending cuts and tax increases, or over 1% of GDP, which has been a serious headwind with more cuts and tax increases to come.)
What could change my mind? If the (how to say this politely?) ill-conceived (stronger words come to mind) proposal by Financial Services Committee ranking member Barney Frank (D-Mass) were to see the light of day, I would get very concerned. According to Bloomberg and The Hill,Frank plans to submit a bill that would remove the votes of the five regional Federal Reserve presidents from the 12-member Federal Open Markets Committee (FOMC), which sets interest rates, and replace them with five appointees that would be nominated by the President and confirmed by the Senate.
Frank says "he is concerned that the process is undemocratic because the regional Fed presidents are not elected or appointed by elected representatives, and he believes that regional Fed presidents are overly likely to focus on guarding against inflation at the expense of more adequately tackling the country's unemployment crisis." (US News and World Report)
Basically, he wants the Fed to be subservient to the politicians. Under his proposal, the FOMC could lose what independence it has in a short time. This is part of a strain of thought that suggests that the decisions that affect all of us should be made by a few elite people who purport to understand what is going on, which coincidentally are government insiders and the academics who foster their agendas.
How did Weimar and other hyperinflation incidents occur? When power was in the hands of a few well-intentioned elites who did not understand the long-term consequences, or were acting in self-interest without transparency or any check on their decisions. The Fed is designed to be a system of checks and balances, with no one president getting to appoint all the governors (they have 14-year terms), in order to try to remove the process as much as possible from political interference. That does not mean they will make the right decisions, but in this I agree with the alarmists: history suggests that without some constraint (gold standards as an example) hyperinflations may occur.
A repeat of the '70s? That is within the realm of possibility, but it's certainly not a base-case scenario. Hyperinflation under our current system? I just don't see it.
But What About The $70 Trillion In Off-Balance-Sheet Debt?
I am asked that question all the time. My answer is that it illustrates the power of "It Won't Happen." As in "if it can't happen it won't happen." That number will never be paid, either in terms of current buying power or actual numbers or actual benefits. It can't be. The money is not and will not be there.
The far more interesting question is what will happen when we reach the point of "won't happen." Will that be something we recognize before it happens and act proactively to avoid a cataclysmic event? Will we wait until the bond market jerks our chain about the fiscal crisis, which is massively stagflationary? Yes, the Fed can print to some degree, but not dealing with the crisis will ultimately force a huge restructuring of spending and taxes which, if not caught early enough, will propel us into a certain Second Great Depression. Which is why I think we will deal with it proactively in 2013, because to not do so would be folly of the worst sort. The consequences are unimaginable for the US and for the world. Think Greece, and then go downhill. All over the world.
I think more and more political leaders are beginning to understand that point. They are not happy about it. But I remain hopeful that in 2013 we can actually deal with the deficit and the debt in an orderly manner. If we do not, God help us all.
New York, London, South Africa, and the Future
Monday I will be on Yahoo! Finance in the morning, Bloomberg Radio at 9:45, and Fox Business TV at 1:15, with meetings all day (and time for reading sandwiched in between). Then Monday night dinner with a special group of people: Art Cashin, Barry Habib, Barry Ritholtz, Dennis Gartman, Vince Farrell, and Doug Kass if he can shake free. Think we'll talk investments and economics? Then on to Philly that night, where I speak the following morning for a group hosted by my partner Steve Blumenthal of CMG. Then back to NYC, a quick 3 PM TV gig with Canadian TV BBN, and off to JFK and London. The next month is crazy with travel. I am in London (actually Richmond) Wednesday for a 12-hour layover, where I can have a few meetings. One night in South Africa. Back home Saturday and then Monday to New Orleans and then somewhere else, etc.
But that is then. Tonight and this weekend is pure pleasure. Tiffani and I have a private dinner with Ray Kurzweil in about 10 minutes (now in car). I must admit I am a huge Ray Kurzweil groupie. Then some of the best futurists in the world will be speaking in rapid order for the next two days at the Singularity Summit, and lucky me, I get to meet them! Plus 750 attendees, who will all have their own stories, opinions, and insights. Sunday night with David Galland, head honcho of Casey Research and fellow futurist and sci-fi junkie, who is also attending the conference. He told me to read Daniel Suarez's two books, Daemon and Freedom. They are an adrenaline rush. Must-reads, if you want to get a feeling for what it is going to be like to have change hit you seemingly all at once. I am not a fan of his dystopian vision, but it makes for gripping fiction, and the technology descriptions make the ride doubly enjoyable. Read them. Oh, and really good friend David Brin will also be there. We will celebrate our recent birthdays. And he has just finished a brilliant book that I got to read the first draft of, even before he finished. Love it! Will let you know when it is out.
And now I'm back in the room, finally getting ready to hit the send button. What a week. It was good to be with old friends Ed Easterling and David Rosenberg last night, as well as money maven Cliff Draughn, who flew in from Savannah just to be here. (Thanks Cliffie!)
I feel like I am drinking life through a fire hose, but I would not want it any other way. I am now writing a book (The Millennium Wave) about how fast change is going to happen (and that will be the topic of my speech on Sunday), but I am struggling to keep up even now! The great British Prime Minister Lord Salisbury is said to have remarked to Her Majesty Queen Victoria, "Change, change, why do we need more change? Aren't things bad enough already?" But the changes coming are something not even a conservative English lord can hold back, so better to learn to surf the inevitable.
Have a great week. Other than sleeping three nights in four on airplanes (what idiot designed this schedule? I would fire him if I only could!) I am going to have a good one.
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http://seekingalpha.com/article/299806-can-hyperinflation-happen-here?ifp=0&source=email_macro_view
Middle class do worse in current economic recovery – median household income falls faster during recovery than during recession. S&P 500 up 77 percent in recovery while home values are neutral or down in many areas.
Some incredibly disturbing data was released this week showing the continuing crushing body blow to the American middle class. What was striking was that middle class incomes have fallen faster during the supposed recovery from June 2009 to June 2011 than they did in the actual recession from December 2007 to June 2009. Why? First, the recovery has largely occurred with the top one percent where much of their wealth is derived from the stock market. The market has rallied significantly from the lows in March of 2009. Yet the vast majority of Americans, those with any net worth, draw a large part of their true wealth from home equity. The housing market is still mired in problems and never experienced any sort of recovery and in fact, is aiming for a second leg down. Two charts highlight this dramatic predicament.
Middle class families take a larger hit during the economic recovery
This chart is probably one of the more telling charts I have recently seen:
Source: Sentier Research
And then the jaw dropping data:
“Real median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009.”
The pressing question is why did this happen if we are supposedly in a recovery? Again, the answer is that most Americans do not derive their wealth from the stock market. The top one percent has largely benefitted from this economic bailout recovery. Ironically it is the middle class that is bailing out the financial system so profits can be redistributed back to the top. Do we need any more proof?
Some more information:
“During the recession, real median annual household income fell by 3.2 percent, from $55,309 in December 2007 to $53,518 in June 2009. During the economic recovery, real median annual household income fell by an additional 6.7 percent, from $53,518 in June 2009 to $49,909 in June 2011.”
So overall household income has fallen by roughly 10 percent since the start of the recession in December of 2007. To reiterate the grim reality we have to look at the biggest line item for middle class wealth, housing and compare it to the largest line item for the top one percent, stocks:
Since the recovery hit the S&P 500 is up 77 percent while housing values are neutral or even down in many areas. Sort of puts the entire game in perspective.
http://www.mybudget360.com/middle-class-do-worse-in-economic-recovery-home-values-fall-snp-500-up-rallies/#more-3458
Occupy This
Pic from Todd Dwyer, #ows in Austin, TX
Color me conflicted on the Occupy Wall Street movement/effort/open source protest. Having gotten myself worked up about the banksters and the Congress they bought fair and square, I can relate to the emotion behind it. They seem a bit amorphous to actually accomplish much in the way of changing bank, corporation or government behavior. From the outside, it looks like a bunch of people standing around, saying they are angry at the system and want to engage in "resistance" to that system.
While I am skeptical of the ability of #ows to accomplish much in the way of reform, the more I consider it, perhaps that is not the function of this group/movement. Perhaps, whether by plan or by the herding instinct that is the root of socionomics, #ows is one (of many) matches that may light a bonfire that could burn down 200 years worth of the development of the Central Bank/Nation-State/Corporate/Nanny-State model for governing societies and shaping world politics.
Aside from the Monty Python flashbacks I have when seeing some of the more fringe elements of this fringe movement, there is some real anger, real purpose and real grievances behind this - just as there was (and might still be in places) when the Tea Party movement sprang up.
Maybe #ows and, to a lesser extent now that it has been mostly co-opted, the Tea Party, are the early groups that will incite/act as an excuse for the entrenched elites to resort to force. Resorting to force will only amplify the anger and, assuming our read on social mood is correct, that anger will spread deep and wide. #ows and the Tea Party both showed the power of small groups to leverage modern technology to organize and spread a message. John Robb has chronicled the rise of what he calls the Open Source Insurgency and has even codified the parameters that Open Source Insurgencies should follow if they want to succeed. These groups have shown amazing abilities to thrive during the peaceful demonstration phase. If the guns comes out and the tear gas flies, we will see how they adapt to the next phase.
Keep an eye on this effort and try to use news outlets not related to standard corporate media. Their story on this is easy - whiny unemployed people who should get a job. The reality is far more nuanced. I personally suggest the following:
The Miiu.org page for Occupy Wall Street and related Occupy efforts (great summary source)
The Occupy Wall Street Journal (links at the top of the Kickstarter pitch - by the way, notice how the leveraged a community funding source to make this fly)
John Robb's GlobalGuerrillas site (especially note how he is following along with the #ows effort to resist Mayor Bloomberg's moves against them)
You are seeing the development of tactics that could very well prevail across the globe in the years to come as anger builds and needs an outlet. Here's hoping it all stays peaceful.
http://futurejacked.blogspot.com/
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Alternatives or scarcity, what will life after oil hold?
Jina Moore | The Christian Science Monitor | Oct 08, 2011
Americans like to imagine the future. From the world's fairs of the early 20th century to futuristic magazine features in the 1950s to the 1980s "Back to the Future" films, we love dreaming up what might come next.
When we dream, it turns out, we dream without oil. The show-stealer at the Chicago World's Fair in 1893 was a demonstration of alternating current – a massive generator that made it possible to snuff out household oil lamps and switch on a light bulb. Doc's time machine in "Back to the Future" runs on garbage, and the "hoverboard" the hero in the film's sequels hops on to outrun the bad guys flitted on whimsy, not oil. And no one in the "Star Trek" franchise ever said, "Captain Picard, we need to swing by the gas station."
With today's volatility at the local pump, contentious debates about "peak oil," and soaring global interest in biofuels, imagining how the world looks without oil isn't just a fanciful distraction. There's lively debate about how far away a post-oil world is – earliest estimates are around 2030, while many analysts say that, as technology changes to accommodate fluctuations in the oil supply, we'll never technically see an end to oil. But advisory bodies such as the International Energy Agency and the US National Intelligence Council expect oil demand to spike, and supply to dwindle, over the next 15 years – which makes imagining a post-oil future an urgent task of the present.
There's no doubt that the world will look different – and not just a little bit different, suggests Dennis Bushnell, chief scientist at the NASA Langley Research Center in Virginia.
"After oil, we'll be in the virtual age," he says. Machines will take many more of our jobs. The ones we keep, we'll do by telecommuting. We'll still teleshop, but we'll probably buy less. "Physical universities will be a wasteland" by 2040, he predicts, as most degrees will be earned online. We'll even visit the doctor – and the Bahamas – virtually. "You [will] smell and feel the breeze, the sand, [and] the sun. You can do this at any time you want, anywhere you want, with anyone you want. Be anyone you want, and do anything you want," he says. "Machines are creating the world.... We're living virtually. This is the world 30 years out."
If these wild scenarios aren't far off, the circumstances they have in common – the absence of oil – is further out. Today's public is convinced it will never see an oil-free world. Less than one-quarter of Americans believe oil will run out in their lifetime, according to a September Christian Science Monitor/TIPP poll. Young adults are slightly more concerned: Thirty-eight percent of respondents ages 18 to 24 said it was "likely" they would see the end of oil.
Even oil industry experts acknowledge that having a stable supply of oil doesn't mean we must – or should – rely on it. A post-oil world may not be an inevitability to which we must react, but it may be a world we choose to create.
