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Gold is setting up for a short, of course I could be wrong. The TA showed a buy signal as being probable about a month or so ago and never materialized, instead it fell into 1100's.
Not a stock market, but a market of stocks...
8^) <eom>
The only thing the author forgot is that so many jobs (blue & white collar) have been moved out of the country for cheap labor and/or outsourcing that we have a service oriented society. I knew long ago that this country (or any for that matter) could not survive on service oriented jobs.
It was a huge mistake (planned that way if you ask me) and I could comment on that further with a "Spin of the Day", but I do not want to go down that road (get myself all worked up). It is a deep subject and my jaded-rant side might raise its ugly head 8^)
Hi bob, no bother at all .. I will need some time to absorb the #'s you have provided (I am heading out the door as we speak). I will catch you on the rebound 8^)
It's Time for Helicopter Ben to Drop Some Money on Main Street
By ELLEN BROWN
September 9, 2010
How to Reverse a Deflation
In 2002, in a speech that earned him the nickname “Helicopter Ben,” then-Fed Governor Bernanke famously said that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent),” he said, “that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Later in the speech he discussed “a money-financed tax cut,” which he said was “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” You could cure a deflation, said Professor Friedman, simply by dropping money from helicopters.
It seems logical enough. If there is insufficient money in the money supply (deflation), the solution is to put more money into it. But if deflation is so easy to fix, then why has the Fed’s massive attempts to date failed to do the job? At the Federal Reserve’s Jackson Hole summit on August 27, Chairman Bernanke said he would fight deflation with his whole arsenal, including “quantitative easing” (QE) – purchasing longterm securities with money created on a computer. Yet since 2008, the Fed has added more than $1.2 trillion to “base money” doing just that, and the economy is still in a serious deflationary spiral. In the first quarter of this year, the money supply actually shrank at a record annual rate of 9.6%.
Cullen Roche at The Pragmatic Capitalist has an answer to that puzzle. He says that as currently practiced, quantitative easing (QE) is not really a money drop. It is just an asset swap:
“[T]he Fed doesn’t actually ‘print’ anything when it initiates its QE policy. The Fed simply electronically swaps an asset with the private sector. In most cases it swaps deposits with an interest bearing asset.”
The Fed just swaps Federal Reserve Notes (dollar bills) for other assets (promissory notes or debt) that can quickly be turned into money. The Fed is merely trading one form of liquidity for another, without raising the overall water level in the pool.
The mechanics of how QE works were revealed in a remarkable segment on National Public Radio on August 26, describing how a team of Fed employees bought $1.25 trillion in mortgage bonds beginning in late 2008.
According to NPR:
“The Fed was able to spend so much money so quickly because it has a unique power: It can create money out of thin air, whenever it decides to do so. So . . . the mortgage team would decide to buy a bond, they’d push a button on the computer – ‘and voila, money is created.’
“The thing about bonds, of course, is that people pay them back. So that $1.25 trillion in mortgage bonds will shrink over time, as they get repaid. Earlier this month, the Fed announced that it will use the proceeds from the mortgage bonds to buy Treasury bonds – essentially keeping all that newly created money in circulation. The decision was a sign that the Fed thinks the economy still needs to be propped up with extraordinary measures.”
“Extraordinary measures” was a reference to Section 13(3) of the Federal Reserve Act, which allows the Fed in “unusual and exigent circumstances” to buy “notes, drafts and bills of exchange” (debt instruments) from “any individual, partnership or corporation” satisfying its requirements. The Fed was supposedly engaging in these extraordinary measures to “reflate” the money supply and get credit flowing again. Yet the money supply continued to shrink. The problem, as Roche explains, is that the dollars were merely being swapped for other highly liquid assets on bank balance sheets. That this sort of asset swap will not pump up a collapsed money supply has been shown not only by the Fed’s failed experiments over the last two years but by two decades of failed QE policy in Japan, an economy which remains in the deflationary doldrums. To reverse deflation, it seems, QE needs to be directed somewhere else besides the balance sheets of private banks. What we need is the sort of helicopter drop described by Bernanke in 2002 – one over the towns and cities of the real economy.