There are compelling reasons to make that choice, says Amy Myers Jaffe, coauthor of "Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold" and director of the Baker Institute Energy Policy Initiative at Rice University in Houston. "They range from reducing our trade deficit to taking away instability in our financial system ... to global warming and protecting our environment."
It would be a mistake to see this element of free will as a hippie hangover or sneaky environmentalism. Whether we wait to run out of oil or choose to replace it before then may determine all that comes next. "How we leave the age of oil and what we set up for beyond that is really key to what the world looks like when there's a lot less oil," says Lisa Margonelli, director of the New America Foundation's Energy Policy Initiative. Do we update power grids to accommodate a surge in electric cars? Beef up public transit networks in less-urban areas? Bet on a biofuel breakthrough and plan for the adaptations that it would require? "There's a lot of differences among biofuels," says Ms. Margonelli. "An ethanol-based biofuel ... needs a whole different transit structure [than] a butane-based biofuel, or biodiesel, or biogas."
Choices made now about the coming energy transition will have a global effect. The Gulf states, home to "oil sheikhs," may see their influence fall. Some of those sheikhs, meanwhile, are moving away from oil: Saudi Arabia, an ally the United States has cultivated especially for oil, is making major investments in solar energy, both to use at home and sell abroad. Brazil, which along with the US is expected to produce most of the world's biofuel by 2015, may see its global clout rise.
And to Margonelli, at least, the Arab Spring suggests energy-rich regimes may suddenly see the wisdom of sharing the wealth domestically. "[Y]ou already see the beginnings of the next thing," she says. "The question is ... how do the dominoes hit each other as we go forward."
There are more concrete questions at hand as Americans imagine that way forward. Do we plug in our cars or feed them beets? Do we even still drive? Do we power our iPods by walking down the street, or cook dinner with stored solar energy? Not all of these scenarios are about oil substitution – none of us today toasts up a grilled cheese sandwich over a gasoline fire – but in the energy sector, the focus is broadly on alternative fuels, not just on oil replacements.
"The scenarios differ a lot depending on what the actual trigger is for the move away from fossil fuels," explains Patrick Tucker, spokesman for the World Future Society. "With mass depletion of oil, you get a price explosion, and this would have a really different effect than if we're able to move transitionally from oil as a result of application of sound technology."
That technology is exploding across the alternative energy sector. At the Massachusetts Institute of Technology, two architecture students sought to capture the energy released when people walk, jump, or run, hoping to recycle it for use in small electronic devices. The state of California is considering research on converting traffic vibrations into bankable electrical energy. Mr. Tucker expects a breakthrough within 20 years.
Other changes are closer at hand. Companies like NatureWorks in Minnesota and Telles in Massachusetts already use plant sugars to make everything from drinking bottles to diapers, pioneering biodegradable bases for otherwise petroleum-intensive plastics. Companies are discovering how to power cars with algae and air. Boeing jets using a mix of traditional fuel and biofuel have flown cargo across the Atlantic and passengers within Europe.
In those cases, the biggest change – what runs the engine – isn't necessarily visible. In other cases, the oil-conscious choice is much more noticeable. Take Google's "driverless" car, for example. Navigated by computers, which are much more efficient drivers than lead-footed humans, the cars have zipped quietly but successfully along California roads. This year, Google lobbied the Nevada Legislature to pass bills that would allow self-driving cars on public roads.
Letting computers or other robotic devices command the steering wheel could save a lot of energy. But, adds Tucker, "[You're] driving a car, and in a lane next to you is a robotically driven car? There would be some ... barriers to that."
The creepiness of rolling up next to a car without a driver suggests an even bigger change: an alternative highway system in the sky. "The same drone technology that the US military is using in Afghanistan could be put to use here to transport goods," Tucker says.
Whimsical as it may sound, Tucker's alternative highway gets at the other problem for oil substitutes and other alternatives: infrastructure. The kind of energy used isn't simply about what sources are available. It's about complicated systems built around energy already discovered.
"It's daunting to think about how you would start" an infrastructure change, says Ms. Jaffe. The incentive to face that challenge varies as oil prices fluctuate and alternative energies go in and out of vogue.
"In 2011, we're on track to spend a half a trillion dollars on gasoline alone at the pump," says Margonelli. "That's ... about $100 billion more than we spent on gasoline last year.... If you can come in with something that upsets the primacy of oil, there's huge market opportunity."
But alternatives markets can crash. Three US solar panel companies declared bankruptcy this year, due in large part to cheap Chinese competition and cuts to alternative energy subsidies in Europe. Even accepted alternative energies can face sudden setbacks. While much of Europe runs on nuclear power, this year's nuclear disaster in Japan prompted Germany and Switzerland to call off their nuclear programs, and Italy and Poland to reconsider plans to invest in the technology.
Overcoming inertia on alternative energy is about something else: the loony factor. "If you were the guy at Xerox 30 years ago who had this idea about e-mail or the Internet, you would've sounded crazy," Jaffe says.
Margonelli thinks progress toward a post-oil world will also be about something a bit more old-fashioned than vision or creativity. "Going after energy has this whole sort of patriotic, future-focused side to it: the feeling, which is in many ways a patriotic feeling, of needing to leave our children a world that's better off than what we found."
http://www.alaskadispatch.com/article/alternatives-or-scarcity-what-will-life-after-oil-hold
Greasing the Skids of the Breakdown
I've been dwelling on socionomics for quite some time now. We are trying to use that model to get a feel for what we'll face as over two centuries of optimism and progress get unwound over the next generation or so. There are other tools in my toolkit that I have neglected to discuss in quite some time. With the markets unraveling before our eyes, it is time to revisit another model that you should familiarize yourself with: megapolitics.
Megapolitics is a phrase revived by James Dale Davidson and William Rees-Mogg in their books Blood in the Streets, The Great Reckoning and The Sovereign Individual. Of the three, The Sovereign Individual is most relevant to our current needs and well worth adding it to your bookshelf.
The very short version of the basic thesis of megapolitics is that technology, especially the technology of violence, drives how large states can grow, how much input citizens have in those governing structures and what changes to expect when technology shifts the balance between offense and defense.
The same technologies that allowed the West to colonize Africa and sweep opponents from the field in battlegrounds across the world would lead to the breakdown of those empires as the technologies spread. A machine gun can wreak havoc on tribal opponents armed with spears or flintlocks, allowing for the conquest of tribes and empires that had lasted for millenia. Those same machine guns (and radios, and later social media connections), in the hands of "rebels" all of a sudden made empire an expensive proposition. Increase the ability for small groups to mount an effective offense (adding guidance systems to missiles, roadside bombs, the "flattening" of the globe and the enabling of small groups to finance their activities via gray or black markets, etc.), add in the "mental software" of open source insurgency theory and you have a recipe for the collapse of large state structures, or at the very least the "hollowing out" of countries as well as the means to mount effective armed resistance to "invaders" of various stripes.
In an era of positive mood bias, the dark extremes of this technology are generally ignored or glossed over. As we move into an era of anger and violence, the logic of the microchip - whether in a computer or smartphone that allows some individuals to be productive any place on the globe or whether mated to an explosive in the form of guided missile or controlled bomb - we could quickly see the "Kosovo-isation" of many parts of the globe, where grievances long-supressed get worked out in low-intensity wars that could go on for years. Mix this with the "need" for governments to raise revenues in an age of austerity and you can see where this could go.
I suggest you trek over to the library and check out a copy of The Sovereign Individual or purchase a copy at your bookseller of choice. We will be covering topics such as the one below more and more as we watch the old system disintegrate around us and the language that Davidson and Rees-Mogg have used to describe their thesis will come in handy:
Iraq Militants Brag: We’ve Got Robotic Weapons, Too
By Noah Shachtman, Wired Danger Room
U.S. forces used a combination of spy drones and bomb-handling robots to help beat back Iraq’s insurgents. Now, those militants have a warning for those American troops still remaining in Iraq: We’ve got robots, too.
In a slick new online video just released by the Ansar al-Islam extremist group, kafiya-clad engineers brag about their skill and designing and making weapons of their own. They show off homemade silencers, fire custom-built rockets, and solder their own circuit boards.
But the climax to the nearly four-minute clip comes when the camera focuses on a car driving in the desert; there’s no one inside the vehicle. Then a tripod-mounted machine gun fires off a few rounds; there are no fingers on the trigger. The car and the gun are remotely-operated — crudely robotic...
We've been living this technological revolution for many decades. Time to pay the piper. While we will focus on the breakdown aspects in the coming years, my read of this trend is actually quite optimistic. We just have to survive the transition crisis...
http://futurejacked.blogspot.com/
Elizabeth Warren: 'Wall Street Broke This Country — One Lousy Mortgage At A Time
Elizabeth Warren: 'Wall Street Broke This Country — One Lousy Mortgage At A Time'
Zeke Miller | Oct. 9, 2011, 11:28 AM | 1,186
Massachusetts Senate candidate and former Obama administration official Elizabeth Warren laid into the financial sector for their role in bringing about the recession.
Asked about her position on the Occupy Wall Street protest at last week's Massachusetts Senate debate, Warren said that people have to follow the law, then immediately launched into an invective against the banks.
"The people on Wall Street broke this country, and they did it one lousy mortgage at a time. It happened more than three years ago, and there has been no real accountability, and there has been no real effort to fix it. That's why I want to run for the United States Senate."
Warren, the force behind the creation of the Consumer Financial Protection Bureau so anathema to Wall Street, has become the front-runner in the race to unseat Sen. Scott Brown — and the financial sector is plotting to undermine her candidacy.
video at link:
http://www.businessinsider.com/elizabeth-warren-wall-street-broke-this-country-one-lousy-mortgage-at-a-time-2011-10
It's not all good (the Amish) but some of it works...
The Amish largely untouched by U.S. financial crisis
When Wall Street banks hit rock bottom three years ago and investors across the nation were crying uncle, members of one American subculture emerged relatively unscathed.
The Amish, with their horses and buggies and their "upside-down" values, were largely unaffected by the financial crisis, living contented lives and amassing cash.
"Their whole world view is based on living below their means, never ever above their means," said Lorilee Craker, author of the book "Money Secrets of the Amish: Finding True Abundance in Simplicity, Sharing and Saving."
"They are so much more prudent than the rest of us," she said. "They like the sense of security. They like to know they have a big cushion for a rainy day."
In a material world where economic success is often defined by big houses, flashy cars, caviar and champagne, the Amish way of wealth is found in delayed gratification, hard work and thrift.
The No. 1 dream item on an Amish family's wish list is often to own a farm that can be passed down to future generations.
One 45-year-old Amish farmer Craker interviewed during her research had saved $400,000 over the course of 20 years toward the purchase of a $1.3 million farm.
He and his wife saved that down payment while renting a farm and raising 14 children.
"I looked for signs of stinginess, of a wife and children suffering somehow under the regime of a tight-fisted, straw-hatted Scrooge," Craker wrote of her visit with this family. "No one seemed deprived; in fact, just the opposite. Amos and Fern's adorable children have a calmness and peace I find striking and appealing."
The Amish do not buy into the added expense of modern conveniences that many others take for granted, such as automobiles, telephones and electricity. But that also means they rely on sunlight and they're limited in how often they can visit and communicate with people outside their community.
Another aspect of the lifestyle is the absence of personal debt.
Buying a farm is one of the only reasons the Amish would consider borrowing money, because they passionately avoid debt. They also have little respect for people who do not pay their bills on time.
"To pay someone on time is an extension of the commandment 'Do not steal,' " said one Amish man interviewed for the book. " If it's due on the 10th and you pay it on the 15th, you are stealing that man's money for five days."
Lancaster, Pa., banker Bill O'Brien can vouch for their creditworthiness.
HomeTowne Heritage Bank services $225 million in loans to Amish people, and Mr. O'Brien's customers are almost exclusively Amish. In 20 years, he said he has never lost money on an Amish loan -- ever. He can count on one hand the number of loan forbearances, or requests for a temporary delay or reduction in loan payments, that he has been asked to grant.
O'Brien told the Pittsburgh Post-Gazette that 85 percent of his institution's loans to Amish people are for the purchase of farmland. The other 15 percent are loans for primary residences and for rental property owned by Amish people.
Members of the religious sect usually limit their borrowing for real estate only, and they will always save at least 20 to 25 percent of the purchase price of whatever real estate they want to buy.
"After 20 years of working with the Amish, I have learned a lot from them," O'Brien said. "The Amish are like us, but they have certain beliefs that keep them from making the mistakes we make economically. They are more apt to stay within their means than the rest of the population."
Craker's interest in the Amish culture was piqued in 2008 while listening to an NPR report on how a bank in Lancaster that served the Amish community was having a record year even though banks across the nation were reporting heavy losses and even going out of business.
She found that money saving is built into their culture.
"They are very green," Craker said. "They like their food sourced naturally. They raise their own beef and chicken and butcher it themselves."
They find a second or third use for everything, going to great lengths at times to fix what is broken, patch what is torn and repair what is repairable. Generally, the Amish use things until they wear out -- completely.
The secret of the Amish people's financial success could have much to do with realizing the best things in life are free.
Recreation has nothing to do with trips to the mall or high-priced vacations. They opt for hiking, volleyball and badminton.
Ice cream is their number one extravagance, and it must be eaten quickly due to the prohibition against having electricity in the home. One Amish woman admitted her biggest indulgence was to treat herself to Ritz crackers.
"I told one of the Amish teenagers how much movie popcorn costs and she nearly fell out of her chair," Craker said.
"She and her family play dominos on Sunday nights and start a fire and make big bowls of butter popcorn for way less than $9."
(Email reporter Tim Grant at tgrant(at)post-gazette.com .)
(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)
http://www.scrippsnews.com/content/amish-largely-untouched-us-financial-crisis
Buckeye Oil Billions Will Unleash an Ohio Manufacturing Tech Boom
A prediction. The Ohio Valley is on track to become a hotbed of innovation. And one which will almost certainly focus on 21st century manufacturing. The catalyst for this seemingly counter-intuitive claim? Money. Black gold. Ohio is about to be awash in both.
Early evidence of this bright future is already blossoming on the shores of the Mahoning River in Youngstown, Ohio, where global steelmaker Vallourec & Mannesmann is building a steel mill. Yes, in America. In Ohio. Some 400 jobs are in play building the ten-story building, and almost as many will be permanently employed. The $650 million project is injecting real jobs, real opportunity, and real hope – and a window on the future.
Oh, yes. The plant will build steel tubes for the energy market. The oil and gas market. The revenue gusher is unleashed by the constellation of advanced technologies that are collectively known as "fracking." Youngstown, in fact most of Ohio, sits above the massive geophysical Marcellus and Utica shale structures which are richly endowed with billions of barrels of liquid and gaseous hydrocarbons. Fracking makes possible practical access to all that black gold. But then, by now, a lot of people have heard about the ostensible "evils" of fracking – by any industrial standards, a safe process. What this technology permits in immediate and long-term social terms is epitomized in Ohio. The implications are much broader and deeper than just one steel mill in Youngstown – as exciting as that is in these days of shutdowns.
Earlier this month a portentous study was released by the Ohio Oil & Gas Energy Education Program containing an analysis of the near-term economic impact of the development of oil and gas from Ohio's share of the Utica Shale formation – located several thousand feet below the surface. Let's start with the conclusions as to what this will mean for just the state of Ohio by 2015:
200,000 jobs
$12 billion growth in overall wages
$22 billion increase in state economic output
On top of that, many farmers, businesses, landowners, and even some communities are sitting on land that will yield to each of them tens of millions of dollars in annual royalty payments.
How did this happen? In a word: technology. The quantity of oil you can find in the first place, and then extract, is entirely a function of technology. Most of the punditocracy has been preoccupied with how technology enables new energy alternatives to oil. But they've missed how new technology has also unleashed the `old' alternative of unconventional oil. The underlying technology trends are essentially the same in both domains.
First, engineers can now make vastly better materials using superior processes and capabilities. So today we make both better silicon for solar cells, and better steel for oil exploration. Second, engineers have access to profoundly better information, sensors and controls – "information technology," or as it is now simply contracted, IT. IT enables, for example, the dynamic integration of dispersed and episodic solar panels, allowing for more efficient extraction of the sun's abundant energy. IT also enables the discovery, mapping and extraction of abundant but dispersed oil fields.
The technological magic in fracking resides in the maturation of directional and steerable drilling. Today, you don't just punch a vertical hole in the ground with a dumb mechanical drill – petroleum engineers now have rotary-steerable drilling technology that permits precision snaking through the meandering underground seams. The technology is a kissin' cousin to what doctors use, on a much smaller scale, for things like laparoscopic surgery.
Precision steerable drilling hugely benefits from yet more technology — real-time data from a technique called logging-while-drilling using technologies like gamma ray and neutron sensors that continuously analyze and report what precisely is in the ground at that point. And then this is all enabled in particular by a new class of IT-centric real-time imaging called microseismic monitoring. Again, in medical terms, think of the latter as the equivalent of continuous x-ray imaging – but done without the x-ray machine.
One of the early pioneers and major suppliers of microseismic technology today is Canada's ESG in Kingston, Ontario. ESG is a 1993 spin-out from Queen's University (where I count myself a proud alumnus). Microseismic technology provides real-time, instead of passive or historic images, and with very high resolution, compared with the original standard seismic gross `snapshots'. This technology reveals a picture of the subterranean environment using exquisitely sensitive sensors. These sensors pick up natural seismic energy in the earth which allows precise mapping and extraction of the widely dispersed and meandering shale seams of rich hydrocarbons. The field is heating up. Geoscience company IHS [ NYSE: IHS] recently announced a $500 million acquisition of Houston's Seismic Micro-Technology.
If you don't live in Ohio, or own the land over the Utica shale, you can still make a bet on the coming hydrocarbon boom via the companies that are making their own bets in developing the oil and gas fields there. Some key players in the Utica Shale include Chesapeake Energy [ NYSE: CHK], as well as EV Energy Partners [ NASDAQ: EVEP] which has a joint venture with Chesapeake. There is also CONSOL Energy [NYSE: CNX], Pennsylvania's Rex Energy [ NASDAQ: REXX], and Oklahoma-based Gulfport [ NASDAQ: GPOR] (the latter where, full disclosure, our fund has an interest).
http://www.forbes.com/sites/markpmills/2011/09/26/buckeye-oil-billions-will-unleash-an-ohio-manufacturing-tech-boom/
Can The Euro Be Saved?
by: Carnegie Endowment October 2, 2011
With the global economic recovery sputtering, fingers are pointing at the stagnating European economies and their spreading sovereign debt crisis. In a new Q&A, Uri Dadush warns that Europe has little time left to address the underlying weaknesses in the monetary union in order to prevent collapse. But even if changes are made, a sudden stop of funding and a bailout remains a possibility for Italy and Spain, and the necessary structural reforms in the periphery will take a long time to be implemented.
Is the European Union on the brink of a major economic catastrophe?
Unless the European Union takes important and convincing remedial measures in the next few weeks, its problems will escalate dramatically—and the eurozone could even collapse.
Initially, the euro crisis affected relatively small economies like Greece, Ireland, and Portugal. The Greek situation is far from resolution, but now Italy and Spain are at risk, and they are much more important economic players—Italy is even part of the G7, the group of major world economies.
Italy, which has the third largest debt in the world behind the United States and Japan, already faces very high costs on new borrowing. If the costs go much higher, Italy will effectively find itself shut out of financial markets. This would have catastrophic effects on the country's economy, but also on its ability to repay and refinance its debts. The value of its government bonds, many of which are held by international banks, has already declined and would plummet, triggering major repercussions throughout the eurozone and the international banking system. Credit ratings for individual euro countries would plummet and other governments would be unable to meet their debt obligations.
The starting point is also inauspicious—many governments have little policy room left to engage in fiscal or monetary stimulus, or to bail out the banking system. Countries could drop out of the eurozone. This would be the perfect storm—and has the potential to repeat the Great Depression of the 1930s.
Should the euro be saved?
It is clear now that the euro was built on a shaky foundation. It is a monetary union that does not have adequate underpinnings in terms of political union and in a fiscal pooling of resources. Moreover, in several member states, labor markets and product markets are inflexible, making it difficult for prices and wages to adjust. Without the ability to devalue currency, these weaknesses have led to large imbalances that created the problems we see now. For the first time in memory, very large economies are tied down by an arrangement where they have lost all policy room to react to slowing growth and rising debt levels, creating the real possibility of a sudden stop in their financing.
But we can't go back, and if the euro was to collapse now, there would be chaos. This means the underlying problems must be addressed to save the common currency.
It is entirely possible that one or more countries—particularly Greece—may not be able to make the political and economic changes necessary. A way must be found that reduces their debt in an orderly fashion. Even that may not be enough, and Greece may have to drop out of the zone to regain its competitiveness and reestablish conditions so it can grow again. But it isn't possible the save the euro as we know it if one of the larger countries like Italy or Spain is forced out.
Has Europe done enough to save its economies?
No. At every stage, Europe has reacted with too little and too late, and has failed to adequately focus on the long-term solutions. While European Central Bank interventions and use of the European Financial Stability Facility bailout fund are important and necessary in the short term, and both types of operations need to be greatly expanded, they won't fix the euro's real problems.
To do that, European policymakers must take three steps. The first is to make the necessary structural and fiscal adjustments in the periphery countries—like Ireland and Portugal—that will put their finances on a sustainable path and allow them to regain competitiveness.
Second, countries unable to make the necessary adjustments—because their debts are too high, it's not realistic politically, or their economies are too weak—need a mechanism for relief, including forgiving a part of their debts and, if necessary, assisting in their exit from the eurozone.
And finally, the eurozone needs to create a much larger common fiscal pool. Calling it a fiscal union might be a bit extreme, but there needs to be capacity at the center to issue bonds jointly and to implicitly guarantee all of the countries in the eurozone, at least to cover a large part of new financing requirements over many years. There also needs to be the capability to address shocks that affect members in different ways (such as the burst of the banking and housing bubble in Ireland) through, for example, a common unemployment insurance program and a facility to recapitalize banks.
But creating greater fiscal unity is a huge challenge. The recent debates have made it clear that countries in Europe are far from sharing a European identity.
Is Germany responsible for saving the euro?
All of the countries in the eurozone are responsible for saving it, particularly the ones whose economies are troubled. But at the same time, Germany is the largest economy in the eurozone by a large margin, and also is among the healthiest, placing it in the best position to help others make adjustments.
Germany also carries some responsibility for the problems we see at present. Germany—and France—have flouted the 1997 fiscal stability pact, designed to prevent some of the problems we see today, which set a poor example for the other countries. Germany has benefited from a euro that is weaker than the Deutsche Mark would have been. Its decade-old effort to contain wages and demand have led it to run larger trade surpluses than China, placing even more pressure on its eurozone partners.
Germany's political and economic choices today will determine the future of Europe. If Germans were to say today that they wanted a tighter political and fiscal union, the other countries would follow.
What can other major economies do to help Europe? Should China bail out Europe?
It will take many years to fix the eurozone. These types of structural changes do not happen overnight. If the crisis spreads to Italy and Spain, they will need a bailout. And it is unlikely that Europe alone can afford it—the cost would likely be in the neighborhood of $2.1 trillion. Regardless of the political will in Europe to come up with that large sum, it's just not economically conceivable without affecting the credit ratings of the countries at the core of Europe.
So while the G20 has distanced itself from the euro crisis in recent weeks, there is little question in my mind that if Italy and Spain were on the brink of collapse, the rest of the G20 would have to step in—at a minimum through expanding the resources of the International Monetary Fund (IMF). The IMF is already providing a third of the bailout money for Ireland, Portugal, and Greece. But that share will not be enough to support Spain and Italy, if it comes to that. The IMF will likely need to provide half of any bailout, which is where the G20 will have to play a role to support that type of funding.
The announcement by the U.S. Federal Reserve that it is willing to use its swap lines to help Europe in an emergency is significant and helpful. The United States Treasury is also clearly paying close attention, just as it should. And the emerging economies of the so-called BRICS—Brazil, Russia, India, China, and South Africa—have put Europe on their agenda, though at the moment there is little buy-in for a coordinated response.
China can and should help Europe, and I expect it will. China is now the largest exporter in the world and has large exchange rate reserves. The Chinese have a vital interest in the health of the global and European economies. So they would have to be part of the solution. But there is a limit to what China can do. A G20 intervention through the IMF could only occur if the United States and Japan made a big contribution.
http://seekingalpha.com/article/297008-can-the-euro-be-saved?source=email_macro_view
Too Late For The Unemployed?
by: Tim Duy October 2, 2011
The debate between cyclical and structural unemployment arose last year. At this point, it looks like Federal Reserve policymakers increasingly favor the structural side of the debate. Federal Reserve Chairman Ben Bernanke, speaking at Jackson Hole, suggested that cyclical unemployment remains the primary economic challenge:
Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view--the exception to which I alluded earlier. Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.