There is another interesting lesson suggested by two decades of failed QE: it might actually be possible for the government to “print” its way out of debt, without triggering the dreaded hyperinflation long warned of by pundits. Swapping dollars for debt hasn’t inflated the circulating money supply to date because federal debt securities already serve as forms of “money” in the economy.
Beginning with some definitions,“quantitative easing” is explained in Wikipedia like this:
“A central bank . . . first credit[s] its own account with money it has created ex nihilo (‘out of nothing’). It then purchases financial assets, including government bonds, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus a hopeful stimulation of the economy, by the process of deposit multiplication from increased lending in the fractional reserve banking system.”
“Deposit multiplication” is the textbook explanation for how credit expands as it circulates through the economy. In the textbook model, banks must retain “reserves” equal to 10% of outstanding deposits (including deposits created as loans). With a 10% reserve requirement, a $100 deposit can support a $90 loan, which gets deposited in another bank, where it becomes an $81 loan, and so forth, until a $100 deposit becomes $1,000 in credit-money.
The theory is that increasing the banks’ reserves will stimulate this process, but both the Federal Reserve and the Bank for International Settlements (BIS) now concede that the process has not been working in the textbook way. (The BIS is “the central bankers’ central bank” in Basel, Switzerland.) The futile effort to push more money into bloated bank reserve accounts has been compared to adding more apples to shelves that are already overstocked with apples. Adding more reserves to a banking system that already has more reserves than it can use has no net effect on the money supply.
The failure of QE either to increase bank lending or to inflate the money supply was confirmed in a March 24 paper by Federal Reserve Vice Chairman Donald L. Kohn, who wrote:
“The huge quantity of bank reserves that were created [by quantitative easing] has been seen largely as a byproduct of the purchases [of debt instruments] that would be unlikely to have a significant independent effect on financial markets and the economy. This view is not consistent with the simple models in many textbooks or the monetarist tradition in monetary policy, which emphasizes a line of causation from reserves to the money supply to economic activity and inflation.”
The textbook model is obsolete because banks don’t make lending decisions based on how many reserves they have. They can always get the reserves they need. If customers don’t walk in the door with new deposits, the bank can borrow deposits from other banks, something they can now do at the very low Fed funds rate of .2% (1/5th of 1%). And if those deposits are not available, the Federal Reserve itself will supply the reserves. This was confirmed in a BIS working paper called
“Unconventional Monetary Policies: An Appraisal”, which observed:
“[T]he level of reserves hardly figures in banks’ lending decisions. The amount of credit outstanding is determined by banks’ willingness to supply loans, based on perceived risk-return trade-offs, and by the demand for those loans. . . .
“The aggregate availability of bank reserves does not constrain the expansion [of credit] directly. The reason is simple: . . . in order to avoid extreme volatility in the interest rate, central banks supply reserves as demanded by the system. From this perspective, a reserve requirement, depending on its remuneration, affects the cost . . . of loans, but does not constrain credit expansion quantitatively. . . . [A]n expansion of reserves in excess of any requirement does not give banks more resources to expand lending. It only changes the composition of liquid assets of the banking system. Given the very high substitutability between bank reserves and other government assets held for liquidity purposes, the impact can be marginal at best.”
Again, one form of liquidity is just substituted for another, without changing the overall level in the pool.
If bank reserves do not constrain bank lending, what does? According to the BIS paper, “the main . . . constraint on the expansion of credit is minimum capital requirements.” These capital requirements, known as “Basel I” and “Basel II,” were imposed by the BIS itself. It is interesting that the BIS knows that the main constraints on bank lending are its own capital requirements, yet it is talking about raising them, in an economic climate in which lending is already seriously impaired. Either the BIS is talking out of both sides of its mouth, or its writers don’t read each other.
A Solution to the Federal Debt Crisis?