Note that he does not conclude the long-term unemployed are by definition structurally unemployed. Still, he continues to suggest that cyclical unemployment can turn structural:
In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.
But, as is well known, he throughs the ball to the fiscal authorities:
Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.
But is it already too late? Has the cyclical unemployment turned strutural? This week, serial-dissenter Philadelphia Federal Reserve President Charles Plosser embraced the structural view:
These numbers are troubling, especially when more than 40 percent of the unemployed, or some 6 million people, have been out of work for 27 weeks or longer. This underscores that we should not expect any easy solution. Millions of unemployed workers may take longer to find jobs because their skills have depreciated or they may need to seek employment in other sectors. These structural issues will take time to resolve. Jobs and workers will need to be reallocated across the economy, which is a long and slow process.
Plosser takes the rise in long-term unemployment as an indication of structural unemployment. He then extends the point to fight the last war:
We have provided a great deal of monetary accommodation to the economy, and given the stubbornness of the unemployment rate in responding to these efforts, we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated. Creating an environment of stagflation, reminiscent of the 1970s, will not help businesses, the unemployed, or the consumer. It is an outcome we must carefully guard against.
Likewise, the centrist Atlanta Federal Reserve President Dennis Lockhart also speaks of structural factors with respect to the long-term unemployed, even invoking a comparison with Europe:
I was concerned by not only the persistence of high unemployment but also the complicated internal dynamics of the current labor market. To me, it is not clear to what degree structural factors are impeding the filling of job vacancies. And with some 43 percent of the unemployed out of work for more than six months, it is not clear to what extent the long-term unemployed are becoming a class of permanently unemployed, creating a problem resembling the so-called structural unemployment of some European countries. Further, it is not clear why participation in the labor force continues to fall. Finally, it is not clear what level of unemployment should be considered the natural or equilibrium rate under current circumstances.
Not to be outdone, the difficult-to-categorize St. Louis Federal Reserve Chairman James Bullard also looks to Europe for guidance. From his presentation this week:
Unfortunately, unemployment rates have a checkered history in advanced economies over the last several decades.
In particular, “hysteresis” has been a common problem, in which unemployment rises and simply stays high.
This occurred in Europe during the last 30 years.
If such an outcome happened in the U.S., and monetary policy was explicitly tied to unemployment outcomes, monetary policy could be pulled off course for a generation.
Now, it seems to me premature to be looking to Europe as an example. It seems reasonably obvious the unemployment problem is the result of a severe negative shock to spending. You might say no, it is structural in that we can no longer rely on housing to support incomes. But that just boils down to a spending problem - unemployment was at the natural rate as long as households and firms had the ability and willingness to spend. Moreover, I am a bit hard pressed to see how America was transformed into Europe in just three years.
That said, I am not the policymaker. It appears Federal Reserve members increasingly embrace the structural unemployment story, and that suggests they will hesitate to bring out substantial additional stimulus until the see greater evidence of deflation.
Of course, the longer we drag our heels on the unemployment crisis, the more easily it will be for policymakers to wash their hands of the issue, as the cyclical unemployment eventually will become structural.
http://seekingalpha.com/article/297007-too-late-for-the-unemployed?source=email_macro_view
Behind the poverty numbers: real lives, real pain
By DAVID CRARY - AP National Writer | AP – 8 hrs ago
Related Content
In this Sept. 16, 2011 photo, Kris Fallon holds her 4-month-old daughter Addison, …
In this Sept. 15, 2011 photo, Bill Ricker, 74, looks out the screen door of his trailer …
At a food pantry in a Chicago suburb, a 38-year-old mother of two breaks into tears.
She and her husband have been out of work for nearly two years. Their house and car are gone. So is their foothold in the middle class and, at times, their self-esteem.
"It's like there is no way out," says Kris Fallon.
She is trapped like so many others, destitute in the midst of America's abundance. Last week, the Census Bureau released new figures showing that nearly one in six Americans lives in poverty — a record 46.2 million people. The poverty rate, pegged at 15.1 percent, is the highest of any major industrialized nation, and many experts believe it could get worse before it abates.
The numbers are daunting — but they also can seem abstract and numbing without names and faces.
Associated Press reporters around the country went looking for the people behind the numbers. They were not hard to find.
There's Tim Cordova, laid off from his job as a manager at a McDonald's in New Mexico, and now living with his wife at a homeless shelter after a stretch where they slept in their Ford Focus.
There's Bill Ricker, a 74-year-old former repairman and pastor whose home is a dilapidated trailer in rural Maine. He scrapes by with a monthly $1,003 Social Security check. His ex-wife also is hard up; he lets her live in the other end of his trailer.
There's Brandi Wells, a single mom in West Virginia, struggling to find a job and care for her 10-month-old son. "I didn't realize that it could go so bad so fast," she says.
Some were outraged by the statistics. Marian Wright Edelman of the Children's Defense Fund called the surging child poverty rate "a national disgrace." Sen. Bernie Sanders, I-Vt., cited evidence that poverty shortens life spans, calling it "a death sentence for tens and tens of thousands of our people."
Overall, though, the figures seemed to be greeted with resignation, and political leaders in Washington pressed ahead with efforts to cut federal spending. The Pew Research Center said its recent polling shows that a majority of Americans — for the first time in 15 years of being surveyed on the question — oppose more government spending to help the poor.
"The news of rising poverty makes headlines one day. And the next it is forgotten," said Los Angeles community activist and political commentator Earl Ofari Hutchinson.
Such is life in the Illinois town of Pembroke, one of the poorest in the Midwest, where schools and stores have closed. Keith Bobo, a resident trying to launch revitalization programs, likened conditions to the Third World.
"A lot of the people here just feel like they are on an island, like no one even knows that they exist," he said.
___
STRUGGLING ON $18,000 A YEAR
It's hard to find some of the poorest residents in Pembroke. They live in places like the tree-shaded gravel road where the Bargy family's dust-smudged trailer is wedged in the soil, flanked by overgrown grass.
By the official numbers, Pembroke's 3,000 residents are among the poorest in the region, but the problem may be worse. The mayor believes as many as 2,000 people were uncounted, living far off the paths that census workers trod.
The staples that make up the town square are gone: No post office, no supermarket, no pharmacy, no barber shop or gas station. School doors are shuttered. The police officers were all laid off, a meat processing plant closed. In many places, light switches don't work, and water faucets run dry. Residents let their garbage smolder on their lawn because there's no truck to take it away; many homes are burned out.
Ken Bargy, 58, had to stop working five years ago because of his health and is now on disability. His wife drives a school bus in a neighboring town. He sends his children, 15 and 10, to school 20 miles away. In the back of the trailer, he offers shelter to his elderly mother, who is bedridden and dying of cancer.
The $18,000 the family pieces together from disability payments and paychecks must go to many things: food, lights, water, medical bills. There are choices to make.
"With the cost of everything going up, I have to skip a light bill to get food or skip a phone bill to get food," he says. "My checking account is about 20 bucks in the hole."
About 75 miles away, in the Chicago suburb of Hoffman Estates, dozens of families lined up patiently outside the Willow Creek Care Center as truckloads of food for the poor were unloaded.
Among those waiting was Kris Fallon of nearby Palatine, mother of a teen and an infant, who hitched a ride with a friend.
She recounted how she and her husband — once earning nearly $100,000 a year between the two of them— lost their jobs, forcing them to move from their rented home into an apartment and give up their car.
"We fight a lot because of the situation," she said. "We wonder where we are going to come up with money to pay rent, where we are going to get food, formula for the baby."
She began to cry.
"I never understood why there were so many food pantries and why people couldn't just get on their feet and get going, but now that I'm in it, I fully understand," she said. "I sometimes feel like I am a loser ... I have never been unemployed and I never thought I would be going through this, ever."
Her husband, Jim, 43, said he's looked for jobs all over the country in the past two years, and just accepted an offer of a three-month stint in Paducah, Ky., on a hotel reconstruction project.
"Leaving for a job out of state for three months is what I have to do," he said. "It's terrible but it's our reality ... I guess this is the new America."
By Robert Ray
___
SHARING POVERTY WITH A FORMER SPOUSE
Bill Ricker's woes date back to the 1980s, when he injured himself falling through rotten floorboards while doing carpentry at an inn. He hasn't worked since.
He now lives in one end of a cluttered old trailer in Hartford, Maine, 60 miles north of Portland.
It wasn't supposed to be this way. Ricker has two college degrees. As a younger man he worked as an electronics repairman, a pastor and a TV cameraman. He and his first wife had seven children.
Now he receives food stamps, gets donations from a local food pantry and drives an 18-year-old car with 198,000 miles.
For a treat, he goes out to lunch at a cafe in a nearby town — about once every two months.
"I don't drink, I don't smoke, I don't chew and I don't go with girls that do," Ricker said. "In other words, on that income you don't do very much outside the home."
After finishing high school in 1956, Ricker earned an associate degree in electronics engineering and went to work selling and repairing marine electronics.
He later earned a theology degree and served as a pastor at churches in New Hampshire and Vermont. But times were hard on a pastor's salary, so he returned to Maine, eventually becoming a cameraman and studio engineer for a TV station.
After being laid off in the 1980s, he was hired to do some carpentry for an inn. His first day on the job, the floorboards gave way.
With his injuries, he could no longer tend to the three-unit apartment house he and his wife owned. They sold it, bought a used trailer for $7,000 and settled on a lot in Hartford, a town of about 1,000 people.
Ricker and his second wife, Judith Odyssey, divorced around 1995 and she moved out. But he offered to let her move back in nine years ago when she was going through a rough time, and she now lives in the other end of the trailer. She gets $674 a month in Social Security.
Besides his back and shoulder injuries, Ricker has diabetes, eye and breathing problems, and his hands shake. Odyssey has congestive heart problems, asthma and arthritis.
It's hard to make ends meet. Rent for the lot is $150 a month; Ricker has to buy insurance and gas for his minivan and pay bills for electricity and a phone.
He shops at a discount grocery store, gets canned goods from a food pantry, scours garage sales for clothes.
It cost $3,200 last winter to heat the poorly insulated trailer with kerosene, which was partially offset with about $1,000 in heating assistance funds.
Inside the trailer, ceiling tiles are coming loose and electrical wires dangle in the bathroom where a light fixture once hung. An old dryer, a mattress, a snow blower, discarded chairs and other junk are strewn about outside.
Still, Ricker keeps his sense of humor.
"I'm sorry I make jokes at everything," Ricker said. "But it's the only way to keep going."
By Clarke Canfield
___
BROKE — AND FACING THE UNEXPECTED
Until a few months ago, Brandi Wells lived paycheck to paycheck. She was poor, but she got by. Now, the 22-year-old lives "penny to penny."
Wells started working as a waitress at 17 and continued when she got pregnant last year. She worked until the day she delivered 10-month-old son Logan, she says, and came back a week later. But finding child care was a challenge, and about three months ago, after one too many missed shifts, she was fired.
In no time, she was homeless. The subsidized apartment in Kingwood, W.Va., that had cost her only $36 a month came with a catch: She had to have a job. Without one — and with no way to pay her utilities — she was evicted.
Logan went to live with his grandmother in another town while Wells stayed with a friend for three weeks in a filthy house with no running water.
"I didn't realize that it could go so bad so fast," she says now. "I was working. I was trying. I felt like I was doing everything I could. But everyone was saying I needed to do more.
"They say, 'It's your fault. You don't need to live off the government,'" Wells says. "For some people, yes, it is their fault. ... I didn't deserve to lose my job. I worked as hard as I could."
Wells filed for assistance from the state human resource department and got three free nights at a low-budget motel and $50 for gas to hunt for a new job. It didn't last long.
"The way it is now, you can't hardly find a job," she says. "I've applied here, there, everywhere."
Eventually, Wells and her fiance, Thomas McDaniel, found a two-bedroom apartment. After a few weeks, its walls and floors remain bare. The only furniture is in the living room — an old green sofa, a foam twin mattress, a play pen stuffed with toys.
Rent is $400 a month, and Wells is hoping that since McDaniel has just landed a job at Subway, they'll be able to afford it.
For now, her income consists of the $300 a month the state pays her to attend a daily self-sufficiency class, the $30 or so she earns at a bar once or twice a week, food stamps, and the $96 a month in child support she gets from Logan's father — "barely enough for diapers and wipes."
She gets help from the Raymond Wolfe Center, where she can pick up a week's worth of food once a month. And she's grateful for her class, which is teaching her how to manage her money and distinguish wants from needs.
She knew the difference before, she says. As a new mom, she just didn't care.
"I was in the stage where I wanted to give Logan everything ... and I couldn't afford it," she says. "And it caused me to be broke."
Wells says she's motivated to get back on track: "I want to get out of these low-income apartments. I want an actual house for my son. I want a car that's not on the verge of breaking down."
She's hoping her typing skills will lead to a secretarial job. Long term, she wants to go to college and eventually work as a mortician.
"It's a job you can't lose, she says with a grin. "They don't run out of business, generally."
But as if the odds weren't already stacked against her, Wells has two more challenges.
She needs to answer for speeding tickets she couldn't afford to pay. That resulted in a suspended license, further limiting her ability to look for work.
And, unexpectedly, she's pregnant.
"I've never been into the idea of abortion ...," she says, her voice trailing off. "Me and my fiance are talking about it. I don't know what we're going to do."
By Vicki Smith
___
A GROWING BOY HAS TO EAT, BUT HOW?
Wearing a navy blue pea coat, her eyelids dusted with shimmery shadow, Pamela Gray looked as though she was headed into work. Instead, she was standing in line at a Manhattan food pantry, where hundreds of people waited patiently to fill suitcases with groceries or meet with a social worker.
Going on a year without a job, Gray likes to rise early and ride the subway down from the Bronx to visit the West Side Campaign Against Hunger, New York's largest food pantry, which is tucked inside a church basement.
"When I was working as a home attendant, I had a check every week. So you know, the food thing wasn't a problem," said Gray, a single mother of three teens who was injured while caring for an elderly woman last year and had to quit her job. "But when you don't work like you used to every day — you don't know that you have the money — you have to go pick up food where you can."
Gray, 47, was meeting with the center's social workers about paying off $12,000 in student loans from Bronx Community College, where she earned a bachelor's degree. Her only source of income for now is occasional money from selling Mary Kay makeup and a couple of paychecks a year when she pulls shifts as an elections worker.
It's been hard on her 14-year-old son, who is growing fast and likes to eat. A lot.
"He likes Chinese food, chicken with broccoli, and then he likes his pizza," she said, laughing. "Yesterday I give him his $3.50 for lunch and tell him next week, you know, see what happens."
Gray made a follow-up appointment with a counselor — promising to bring the necessary paperwork next time — and then headed back onto the street. She walked to another church a few blocks away, where a woman was handing out free coffee and sandwiches.
She put the sandwich in her purse and settled down on the church steps to enjoy her coffee before heading to a public library. That's where she spends most of her time — using the computer, applying for jobs, devouring books.
"I'm reading this one, they talking about sentencing in prison," she said, tapping the cover. "I really like to read on child issues and stuff. But if they don't have it, I get another book."
And she waits for that long-awaited job offer to come through. She is optimistic about the latest one: a position working with children at a juvenile home. After all, she says, she has a certificate in child care from New York University.
"I think I'm gonna get it," she said, a smile spreading across her face. "I've been trying. I don't give up. I keep trying."
By Meghan Barr
___
'THEY DIDN'T HAVE TO SLEEP ON THE FLOOR'
The walls in Monique Brown's public-housing apartment have only a few decorations, sheets cover the windows and the cupboards are mostly empty. But it's a big step up nonetheless.
Until a few weeks ago, the 30-year-old single mom and her four children, ages 2 to 9, were homeless and staying in a Salvation Army shelter in downtown Birmingham, Ala.
Brown was married, living in Florida and working two jobs — one in a hotel laundry, the other at a retail store — when the recession hit. Today, those seem like the good old days.
"I never really had to worry about food and the basic necessities because I knew there was always a paycheck coming in a week," she said.
Brown lost both jobs in 2008 and split with her husband, forcing a move to Alabama to live with her brother and his family. An arrangement that was supposed to last for a couple months stretched to a year because Brown wasn't able to find work, and the strain was soon showing on her brother's household. Fearful for his marriage, Brown and her children took refuge in the shelter.
"It was the best option for us because they could have their own beds, they didn't have to sleep on the floor," she said. "I didn't want them to get the full effect of being homeless."
While her three boys went to elementary school, Brown cared for her 2-year-old daughter and sought work. She wasn't picky, but nothing turned up.
Still jobless, Brown found out about a public housing unit last month in the Birmingham suburb or Fairfield. With the Salvation Army paying her deposits and purchasing furniture and some appliances for her, Brown was able to swing a place of her own using $573 a month in disability payments for one of her sons, food stamps and donations.
Brown has been able to save about $100 and she's still looking for work. But finding a job is difficult because she has to balance potential work schedules against her children's schedules and the high cost of day care.
"Right now I'm just taking small steps," she said.
By Jay Reeves
___
THERE BUT FOR THE GRACE OF GOD ...
Nearly two years ago, on the day after a vacation, Tim Cordova was laid off from his job as a manager at a McDonald's. At the time, he and his wife, Sandra, an employee at a Subway restaurant, lived in a two-story house in the Albuquerque suburb of Ventana Ranch.
As the economy worsened in New Mexico, one of the nation's poorest states, Cordova struggled to find work and his wife's hours were slashed until she, too, was laid off.
They moved to a smaller house, then to a small apartment. By this June, unemployment benefits had run out and they resorted to living out of their Ford Focus.
"I was searching for jobs while I was collecting unemployment, and I could not get hired at all," said Cordova, 41, who is now living with his wife at an emergency homeless shelter called Joy Junction.
Sandra Cordova said her job search also has been fruitless.
Jeremy Reynalds, founder and CEO of Joy Junction, said he's never seen such high levels of homelessness and poverty in his 25 years of running the shelter, now New Mexico's largest.
"Demand is going higher, and higher, and higher," he said. "I mean, it really is scary."
Just a few years ago, the shelter was averaging around 100 residents a night. Now, Reynolds says, it's regularly filled with 300 every evening, and people are turned away every day.
The Cordovas said they see their situation as a "test from God" and are taking advantage of Joy Junction's life-skills programs. Sandra Cordova is taking computer classes and Tim is helping with shelter security. Both said they are not ashamed of their situation; they've even invited their grandchildren to visit the shelter.
"I just want another house. I just want another job," said Tim. "I want to prove that I can do it the right way."
Reynalds said donations to the shelter are down, but more people are helping out in person.
"More people are opting to volunteer," said Reynalds, "because I think they know that are a paycheck or two away from being homeless themselves."
By Russell Contreras
http://news.yahoo.com/behind-poverty-numbers-real-lives-real-pain-151738270.html
Middle Class Death Watch: As Poverty Spreads, 28% of Americans Who Were Part of the Middle Class Have Fallen Out of It
September 15th, 2011 · · Economy, Hotlist
Cross-posted from AmpedStatus.com
Editor’s Note: This is our first Middle Class Death Watch roundup. Building off of our extensive report on the financial destruction of the United States, this will be a regular feature moving forward. Here we present a collection of news reports from the past two weeks detailing the collapse of the middle class.
Overall Snapshot
Middle-Class Americans Often Fall Down Economic Ladder: Study – nearly a third of Americans who were part of the middle class have fallen out of it
“The promise of the American dream has given many hope that they themselves could one day rise up the economic ladder. But according to a study released those already in financially-stable circumstances should fear falling down a few rungs too. The study… found that nearly a third of Americans who were part of the middle class as teenagers in the 1970s have fallen out of it as adults… its findings suggest the relative ease with which people in the U.S. can end up in low-income, low-opportunity lifestyles — even if they started out with a number of advantages. Though the American middle class has been repeatedly invoked as a key factor in any economic turnaround, numerous reports have suggested that the middle class enjoys less existential security than it did a generation ago, thanks to stagnating incomes and the decline of the industrial sector.”
Downward Mobility from the Middle Class: Waking Up from the American Dream
“The idea that children will grow up to be better off than their parents is a central component of the American Dream, and sustains American optimism. However, Downward Mobility from the Middle Class: Waking up from the American Dream finds that a middle-class upbringing does not guarantee the same status over the course of a lifetime. A third of Americans raised in the middle class—defined here as those between the 30th and 70th percentiles of the income distribution—fall out of the middle as adults.”
long article, read the rest at:
http://daviddegraw.org/2011/09/middle-class-death-watch-as-poverty-spreads-28-of-americans-who-were-part-of-the-middle-class-have-fallen-out-of-it/
Germany May be Ready to Surrender in Fight to Save Greece
By Simon Kennedy and Brian Parkin - Sep 11, 2011 11:01 AM ET
Euro Crisis Draws G-7 Fire as Merkel Mulls Bank Aid Sean Gallup/Getty Images
German Chancellor Angela Merkel arrives to speak during debates over the federal budget at the Bundestag on September 7, 2011 in Berlin.
German Chancellor Angela Merkel arrives to speak during debates over the federal budget at the Bundestag on September 7, 2011 in Berlin. Photographer: Sean Gallup/Getty Images
Play Video Q
Sept. 9 (Bloomberg) -- Group of Seven finance chiefs meeting in Marseille, France, agreed that central banks will “provide liquidity to banks as required” to maintain the resilience of the banking system and financial markets. Bloomberg's Peter Cook reports on Bloomberg Television's "Taking Stock." Pimm Fox also speaks. (Source: Bloomberg)
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Sept. 9 (Bloomberg) -- Treasury Secretary Timothy F. Geithner talks about President Barack Obama’s $447 billion jobs plan and its impact on the economic recovery. Geithner, speaking with Peter Cook on Bloomberg Television's "In the Loop," also discusses the European financial crisis. (Source: Bloomberg)
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Sept. 9 (Bloomberg) -- Axel Merk, president and chief investment officer of Merk Investments LLC, talks about his decision to sell the euro. Merk also discusses Greece's sovereign debt crisis. He speaks with Matt Miller, Carol Massar and Peter Cook on Bloomberg Television's "Street Smart." (Source: Bloomberg)
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Sept. 9 (Bloomberg) -- Vincent Truglia, managing director at Granite Springs Asset Management, talks about the likelihood of a possible default on Greek sovereign debt. Finance Minister Evangelos Venizelos dismissed “rumors” of a Greek default, saying the nation is committed to “full implementation” of the terms of a July agreement for a second aid package. Truglia speaks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg)
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Sept. 9 (Bloomberg) -- Richard Lacaille, chief investment officer at State Street Global Advisors, talks about Juergen Stark's resignation from the European Central Bank’s Executive Board. Lacaille also discusses the euro-area debt crisis and investment strategies. He talks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)
Germany may be getting ready to give up on Greece.
After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.
“It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”
Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets and investors raising bets on a default.
Ring-fencing their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth. Underscoring the tone of weekend talks of Group of Seven finance chiefs, U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television that European authorities must “demonstrate they have enough political will” to end the crisis.
Credit Risks
European bank credit risk surged last week to an all-time high and the euro fell by the most against the dollar in a year. Investors have doubts whether Greece, whose two-year notes now yield 57 percent, will implement austerity moves fast enough to get a sixth payment from last year’s 110 billion-euro ($151 billion) bailout.
The Greek government’s top priority is “to save the country from bankruptcy,” Prime Minister George Papandreou said in a Sept. 10 speech in the northern Greek city of Thessaloniki. “We will remain in the euro” and this “means difficult decisions,” he said.
More evidence of rifts at the heart of policy making was exposed with the unexpected Sept. 9 announcement that Juergen Stark, a German, will quit the European Central Bank’s executive board over his opposition to the ECB’s purchases of bonds from debt-laden countries.
“Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” said Julian Callow, chief European economist at Barclays Capital in London. “This could complicate Germany’s involvement in additional bailout programs.”
Marseille Gathering
At the G-7 gathering in the French port of Marseille, ECB President Jean-Claude Trichet and European Union Economic and Monetary Affairs Commissioner Olli Rehn said they knew nothing about the talk in Germany of the so-called Plan B to protect banks. French officials said they weren’t working on a parallel proposal and Bank of France Governor Christian Noyer said his country’s banks have the capital to withstand a Greek default.
BNP Paribas (BNP) SA, Societe Generale (GLE) SA and Credit Agricole SA (ACA), France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of their Greek holdings, two people with knowledge of the matter said on Sept. 10.