Another interesting aside arising from all this is the suggestion that the government could actually print its way out of debt – it could print dollars and buy back its bonds -- without creating inflation. As Roche observes:
“[Quantitative easing] in time of a balance sheet recession is not actually inflationary at all. With the government merely swapping assets they are not actually ‘printing’ any new money. In fact, the government is now essentially stealing interest bearing assets from the private sector and replacing them with deposits. . . . [T]his policy response would in fact be deflationary – not inflationary.”
Roche concludes, “the inflationistas have been wrong and the USA defaultistas have been horribly wrong.” The “inflationistas” are the pundits screaming that QE will end in hyperinflation, and the “defaultistas” are those insisting that the U.S. must eventually default on its debt. Representing both camps, for example, is Richard Russell, who writes:
“In my opinion, the US MUST default on its debt. There are two ways to default. One is simply to renege on the debt. . . . The other way to default on the debt is to inflate it away. I’m absolutely convinced that this is the path that the US will take. If the US inflates enough, then over time (many years) the devalued dollar will tend to reduce the power of the debts.”
The failed QE experiments in Japan and the U.S. suggest, however, that there is a third alternative. Printing dollars to pay the debt (referred to by Russell as “inflating the debt away”) might actually eliminate the debt without creating inflation. This is because federal bonds and Federal Reserve Notes are interchangeable forms of liquidity. Government securities trade around the world just as if they were money. A $100 bond represents a claim on $100 worth of goods and services, just as a $100 bill does. The difference, as Thomas Edison said nearly a century ago, is merely that “the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. . . . Both are promises to pay, but one promise fattens the usurers and the other helps the people.”
The Fed’s earlier attempts at QE involved swapping $1.25 trillion in mortgaged-backed securities (MBS) for dollars created on a computer screen. As noted in the NPR segment, many of those securities have come due and have gotten paid off, putting cash in the Fed’s till. The Fed now proposes to use this money to buy long-term Treasury debt rather than MBS. That means the Fed will, in effect, be buying the government’s debt with dollars created on a computer screen. The privately-owned Federal Reserve is not actually an arm of the federal government, but if it were, the government would thus be printing its way out of debt – just as Helicopter Ben proposed in 2002. Recall that he said, “the U.S. government has a technology, called a printing press” – the U.S. government, not the central bank that has done all the QE to date.
Running the government’s printing presses to pay its bills has not seriously been tried since the Civil War, when President Lincoln saved the North from a crippling war debt at usurious interest rates by printing Greenbacks (U.S. Notes). Other countries, however, have tested and proven this model more recently. They include Germany, which pulled itself out of a massive financial collapse in the early 1930s by printing a form of currency called “MEFO bills”; and Australia, New Zealand and Canada, all of which successfully funded public works in the first half of the twentieth century simply by advancing the credit of the nation. China, Malaysia, Guernsey, Jersey, India, Argentina and other countries have also revived their economies at critical times by this means. The U.S. government could do this too. It could print dollars (or type them into electronic bank accounts) and spend the money on the sorts of local public projects that would put people back to work and get the economy rolling again.
How to Reverse a Deflation
The government could pay its bills by issuing Greenbacks as Lincoln did, but it probably won’t, given the current deadlock in Congress. Today only the Federal Reserve Chairman seems to be in a position to act unilaterally, without asking anyone’s permission. Chairman Bernanke could execute his own plan and generate the credit needed to get the economy churning again, by aiming his “quantitative easing” tool at the states. After all, if Wall Street (which got us into this mess) can borrow at .2%, underwritten by the Fed as “lender of last resort,” then state and local governments should be able to as well. Chairman Bernanke could credit the Fed’s account with money created ex nihilo (out of nothing) and swap it for state and municipal bonds at the Fed funds rate.