Moody’s said in June that the three banks were placed on review to examine “the potential for inconsistency between the impact of a possible Greek default or restructuring,” and the companies’ current rating levels.
Deutsche Bank
German banks were the biggest holders of Greek government bonds at the end of 2010 with $22.7 billion, according to data from the Bank for International Settlements. As of June 30, Deutsche Bank AG, Germany’s biggest bank, had 1.15 billion euros of net sovereign risk to Greece, down from 1.6 billion euros at the end of 2010.
The aim of the contingency plan is to shield German banks from losses from a possible Greek default, which has a more-than 90 percent change of happening, prices for insurance against default show.
The plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next portion of Greece’s bailout is withheld, said the three officials, who declined to be identified because the deliberations are being held in private. The successor to the government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
Merkel Policy
The discussions aren’t intended to shove Athens out of the euro, said Klaus-Peter Flosbach, budget-policy spokesman of Merkel’s Christian Democratic Union and the Christian Social Union in parliament.
“It would be of central importance to keep the possibility of contagion in the euro zone as low as possible,” Flosbach said in an e-mail. “In any case, we’re not looking into pushing Greece out of the euro zone.”
Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said Germany’s concern is broader than Greece, which is in its third year of a deepening recession, and centers on how its banks and economy would cope if the debt crisis spreads.
“Germany is preparing for the worst, which is that the crisis in the euro zone is going to be much bigger for everyone,” Erixon said.
German Critics
German lawmakers, who are scheduled to vote Sept. 29 on a second Greek aid package and revamped rescue fund, stepped up their criticism of Greece after an international mission to Athens suspended its report on the country’s progress two weeks ago.
“There can be no doubt” that Greece must fulfil the terms of aid to receive it, German Finance Minister Wolfgang Schaeuble said in Marseille. “Everybody must stand by the agreements.”
With a loss in her home state of Mecklenburg-Western Pomerania this month, Merkel’s coalition has been defeated or lost votes in all six state elections this year as voters reject putting more taxpayer money on the line for bailouts. Merkel has also antagonized markets and fellow leaders by initially holding out against aid for Greece and demanding investors pay a share of the assistance.
Fifty-three percent of Germans oppose further aid for Greece and wouldn’t save the country from default unless it fulfils terms of the rescue agreement, Bild am Sonntag reported, citing an Emnid poll of 503 respondents conducted Sept. 8.
Greek Response
After European markets closed last week, Greek Finance Minister Evangelos Venizelos dismissed “rumors” of a default and said his nation is committed to “full implementation” of the terms of the July accord for a second aid package.
Venizelos told reporters in Thessaloniki yesterday that budget measures, including a special levy on real estate, will be enough to meet targets set for 2011.
The market fallout served as the backdrop for the G-7 talks where Canadian Finance Minister Jim Flaherty said Europe’s woes were the “number one” topic and that Greece may even need to quit the euro if it can’t consolidate its budget. Geithner said authorities “need to do whatever they can do to calm these pressures” and that rich European nations need to provide “unequivocal” support for their weak neighbors.
G-7 officials vowed to “take all necessary actions to ensure the resilience of banking systems and financial markets,” and to make a “concerted effort” to support a flagging world economy. They detailed no new policies.
To contact the reporter on this story: Simon Kennedy in Marseille at skennedy4@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
http://www.bloomberg.com/news/2011-09-11/germany-readies-surrender-in-fight-to-save-greece-euro-credit.html
"The Euro Is Finished"
Submitted by Tyler Durden on 09/08/2011 14:22 -0400
From Mike Krieger of KAM LP
There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.
- John Adams
What lies behind us and what lies before us are tiny matters compared to what lies within us.
- Ralph Waldo Emerson
The Euro is Finished
To regular readers of my pieces over the last several years this may not seem like a particularly poignant statement. After all, I have referred to the Euro and the U.S. dollar both as worthless political toilet paper for years. The reason I bring it up right now is not to state the obvious long-term macro conclusion that the Euro is a foolish, unnatural creation that only political types twiddling their thumbs in a room could come up with. No, rather the reason I say it now is because I believe the Sword of Damocles is now hovering right over it.
The only question in my mind at the moment regards the specifics of how it will end. I would say that the majority of those that think there is a strong likelihood that the euro falls apart envision the PIIGS countries leaving or being thrown out. While I certainly think this is a possibility, especially if Greece just calls it quits and then successfully transitions to its own highly devalued currency since this would for sure start the ball rolling and before long many of the other financially weak nations would also bail. In such an event, I suppose what is left of the euro could be comprised of stronger Northern European nations and in that case what is left of the common currency could in fact strengthen materially versus other fiat currencies for which no such “restructuring” has occurred. However, I am not convinced this is what happens. The reason I am not convinced is because I don’t believe that the desired austerity measures will ever really go into effect in these nations and even if they did it would merely collapse those economies and the problem would not be solved. As many have stated over and over (including myself) there is no conventional solution to this crisis. There is far too much debt and there is no way real GDP growth can grow fast enough to counter this. The debt will be defaulted on via restructuring/default or a dramatic destruction of the purchasing power of fiat currencies. Nevertheless, the bureaucrats in Europe have such a deep love affair with their preposterous experiment they will turn a blind eye to all the transgressions of the PIIGS and continue to just pretend they have solved something with every new bailout scheme.
So that brings us to the other, and I think increasingly likely, outcome. That is namely that the ECB continues to transfer wealth from the prudent and fiscally more sound nations (mainly Germany) to the periphery until the populace of Germany snaps. I think that moment is very, very close at hand. Once that tipping point is reached there will be no turning back. The popular anger at the ECB and Euro will be so profound and so long festering that it will overwhelm all attempts to keep things together. Germany could leave the Euro. Or it could make it so difficult for the PIIGS that they are forced to leave. Either way, Germany is EVERYTHING. Nothing else in Europe matters right now besides the sentiment on the German street and it has become pretty clear lately which way that is going. I am 100% convinced that Germany will play nice until that crucial moment is reached where it really is put up or shut up (we are close). At that point, I have no doubt that Germany will do what is best for Germany. In the event that Germany was to leave, the Euro would be gone forever. It would become pure confetti overnight. This is not my base case but it could happen. Anything can happen right now.
The Fourth Turning is Global
All of this discussion about the euro brings me to a broader point. While for obvious reasons I focus my attention on the United States because this is where I live and what I know best it is imperative for me to clarify my view that this Fourth Turing we are in is global in nature. Remember, what really characterizes these shifts is the fact that the trends, institutions, political structures and parties, social mores, money systems, etc all die and are reborn during such episodes. The last to get this of course are the elites and the political class who are always in bed together and seemingly at the height of their collective corruption once the Fourth Turning hits. We see this everywhere at the moment, from the U.S. to the Eurozone to China. What makes me laugh more than anything else are all these political hacks and financial “analysts” who keep saying that the answer to the crisis in Europe is a fiscal union in Europe. That somehow this crisis will lead to the necessary resolve to form a fiscal United States of Europe, or some idiocy like that. Sorry folks, it’s not going to happen. This whole “problem, reaction, solution” playbook worked for the elite in the prior era but it will no longer work. The playbook is out there. It has been read and studied. We know the playbook. It’s not going to work this time.
Like I have said before, one of the key aspects of the new age we are entering will be a dramatic reversal of a lot of the unrestrained globalization that has occurred since World War II. Things are going to be more local everywhere. Such as the food we eat and the products we use. The lack of any breakthroughs on the energy front as we confront resource constraints demand that this be the case. This reality will change everything in every possible aspect of life on earth. Things in general will be much less “top down” on the political front. There is a “tide in the affairs of men” indeed and that tide will take the Euro and any ideas of a fiscal union out to sea forever. The key thing for everyone reading this to do is to get prepared for the new world as much as possible before it comes suddenly. This has always been the idea behind my pleading to buy gold and silver. We will need new forms of money and exchange. It cannot and will not be a fiat SDR or any ridiculousness such as that. That notion represents the past trends and the already failed dreams of our parents generation of central planners and free lunches.
Quick Thoughts on the Swiss Franc
While the move by the SNB to basically link its currency to the dying Euro was shocking and will send shockwaves throughout the global financial systems for months to come, in many ways it was inevitable. The central planners are still in control and they are getting increasingly desperate. Part of their desperation manifests itself in acts to prevent markets from sending out signals to investors and the general population. This is why Central Bankers print money and buy government bonds. This is why the ECB is buying worthless PIIGS debt. This is why the SNB decided to destroy its currency. After all, if they agree to destroy the value of the Franc at the same pace as the Euro then it will become less clear to the currency market just how quickly purchasing power is being destroyed. Of course, you can always tell in the commodities sector. What the Swiss did is unfathomably bullish for commodities, in particular energy, food and precious metals. Every rich person with a Swiss bank account in Swiss Francs will be scrambling to turn that into the one hard currency left: GOLD. That is what the Swiss said to us earlier this week. They told every investor on the planet “we don’t want to have a hard currency.” If you want a hard currency you have once option now. Gold. When people really figure this out it is going to be a mad scramble for physical metal the likes of which no one alive has ever seen.
Peace and wisdom,
Mike
http://www.zerohedge.com/news/euro-finished
Fear Sets In, Panic Begins, Ruin Perceived, Prepare for Gold $2100
Stock-Markets / Financial Markets 2011 Aug 24, 2011 - 04:06 PM
By: Jim_Willie_CB
Something big is going on in the United States in a sentiment change, an altered state of psychology, a growing sense of panic. My opinion is that the nation has entered the early stage of comprehension among the population of systemic failure. The most immediate measures are the rash of heavy selling down days in the US Stock market, the strong purchases in Gold, as well as the reactions to constant news of sovereign debt in trouble, and the big banks teetering. Several other softer measures have been noted, made overwhelming by their sheer numbers. A perception wave has taken hold of a toxic USEconomy, a toxic US financial sector, a toxic US housing sector, a toxic economic brain trust in the US towers. A sense of doom is creeping into the nation's living rooms and board rooms, that the nation is in deterioration. Worse, they are realizing how US Federal Reserve is toothless, unable to address or treat the problems.
The citizenry is not adept or gifted enough to conclude that the problem is national insolvency, whose errant prescription has been a flood of liquidity. But they sense something is horribly wrong, and worse, that no current treatment will fix anything. They detect the backfire of the blunt banker solution and the misfired futility of the federal government solution. Witness the rooted perception and horrifying awareness that the United States is moving gradually and unavoidably into a systemic failure. The perception is that neither governments nor bankers have any solutions to help the people, who must impose their own gold standard. The Gold price registered a new high over $1900 per ounce, this after mental midget clowns and propaganda wags in May pronounced the bull market as finished. Their opinions are worthless. Watch them vanish behind the tall shrubbery when Gold surpasses $2000 this autumn.
ROOT OF NATIONAL ILLNESS
In my view, the national illness is a toxic USEconomy dominated by pervasive profound grotesque insolvency. In the early part of the 2000 decade, a strong hint of near-term future failure was obvious. The USEconomy shed its industry to Asia since the 1980 decade. In the early years of last decade, the migration of factories was to China. In its place, the US consumers relied upon home equity withdrawal, blessed as good by the American economists and high priest of heretical ideology Alan Greenspasm. The hint to sound money economists such as the Jackass from the dependence shift was a clear signal of ruin in a few years, as in now. It came on time. In my view, the national illness is a toxic US financial sector dominated by pervasive insolvency and massive fraud. The FASB accounting rule change permitted grotesque falsification of the bank balance sheets, reflected in market capitalizations above zero. The value zero has been and still is more accurate, still is the price target. The big US banks continue to fight off the powerful forces of a housing market in resumed chronic decline, sovereign bonds overseas beset by heavy losses, and a spate of bond investor lawsuits that rack up. All attempts to limit lawsuit exposure have failed. Litigants line up in court like Wal-Mart shoppers on a big sale. Americans are awakening to the unfixable nature of the USEconomy and the broken fraudulent nature of the US financial sector.
The Achilles Heel, the broken leg, the ruined road, and the toxic field is HOUSING & MORTGAGES. The contaminated blood, the leaking gangrene into the circulation system, the sewer line in the water supply is BANKING & FINANCE. The USEconomy grew dependent upon the two-sided asset bubble. No resolution or remedy or liquidation means rotting flesh and gangrene on the body economic. Americans have noticed. The US banking system remains insolvent, worse each quarter from toxic assets. Home prices have resumed their decline, despite all incorrect announcements by banking, political, and economic leaders over public address propaganda loudspeakers. The crowd control devices are not working, as the people are deeply worried. The banks are plagued by an REO inventory bloat extended from home foreclosures, where they do not dare release all the homes onto the already bloated market for sale. The banks are peppered in attacks by bond investor lawsuits, which work to resolve the bond fraud from misrepresentation of mortgages packaged in AAA toxic bundles. They lost 30% to 60% in a matter of months and a few years. The banks have a dirty secret of hundreds of thousands of home loans operating in strategic default, whether the homeowners refuse to pay anything more on their mortgages, often demanding to see the proper title on the property. The news media will not cover this story. In every court challenge, the banks have lost the cases, resulting in the homeowners taking clear title with the loan fully forgiven. The newest threat to the banks is the next Option ARM wave, the second round of adjustable rate mortgage that will continue in a storm until 2013 ends. Americans are awakening to the unfixable nature of the USEconomy and the broken fraudulent nature of the US financial sector.
No meaningful home loan balance scheme conducted by the USGovt means the housing mass & mortgage connective tissue circle the toilet in a flush. The reason is simple. Home loan balance reductions would expose gigantic bond fraud in tracing the mortgage bonds to home loans with title registrations. It would result in exposure of Fannie Mae counterfeit bonds having circulated widely. It would result in forced bank asset writedowns amidst the pervasive accounting fiction at work on the balance sheets, blessed as good by the FASB. It would expose MERS as a fraudulent device to hold titles without legal standing. It would embolden half the nation into civil disobedience, as in outright refusal to pay banks on home loans. It would expose the nation as insolvent generally. It might interfere with some perverse national plan to use Fannie Mae as some devious device to become landlord to one third of the nation's homes, a plan of collectivism that Karl Marx might approve. Americans are awakening to the unfixable nature of the USEconomy and the broken fraudulent nature of the US financial sector.
PANHANDLE DOCTRINE & PARASITE DOCTRINE
The tragedy that struck the US nation has a great connection to toxic economic thought from its economic brain trust. It is thoroughly toxic, corrupted, and destructive ideology woven in an acidic blanket with rampant impairment to working capital. It earns a D grade on economics effectiveness, and in fairness is not what Keynes prescribed. It is toxic thinking. It seems to have elevated the Voodoo Economics of the 1980 decade to the Fascist Business Model in the 2000 decade. The license to engage in fraudulent activity is engrained in the pact between big business (led by big banks) and the USGovt policy making groups which are dominated by Wall Street firms (led by Goldman Sachs). The summary line is vividly clear to astute adept students of economics: the United States no longer has any concept of capitalism, and has undergone three decades of capital destruction. The crescendo of the capital destruction has taken place in the last three or four years, whose climax tune is the shrill Quantitative Easing. The cast of American economists is wedded deeply to the notion of credit dispensation and monetary growth under the illusion of control. They do not comprehend capital formation anymore, relying instead upon what the Jackass calls with bitter intended mockery the Panhandle Doctrine applied to consumers, matched by a Parasite Doctrine applied to banks. If you give a street bum money, he will buy coffee and maybe a sandwich. The USEconomy is based upon coffee and sandwiches, not much more, as the consumer is given money in pockets and purses to spend. The depravity of economic thought is shocking. The stock market & housing sector (FIRE) replaced industry & factories with tragic outcome. FIRE means finance, insurance, and real estate, a great ironic moniker since the fires burned capital at a rapid rate.
A prevailing belief exists among American economists that if the consumer picks up, then industry will expand with big capital spending and job hires. The belief is entirely backwards, a symptom of American economist ignorance and stupidity. The consumer (street bum) relies upon tax breaks, reduced Social Security & Medicare contributions, extended jobless benefits, clunker car gifts, first time home buyer tax credits, and more. They are all examples of the Panhandle Doctrine from which the USEconomy have grown dependent upon. Observe the toxic American economist ideology. For banks, a parallel Parasite Doctrine hard at work has gutted the financial sector. The regular fare offered as examples as strategic crutches to a broken sector are sponsored USTreasury carry trade (aided steered by Interest Rate Swaps), betting on their own stocks lifted by phony FASB accounting rules, participation in USFed frequent flyer programs like the Money Market giveaways, flash stock trading (High Frequency Games) done with impunity, short stock sale bans (Goldman Sachs given an exemption), and naked selling of USTBonds (grandaddy fraud). See failures to deliver, buttressed by Interest Rate Swap artificial end demand that serves to cover the other end and qualify as a bonafide bucket shop.
Thanks to Aaron Krowne and his Mortgage Implode website, for the intrepid work on the mortgage market and recently on the USTreasury market. He provided the graph on Failures to Deliver on USTBonds. See the ML Implode article (CLICK HERE). The total is roughly $1 trillion in bond fraud, an ongoing figure. The story broke in mid-2009, only to disappear with organized suppression. The Wall Street firms lost their investment banking business, but found a fertile source of liquidity from naked short sales of USTBonds, whose buyers were the artificial factory of Interest Rate Swaps. Without this naked shorting line of liquidity, the Wall Street job cuts would have been much worse, equal to the London and European bank sector job cuts. The Parasite Doctrine has a poster boy project with these fraudulent sales given cover by the Securities & Exchange Commission, whose official ranks are filled by Wall Street henchmen.
THE CONFIDENCE GAME RUSE
The American public is told that confidence is the root cause of the absent woefully low business spending. The confidence took on damage after the vacant USGovt & USCongress budget deal and debt extension to be sure. But the true source of absent business capital investment is broad deep insolvency, the poor business risk, extending from the broken housing market, the wrecked banking sector, and the inadequate industrial base. The government finance requirements serve to crowd out the bond market, which in a normal system would rely upon the financial sector for capital formation, business development, and construction of platforms that offer job growth. In the US financial sector, the innovation is with carry trade speculation, exploitation of easy money facilities, and profound bond fraud, hardly the stuff of growth mechanisms. Big banks do not lend when they can reliably make money on the USTreasury Bond carry trade. The American corporate sector has responded to the liquidity flood, aka monetary hyper-inflation, and the corresponding acidic undermine to capital, by moving investment overseas. See Cisco, General Electric, and Hewlett Packard, which is instead raising a white flag to Asian PC makers. The most glaring consequence to the monetary policy, marred (not aided) by QE and QE-Lite and QE2 and Secret Global QE, has been the entire cost structure has risen, without benefit of rising incomes.
Furthermore check Economics 201, Chairman Bernanke. Low interest rates suppress the USEconomy, not stimulate it. Almost twice as much interest income is earned versus interest costs paid. The pensioners and retirees are struggling with inadequate income, spending less. The bond investors sought out higher yields in mortgage bonds, only to be burned by 25% to 40% losses in principal. Pension fund income is way down. Of course the motive has been to support and stimulate speculation in Wall Street, where the USFed primary loyalty lies, surely not with Main Street and business interests.
FEAR SETS IN, PANIC BEGINS, RUIN PERCEIVED
A confluence of major perceptual factors is flowing in the national mindset. Fear is setting in. The early stage of panic is evident. A growing perception of ruin can be spotted. People are responding to numerous high profile stories, each of which is important in painting a mosaic of extremes, none of which would have occurred in the 1990 decade. The chorus of crisis is loud and shrill. Here are some important events that the American public must examine.
The broken USGovt budget and upcoming huger deficits. With tax receipts trending down, and the need for economic stimulus programs clear, the USGovt deficit next year will be larger, not smaller, despite what the errant Govt Accountability Office statement reads.
The blatantly obvious USeconomic recession, whose billboard signs litter the highway, the latest being the Richmond Fed down 10% (called good), and the Philly Fed down 37 (could not be called anything but horrible). The Philly Fed forecast was minus 2 by the intrepid marketing prop carnival barker American economists.
The EUR 850 billion bailout by the Euro Central Bank, intended to cover the mountain of Italian and Spanish Govt bonds. But the bailout will accomplish nothing, just like Greece, where numerous bank bond bandaids have been applied. And besides, the Germans have refused to offer any more bailout funds, calling Italy and Spain too big to bail out, quite properly.
The creepy feeling of a global monetary system breakdown. The major currencies are being debased to such a grand extent that even the less gifted American public can notice. They see the onslaught of sovereign bonds overseas, and might harbor more distrust for USTreasury Bonds that the media reports. They might be buying gold & silver coins from the USMint, which cannot keep up with demand.
The anticipated QE3 heresy is certain to continue. It has already come in Global QE form, as the Jackass expected. My forecast is that the USFed will formally support the US Stock market and violate its charter. But the move will be applauded and serve as the next heroin injection to the body economic, with certain additional capital destruction and rising cost structure.
The Swiss and Japanese central bank futile actions, designed to halt their rising Franc and Yen currencies. The lesson learned is that all major central banks have turned toothless, their policies ineffective, wasteful, and destructive. The Competing Currency War is making all of them big losers. Their economies suffer.
The pitiful paltry puny USTreasury long-term yield of 2.0% to 2.2% does not offer the American saver the proper incentive to save, nor the proper return on investment, certainly not an adequate yield to reflect the risk taken. The yield now stands at 7% to 8% below the true CPI rate.
SINKING INTO THE AMERICAN PEOPLE MINDSET IS THAT THIS IS 2008 ALL OVER AGAIN, BUT TWICE AS BAD, SINCE THE SOLUTION HAS FAILED AND TRUE REMEDY IS SEEN AS IMPOSSIBLE!! The USGovt and USFed and Wall Street policy makers and league of Rasputins have thrown $3 trillion at the problem, have bailed out the big US banks, have conducted numerous liquidity programs, have made Swap Lines to Europe, have completed a few mickey mouse stimulus initiatives (clunker cars, first time home buyers), have extended but terminated aid to states, have extended jobless benefits, have given SS/Medicare relief, have operated gigantic debt monetization programs (QE's), but the USEconomy is rolling over into a recession anyway. The confirmation of the recession is the many denials with shorter frequency between denials
THE SHAPE OF QE3
As the Jackson Hole Conference is set to begin in the spectacular picturesque mountains of Wyoming, anticipation and anxiety rise. The Grand Tetons serve as a fitting location to announce the renewed dependence from the USFed teats, the monetary spigot. Where the spigot is directed remains the main question in debate. Given the robust supposed USTreasury Bond rally, it hardly seems suitable to direct QE3 toward more USTBond buying, unless they wish to avoid USTreasury auction failures. The ultra-low yield combined with ultra-high supply makes for extremely high risk. Bond investors might not show up at all. A failed auction would be highly embarrassing as a event after the highly publicized bond rally, an irony worthy of Rolling Stone exposure or a Saturday Night Live comedy segment. The USGovt minions and Wall Street made men had crowed that the bond rally contradicted the Standard & Poors downgrade for the USGovt debt. My forecast is that the QE3, when it comes, will be designed and intended openly to support the Stock market. It will not arrive this week. It will arrive with full bore announcement in response to the next round of deep US stock market declines. History will be made. The spin on the USTBond rally to 2% on the 10-yr is deafening and deceptive. We are told the bond market anticipates QE3 but that is patently false. The bond market smells with great dread the next USEconomic recession, or more accurately, recognition of the ongoing chronic powerful recession that began in 2008 and never ended. The bond market smells unfixable recession, all current tools having failed. The bond market detects correctly that the US Stock market from mid-2010 has been propped by QE initiatives, now absent.
The irony, intrigue, and corruption is both bizarre and macabre. The Standard & Poors President Deven Sharma has decided to step down only three weeks after the agency downgraded the US credit rating. What a predictable move. The post will be occupied by Douglas Peterson, chief operating officer of Citibank, to take effect on September 12th. Business as usual on Wall Street. The S&P lead role will be in capable hands. One might wonder if the outgoing officer will be charged with child pornography or a rape in a hotel. That event might not be needed.
GOLD MAKES RECORD HIGHS
This week has been tumultuous. The best summary in my view is to conclude that the Gold price set a record high, and fully revealed what direction it will take this autumn. In the low volume vacation dominated days of summer, an opportunity to engineer a selloff has begun in earnest. Gold has gone down to $1765 and Silver to $40 flat, still way up on the year. Hats off to Ben Davies, who has been impressively accurate in his precious metals forecasts. He nailed the silver forecast in April, expecting a steep pullback to $35. We saw it!! In June, when Gold was trading in the low $1500 level, Davies boldly forecasted that Gold would break above $2000 by yearend 2011. The strong upward moves seen so far in August have captured global attention. After action last week, Davies fine tuned his 2011 gold call, stating he expects Gold to reach $2100 by the end of December after first a correction to $1675. Today we saw it!! The hefty pullback will lose some faithful followers, but offer savvy investors a great chance to add to their positions. The cartel is busy making countless grateful Chinese, Indians, and Asians who have not stopped buying precious metals in defense of rapid inflation. They see the American bankers as the inflation villains. The sudden pullback has assured the last fire sale before the autumn gold bull romp, a great trampling event to come. It is written, it will happen. See the King World News interview (CLICK HERE).