A “state” might not qualify as an “individual, partnership or corporation” under Section 13(3) of the Federal Reserve Act, but a state-owned bank would. Bruce Cahan, an attorney and social entrepreneur in Silicon Valley, California, proposes that the Fed could diversify its role by buying long-term bonds in existing or newly-chartered state-owned banks. These banks, which would have a mandate to serve state and local communities, would more quickly and accountably lend for in-state purposes than private banks do now. They could be required to use accepted transparency accounting standards to trace how the proceeds of their loans flowed into the economy. Local needs would thus determine how best to jumpstart and keep alive businesses and households that the “too big to fail” megabanks no longer want to fund on fair credit terms. Adding a state-owned bank would also bring competition to regional banking markets such as that of the San Francisco Bay area, which are now dominated by out-of-state megabanks. By funding state-owned banks, the Fed could inject “liquidity” where it is most needed, in local markets where workers are hired and real goods and services are sold.
Ellen Brown is the author of Web of Debt: the Shocking Truth About Our Money System and How We Can Break Free. She can be reached through her website.
http://www.counterpunch.org/brown09092010.html
ETFs in Gurus Portfolio
These are the ETFs owned by our Guru investors as of the dates indicated.
http://www.gurufocus.com/etf.php
Burning of John Maynard Keynes Book Causes Uproar
By: Jeff Berwick
Thu, Sep 9, 2010
The central banking and political world are up in arms about a planned John Maynard Keynes book burning.
The burning was announced by Jeff Berwick, Chief Editor of The Dollar Vigilante, to take place on December 23, the anniversary of the Federal Reserve Act of 1913.
Top central bankers in the United States warned that flimsy economic theories would be in danger if the burning of a copy of John Maynard Keynes, The General Theory of Employment, Interest & Money went ahead.
"What is most dangerous," stated one central banker, "is if this causes people to even logically think for more than a few moments about economics then this entire structure we've built could begin to collapse. We've done a great job for a long time telling the average man on the street that economics is too difficult to understand."
US diplomats and members of the Goldman Sachs' run Department of Treasury called the plan, "disrespectful and dangerous".
But organizer, Jeff Berwick, Chief Editor of The Dollar Vigilante said: "We must send a clear message to the radical element of Keynesians," he continued, "Which, basically means, all Keynesians."
The controversy comes at a time when Federal Reserve and US Treasury officials have bankrupted the country by blindly following Keynesian economics.
"In addition to being offensive, the Keynes protest puts at risk those brave Americans who are fighting abroad for the freedoms and values that we believe in as Americans," said one US Senator. "Those values being that the government creates a central bank who manipulates the price of money and uses inflation as a hidden tax."
Riots and demonstrations have erupted in numerous locations where central bankers and politicos gather including Jackson Hole, Wyoming where one central banker was quoted as saying, "This is an attack on our religion and we will not stand for it!"
Asked if they had plans of their own to burn F.A. Hayek's The Road to Serfdom and Ludwig Von Mises The Theory of Money and Credit most central bankers acted confused and did not seem familiar with the books.
A high ranking US diplomat who wished to remain anonymous stated, "This could very well bring an end to the American way of life. If the burning of Keyne's book goes forward it very quickly could bring into question all of our basic values including the right for the government to print as much money as is needed to enter into as many wars as is necessary to keep the military industrial complex happy."
Despite all the pleas for a stop to the burning, Jeff Berwick remained adamant that he is going to go through with the burning, stating, "I think I'll burn a copy of the New York Times which contains any article by Paul Krugman too."
http://www.safehaven.com/article/18124/burning-of-john-maynard-keynes-book-causes-uproar
'Doctor Doom': US Treasuries now the 'mother of all bubbles'
by Philip Haddon
Aug 27, 2010 at 00:01
The number of leading commentators warning on US treasuries continues to grow, with Marc Faber - author of the Gloom Boom and Doom Report - saying he would not put his money in them and that under President Obama he fears the US deficit problem will worsen.
Speaking on CNBC, Faber - known as 'Doctor Doom' - said: 'Even the short term for treasuries is uncertain. If I look ten years ahead, where do I want my money? Certainly not in US treasuries.'