The compromised clowns have been busy citing how the Gold price is $150 to $200 too high based upon price inflation, or even 50% over-valued based on some cockeyed Fed Business Model. They overlook the broken distorted market is the USTBonds, supported by powerful usage of Interest Rate Swaps, aided by USFed monetization still and the migration from stocks to bonds. The volatile moves in the Gold market can be interpreted with high predictability. The big down move today signals even bigger upward moves in the next few months. The money is moving quickly today on Wednesday. The 10-yr USTreasury has rallied on the TNX from 2.14% to 2.21% as a decent move. The crude oil price is up from $85.40 to $86.1 as a modest move. Nobody can deny that panic has hit the stock market, as the recession can be seen without rose colored glasses. Expect much more debasement of the USDollar, as tax revenues fall and stimulus costs rise. The bigger USGovt deficits must be financed, during a truly hostile climate. The complete ruin of major global currencies is in progress, not stoppable. Money is being ruined to such an extent that people are bewildered, wondering what constitutes money if sovereign bonds are being attacked and losing value. The tainted USTreasury Bond market has become almost a source of great amusement. The entire major currency market is in turmoil. See the Swiss Franc, the Japanese Yen, and their rapid rise several standard deviations above their norms or trendlines. Havoc has taken root.
The Libyan chapter will be properly told in a year or two. Tyrant Qaddafi wanted to install a Gold Dinar for North African usage, a similar sin committed by Saddam Hussein. These guys never learn that a challenge to the USDollar is met with armed resistance. The US & UK forces entered the fray. The secondary goal might have been to take oil producing capacity offline, thus lifting the crude oil price. Big Oil interests do not want the global recession to rock the crude oil price too much. The other benefits have been the $50 billion in funds frozen solid in US & London banks. Another $50 billion is frozen in European banks. Expect it to remain out of reach by Libya's new leaders, despite talk. It is too badly needed within the Anglo banking system. See Oslo. The search is on not only for Qaddafi, who is surely comfortable somewhere in a desert bunker, but also well fed, and well medicated with his usual fare of psycho-tropic drugs. The hunt is also on for Libyan gold bullion. The Anglo bankers need it, since the COMEX and LBMA are just about bone dry, and the big US & UK banks are insolvent on the edge of failure. See their Credit Default Swap rates on debt insurance. For the greater good of the Anglo Empire, gold must be found and secured and locked up in the banking system, regardless of the propaganda messages put forth.
Prepare for $2100 gold by January, and $60 silver by January. The last open door is being made possible in the final days of August. Like last year, the months of September through January will be ones for the history books. The start of big bank failures in the United States, London, and Europe should add to the gold run. Contagion has hit Italy, Spain, and France (the newest PIGS lookalike). The breakdown will be broad, deep, and frightening in the next few months. The twisted thinking is probably that gold must be brought down as much as possible, to make a lower base before the next gigantic upward moves beyond the $2000 level and probably past $2100. The gold breakout will capture global attention and make major headline news. This is 2008 all over again, but much worse!! The story line will be that nothing was fixed, but that nothing can be fixed, and much more debasement of money will come. The Gold Meter will rise in direct reflection.
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Chasing Rare Earths, Foreign Companies Expand in China
fg,"No RE for export but build a plant in China and they might be able to find some for you...hmmmm."
By KEITH BRADSHER
Published: August 24, 2011
CHANGSHU, China — China has long used access to its giant customer base and cheap labor as bargaining chips to persuade foreign companies to open factories within its borders.
Enlarge This Image
Ryan Pyle for The New York Times
Flames leaping from an oven where phosphors are roasted for more than 20 hours at an Intematix plant in China.
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Times Topic: Rare Earths
Related in Opinion
Room for Debate: Can the U.S. Compete on Rare Earths?
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Ryan Pyle for The New York Times
White phosphors being prepared in small cups before they are baked.
Now, corporate executives say, it is using its near monopoly on certain minerals — in particular, scarce metals vital to products like hybrid cars, cellphones and energy-efficient light bulbs — to make it difficult for foreign manufacturers of high-tech materials to build or expand factories anywhere except China. Companies that continue making their products outside the country must contend with tighter supplies and much higher prices for the materials because of steep taxes and other export controls imposed by China over the last two years.
Companies like Showa Denko and Santoku of Japan and Intematix of the United States are adding factory capacity in China this year instead of elsewhere because they need access to the scarce metals, known as rare earths.
“We saw the writing on the wall — we simply bought the equipment and ramped up in China to begin with,” said Mike Pugh, director of worldwide operations for Intematix, who said the company would have preferred to build its new factory near its Fremont, Calif., headquarters.
While seemingly obscure, China’s policy on rare earths appears to be directed by Prime Minister Wen Jiabao himself, according to Chinese officials and documents. Mr. Wen, a geologist who studied rare earths at graduate school in Beijing in the 1960s, has led at least two in-depth reviews of rare earths this year at the State Council, China’s cabinet. During a visit to Europe last autumn, he said that little happened on rare earth policy without him.
China’s tactics on rare earths probably violate global trade rules, according to governments and business groups around the world.
A panel of the World Trade Organization, the main arbiter of international trade disputes, found last month that China had broken the rules when it used virtually identical tactics to restrict access to other important industrial minerals. China’s commerce ministry announced on Wednesday that it would appeal the ruling.
No formal case has yet been brought concerning rare earths because officials from affected countries are waiting to see the final resolution of the other case, which has already lasted more than two years.
Karel De Gucht, the European Union’s trade commissioner, cited the industrial minerals decision in declaring last month that, “in the light of this result, China should ensure free and fair access to rare earth supplies.”
Shen Danyang, a spokesman for the commerce ministry, reiterated at a news conference on Wednesday in Beijing that China believed that its mineral export policies complied with W.T.O. rules. China’s legal position, outlined in W.T.O. filings, is that its policies qualify for an exception to international trade rules that allows countries to limit exports for environmental protection and to conserve scarce supplies.
But the W.T.O. panel has already rejected this argument for the other industrial minerals, on the grounds that China was only curbing exports and not limiting supplies available for use inside the country.
China mines 94 percent of the world’s rare earths and accounted for 60 percent of the world’s consumption by tonnage early this year. But if factories continue to move to China at their current rate, China will represent 70 percent of global consumption by early next year, said Constantine E. Karayannopoulos, the chief executive of Neo Material Technologies, a Canadian company that is one of the largest processors in China of raw rare earths.
For the last two years, China has imposed quotas to limit exports of rare earths to about 30,000 tons a year. Before that, factories outside the country consumed nearly 60,000 tons a year.
China has also raised export taxes on rare earths to as much as 25 percent, on top of value-added taxes of 17 percent.
Rare earth prices have soared outside China as users have bid frantically for limited supplies. Cerium oxide, a rare earth compound used in catalysts and glass manufacturing, now costs $110,000 a metric ton outside China. That is more than four times the price in China, and up from $3,100 two years ago, according to Asian Metal, an industry data company based in Pittsburgh.
For most industrial products that are manufactured in China using rare earths and then exported, China imposes no quotas or export taxes, and frequently no value-added taxes, either.
Companies do that math, and many decide it is more cost-effective to move to China to get cheaper access to the metals.
“When we export materials such as neodymium from China, we have to pay high tariffs,” said Junichi Tagaki, a spokesman for Showa Denko, which announced last month that it would sharply expand its production of neodymium-based magnetic alloys, used in hybrid cars and computers, in southern China.
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Ryan Pyle for The New York Times
A chemical engineer worked on creating an additive for phosphors at the Intematix Company.
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Times Topic: Rare Earths
Related in Opinion
Room for Debate: Can the U.S. Compete on Rare Earths?
The company saves money by manufacturing in China instead of Japan because the alloys are subject to no Chinese export taxes or value-added taxes, he said.
Big chemical companies are also shifting to China the first stage in their production of rare earth catalysts used to refine oil into gasoline, diesel and other products. They are moving after Chinese state-controlled companies grabbed one-sixth of the global market by offering sharply lower prices, mainly because of cheaper access to rare earths. Chemical companies are also working on ways to cut the percentage of rare earths in catalysts while preserving the catalysts’ effectiveness.
Production of top-quality glass for touch-screen computers and professional-quality camera lenses, now done mostly in Japan, is also shifting to China because it requires rare earths.
Factories are moving despite worries about the theft of trade secrets. Intematix takes elaborate precautions at a factory completed last month here in Changshu, 60 miles northwest of Shanghai, where the company manufactures the rare earth-based phosphors that make liquid-crystal displays and light-emitting diodes work. While Intematix hired Chinese scientists to perfect the industrial processes here, only three know the complete chemical formulas.
China’s timing is excellent, said Dudley J. Kingsnorth, a longtime rare earth industry executive and consultant in Australia. Mines being developed in the United States, Australia and elsewhere will start producing sizable quantities of rare earths in the next few years, so China seems to be using its leverage now to force companies to move.
“They’re making the most of it, and they’re obviously having some success,” he said.
Until Western governments, business groups and media began pointing out the W.T.O. issues, Chinese officials had repeatedly stated that the rules were intended to encourage companies to move production to China. They switched to emphasizing environmental protection as the trade issues became salient.
China stepped up enforcement this summer of mining limits and pollution standards for the rare earth industry, which has reduced supplies and pushed up prices in China, although not as much as for overseas buyers. The crackdown may help China argue to the W.T.O. that it is limiting output for its own industries.
But other countries are likely to say that the crackdown is temporary and that previous crackdowns have been short-lived.
Charlene Barshefsky, the former United States trade representative who set many of the terms of China’s entry to the W.T.O. in 2001, wrote in an e-mail that one problem was that W.T.O. panels did not have the power to issue injunctions. So countries can maintain policies that may violate trade rules until a panel rules against them and any appeal has failed.
Even then, the W.T.O. can order a halt to the offending practice, but it usually cannot require restitution for past practices except in cases involving subsidies, which are not directly involved in the rare earth dispute.
China is offering carrots as well as sticks to persuade foreign companies to move factories to China. Under China’s green industry policies, the municipal government of Changshu let Intematix move into a newly built, 124,000-square-foot industrial complex near a highway and pay no rent for the first three years.
Intematix pays $400 to $500 a month (2,500 to 3,000 renminbi) for skilled factory workers like Wang Yiping, the 33-year-old foreman on duty on a recent morning here. It pays $500 to $600 a month (3,000 to 3,500 renminbi) for young, college-educated chemical engineers like Yang Lidan, a 26-year-old woman who examined rare earth powders under an electron scanning microscope in a nearby lab.
It was also relatively cheap to buy the factory’s 52-foot-long blue furnaces, through which rare earth powders move on extremely slow conveyor belts while superheated to 2,800 degrees Fahrenheit. With many Chinese suppliers competing, Intematix paid 10 to 20 percent of American equipment prices, said Han Jiaping, the factory’s vice president of engineering.
Still, Mr. Pugh said that the company’s decision to build the factory in China was based not on costs but on reliable access to rare earths, without worrying about quotas or export taxes.
“I think this is what the Chinese government wanted to happen,” he said.
http://www.nytimes.com/2011/08/25/business/global/chasing-rare-earths-foreign-companies-expand-in-china.html?pagewanted=2&_r=1&hp
I second that...
get well- there's work to get done so quit "recuperating" at your girlfriends...
The real problem with this is that the 1% will go to 7-9% pretty quick...
Dead on somatochlora.
Hopefully, it's about time we stopped putting up with it.
huh?
Not a tea partier, dem or repub. Pure independent.
Like I said earlier my biggest wish is that we throw them all out next fall.
I do have 2 questions:
1) Is any one group completely responsible for the last 30 or 40 years of bad governance?
2) What is the left's fascination with labeling their polar opposites with a sex act the left is more familiar with?
I agree and as far as I'm concerned (since Ron Paul is retiring) we have 536 job openings for sure next fall in DC.