Faber's thoughts echo those of Barry Ritholtz, who earlier this week told Citywire that Treasuries resemble dot com stocks. Faber too, makes the link between the bond market of today and the tech stocks of the late nineties when asked whether foreign buyers will continue to keep the bond market afloat.
'In 1999-2000, foreigners also wanted to buy the Nasdaq, and what happened after that was a massive collapse,' he said. 'So I don't see foreign buying as a very intelligent leading indicator.'
Faber said he is 'not interested in buying an asset class that has been in a bull market for 19 years,' and would rather invest in farmland, agricultural commodities and gold.
On the same TV show, fellow perma-bear Peter Schiff of Euro Pacific Capital was even more forthright in his verdict on the US bond market.
'The bond market is the mother of all bubbles right now. When it bursts the losses will dwarf the combined lossess of the stockmarket bubble and the real estate bubble,' he said.
Both Schiff and Faber think Obama's government face an unenviable task.
'The problem is there is no way for the government to pay this money back, apart from through horrendous tax increases, which could never be accomplished,' Schiff said. 'Or else the government has to tell people on medicare or social security that they cannot get their cheques as the government is not able to pay its interest. And it is not just paying interest - it is also not being able to roll over short term debt; they will have to retire the principal. So there will be massive inflation.'
Faber warns that under Obama's administration the situation could worsen.
'My biggest concern is that because of a weak economy, the budget and fiscal deficits will remain very high. With Mr Obama as President, there is a very good chance the deficit will go up and the government debt will expand and expand, until one day the interest payments on government debt will become unbearable.'
These are stong words from Schiff and Faber, but how much attention should investors pay to these notoriously gloomy commentators?
After all, some have argued that the crowded bond trade merely signifies a long term secular shift in investor behaviour, as heightened risk aversion causes them to back away from equities and into the supposedly safer haven of Treasuries. However, if Faber, Schiff and Ritholtz are right, could these investors merely be moving from the frying pan into the fire?
http://citywire.co.uk/wealth-manager/doctor-doom-us-treasuries-now-the-mother-of-all-bubbles/a426442
The Significance of Consumer Deleveraging
Comstock Partners, Inc.
September 09, 2010
For some time it has been our view that the recent recession, unlike all other post-war recessions, was caused by a credit crisis, and that it would therefore be followed by a series of weak recoveries and frequent recessions until consumers successfully deleveraged their exceedingly heavy debt loads. That scenario now seems to be happening in accordance with our projections. A statistical economic recovery that was already far weaker than average has decelerated even further and the ECRI weekly leading indicator index strongly suggests that another recession may be in store.
Consumers have only begun to cut back on their severe debt burdens, and the process will take a number of years. Household debt relative to GDP soared from a range of 43% to 49% in the 20-year period between 1965 and 1985 to a peak of 97.3% in 2009. As of March 31st (the latest data point) this dropped only slightly to 92.7%. To provide some more perspective, Ned Davis Research estimates the mean to be 54.2% over the past 58 years. The percentage climbed gradually to 65% in 1998, and then really accelerated to its recent peak.
To be conservative, let's assume that the household debt/GDP ratio falls back only to the 65% level of 1998 rather than to the lower level between 1965 and 1985 or to the long-term mean. Under that assumption household debt would have to be pared back by about $ 4 trillion (from the present total of $13.5 trillion), an amount that constitutes about 40% of current consumer expenditures. While this could be accomplished over a number of years, it can readily be seen that the deleveraging would create a highly significant drag on consumer outlays for an extended period. Since such spending accounts for some 70% of GDP, this creates a serious drag on the overall economy as well.
As we expected, consumer spending has been weak despite the massive stimulus provided by the Fed, the White House and congress. In addition, with mortgage debt accounting for a majority of total household debt, the housing market has remained under pressure as well. The statistical economic recovery to date has been far weaker than the post-war average. Over the first four quarters of the so-called recovery GDP growth has averaged only 3.0% quarterly, compared to growth of 5.9% over the last nine recoveries from recession. Furthermore growth in the last quarter was only 1.6%, far under the average of 5.9% for the 4th quarters of previous expansions.
More recently the economy has slowed even more as indicated by data released over the last few months. This development has now been recognized by most economists. The consensus of economists has now reduced their projected growth rates for three consecutive months. The Fed Beige Book released yesterday referred to "widespread signs of deceleration". ISI's Ed Hyman stated that their weekly company surveys "suggest slowdown is broadening and intensifying". Overall the economy seems in danger of slowing down to "stall speed", airplane terminology referring to the minimum speed necessary to keep from crashing.
Over the past week or so the market has been somewhat encouraged by a few indicators that came in above expectations. However, the data was still very soft, and merely indicated that the economy may still be growing at an extremely low rate. Moreover, these indicators are coincident with the economy at a time when the leading indicators with a good record of prediction are strongly suggesting the distinct possibility of recession.
For instance, last week the ECRI Weekly Leading Indicator was down 4.11% from a year earlier. We searched the historical data to determine what happened to the economy at other times when the index was down 4.11% or more year-over-year. Over the last 42 years this has occurred seven times, and in all seven instances a recession started shortly before or shortly after the signal. We also note that all of these instances were accompanied by bear markets in stocks. Although no indicator is certain in economics or stock markets, seven for seven is nothing to sneeze at. We note that ECRI Managing Director Lakshman Achuthan has not yet officially called a recession, although he has stated that, based on his index, there was more than a 50% chance of one.
In our view the market is in a volatile trading range that is part of a topping formation much like the topping process in early 2000 and late 2007. The trading range is likely to be violated on the downside when the economic recovery fails to accelerate and companies begin to bring down their revenue and earnings guidance.
http://www.comstockfunds.com/default.aspx?MenuItemID=29&MenuGroup=Home&&AspxAutoDetectCookieSupport=1
Debtors Feast at the Expense of the Frugal
Provided by
On Wednesday September 8, 2010, 8:27 pm EDT
Households and corporations alike are refinancing their loans in droves to take advantage of interest rates that seem impossibly cheap. But those same low rates come with a flip side, driving down the income of retirees and others who live off their savings.
It is a side effect of a government policy meant to push down interest rates to a point that businesses and consumers are compelled to borrow and spend again, and yet it is hurting anyone with a savings account.
With the regulated rate that financial institutions can borrow from one another at almost zero, banks are paying savers next to nothing. The average returns on interest-bearing deposit accounts slipped to 0.99 percent in July, according to Market Rates Insight, which tracks bank rates. It is the first time its measure has dipped below 1 percent since the 1950s, when its data begins.
As a result, the amount of money on deposit at United States bank branches fell during the first half of 2010, Market Rates Insight reported this week. It was the first time that had happened in nearly two decades, indicating that people are dissatisfied with how little interest they are earning from their bank accounts.
Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.
“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”
For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.
The new low interest rates are having a personal impact. Take William D’Alessandro, 62, an editor of corporate sustainability newsletters in Amherst, N.H. He has moved from job to job and has no pension but planned to live on savings when he retired.
Now, year by year, Mr. D’Alessandro has had to put off his retirement until he can afford to buy, among other things, health insurance for himself and his wife, to supplement Medicare when he gets it.
“It is fearful,” he said. “We have been saving all these years, and now we want to go into retirement we can’t. We have been traveling less. What am I going to do if I live to 82 — or 99 like my grandfather?”
Now, savers are searching desperately for a better return on their money. “All of our clients are struggling with this,” said Cary Carbonaro, a financial planner who works in New York City and Long Island. “It has never been as bad.”
With the jittery stock market posing too much risk for many people, they have rushed to Treasury bonds, which generate higher rates than regular bank accounts or short-term C.D.’s.
But so much money flowing into Treasuries has served only to depress the rate of return on those bonds, to a dismal 2.7 percent a year for a 10-year note; shorter-term bond rates are below 1 percent. Anyone investing $500,000 in 10-year Treasuries at current yields would earn $13,500 a year.
Some savers have begun to pour more of their cash into the corporate bond market, where big companies sell bonds to raise money, usually at a slightly higher return in exchange for modestly higher risk.
As demand for such bonds has soared, it has prompted corporations like PepsiCo and Wal-Mart to issue more bonds at bargain-basement rates of interest. Such companies sold $563.4 billion to United States investors last year, a record, and have sold $238.8 billion more so far in 2010, according to Dealogic, a financial data provider. Yet, economists complain that apart from a few notable corporate acquisitions that were financed largely with pent-up cash, many businesses are sitting on their money rather than spending it. For now, that would seem to undermine the purpose of low interest rates, which is to get companies and consumers spending again.
Nonfinancial corporations were holding about $1.8 trillion in liquid assets in the first quarter of this year, according to the Federal Reserve, a level that has been steadily rising and compares with $1.5 trillion at the start of 2009.
“They don’t need the cash,” said Bernard Baumohl, an economist at the Economic Outlook Group, but they are borrowing anyway because it is so cheap at the moment.
Once again, though, the unusually high demand for blue-chip corporate bonds is driving down the rate of return on those bonds. When I.B.M. sold $1.5 billion of three-year bonds in August, investors received only a 1 percent return.
So some ordinary investors seeking better returns are resorting to lending to companies with shakier credit. The so-called high-yield junk bond market has taken off, with nonfinancial companies issuing $159.6 billion in high-yield bonds to American investors last year, the most since at least 1995. They have borrowed a further $142.4 billion so far this year, according to Dealogic, a financial data provider.
This is giving the ordinary investors a rate of return they used to get from ordinary savings accounts or C.D.’s but with higher risk.
As long as rates stay this low, the plight of the saver will be especially disquieting for those who rely on their savings for a large slice, if not all, of their income. That is a particularly unnerving prospect for pensioners or for people approaching retirement age — who now want to draw on the interest from their savings to support them when they are no longer working.
“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”
Among the winners from low interest rates are people taking out new mortgages. The benchmark 30-year fixed-rate mortgage has fallen to 4.53 percent, the lowest in more than half a century, according to Bankrate.com.
At these rates, refinancing is attractive. The Mortgage Bankers Association said last week that 83 percent of pending mortgage applications were for refinancing existing mortgages.
It is good for other kinds of borrowers, too. Marcel Lonneman, a retired AT&T engineer in Jamestown, R.I., said he would like to borrow more, but his partners in a real estate business he is associated with are reluctant to borrow at current interest rates because they think they may still fall further.
“It is an excellent time to be a borrower,” he said. “I’ve paid as high as 21 percent interest in 1981 for a real estate loan and have refinanced real estate loans several times for lower interest rates,” he added in an e-mail. “Better a borrower than a lender be.”
http://finance.yahoo.com/news/Debtors-Feast-at-the-Expense-nytimes-1618076527.html?x=0&sec=topStories&pos=2&asset=&ccode=
Stock-fund outflows suggest capitulation: analyst
By John Spence
Sept. 9, 2010, 10:59 a.m. EDT
BOSTON (MarketWatch) -- The $9.5 billion outflow from stock funds in the latest week was the worst week since May 26 and "a clear acceleration versus more recent flow trends," said Ticonderoga Securities analyst Douglas Sipkin in a note Thursday. "This marks the 18th consecutive week of outflows. The only potential bright light, in our view, is that this could be the beginning signs of capitulation," Sipkin wrote. The analyst added several negative trends have contributed to the weakness, including a "battered retail investor" and the rising popularity of exchange-traded funds. "We think that selling in anticipation of increases in capital gain taxes can also be added to the list at this point," Sipkin said.
http://www.marketwatch.com/story/stock-fund-outflows-suggest-capitulation-analyst-2010-09-09
Crude oil above $75; EIA shows oil supplies fell
By Carla Mozee
Sept. 9, 2010, 11:33 a.m. EDT
LOS ANGELES (MarketWatch) -- Crude oil futures rose Thursday, but were off higher levels, after the Energy Information Administration reported oil inventories in the latest week fell by more than expected. Crude oil inventories for the week ended Sept. 3 fell by 1.9 million barrels, less than a trade group estimated late Wednesday but more than the decline of 730,000 barrels expected by analysts polled by Platts. Late Wednesday, the American Petroleum Institute estimated crude oil stocks declined by 7.3 million barrels, a drop that provided some support to prices early Thursday. Gasoline stocks fell by about 200,000 barrels last week, but that was less than the estimated decline of 820,000 barrels. Inventories of distillates, which include heating oil, fell by about 400,000 barrels, compared with the expectation for a rise of 940,000 barrels. Oil recently traded up 79 cents, or 1.1%, at $75.46 a barrel.
http://www.marketwatch.com/story/crude-oil-above-75-eia-shows-oil-supplies-fell-2010-09-09?siteid=rss
Faults Exposed in Oil-Data Collection
by Brian Baskin
Friday, March 19, 2010
provided by
Note: slightly dated article...
DOE Documents, Consultants' Report Cite Outdated Methodology, Errors in EIA's Weekly Survey
The U.S. government faces "critical" shortcomings in producing its oil-inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity.
The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology, that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show.
Moreover, problems with EIA data underscore the hazards of depending on companies or other firms to self-report data.
Internal emails and a report from a consulting firm prepared in September describe a process at the EIA that served the oil world well in 1983, the first year that oil futures traded, but hasn't kept up as the inventory data have become more influential and the nation's oil infrastructure has become more complex.
The EIA has been producing the data on oil and fuel inventories since the early 1980s, and the release of the report each Wednesday at 10:30 a.m. is a major event for oil markets. The division collects data from thousands of facilities, all reporting the number of barrels held in storage around the nation. But many of its systems haven't been updated for 30 years, and much of the data input is done manually, according to one report commissioned for the EIA, prepared by consultants SAIC Inc. The consulting group directed questions to the EIA.
The EIA, the statistical arm of the Department of Energy, didn't find most of SAIC's findings a surprise, said Stephen Harvey, director of the EIA's office of oil and gas, which puts out the weekly data.
"Should you be concerned? Yes. Is it as good as we'd like it to be? No. Is it better or worse than some other countries where we'd like to know this information? It's probably a whole lot better," Mr. Harvey said.
The internal documents obtained by Dow Jones Newswires cataloged several instances in the past three years in which companies misreported the amount of oil they had in storage, sometimes by over two million barrels in each weekly survey over the course of a year, a significant error considering that amount can account for the entire change in inventories from week to week. Other errors were too small to significantly affect the market's perception of nationwide commercial crude-oil supplies, which the EIA currently totals at 344 million barrels.
On Sept. 16, the EIA released data showing almost four million barrels of oil had vanished from the Cushing storage hub in Oklahoma during a single week. The market paid particular attention because Cushing is the nation's most important commercial storage facility. Its oil is used to fill orders from buyers on the New York Mercantile Exchange. Oil futures jumped 2.2% after the report
But out of the sizable drop at Cushing, 1.7 million barrels represented a correction made after the EIA discovered a previous error in one company's reporting, according to the emails. James Beck, who heads the team that conducts the weekly survey, confirmed the correction in an interview.
A second company's Cushing inventories also were off by a wide margin earlier in 2009, the emails indicate.
Market participants consider the EIA data to be the best window into U.S. supply and demand, with the American Petroleum Institute, an industry lobby group, the only other major weekly source.
"The EIA data is very important to us," said Francisco Blanch, an oil analyst with Bank of America Merrill Lynch in London. "If this data was called into question, it would obviously limit the validity of some of our analysis, particularly as it relates to the U.S. market."
In the gas market in the early part of the last decade, several companies were found to have submitted false trades to industry publications to influence the ultimate value of indexes, and paid millions of dollars in fines.
None of the documents assert that the companies were deliberately reporting incorrect oil-inventory data, and the EIA was alerted to many of the errors by the firms themselves. The Federal Trade Commission last year implemented regulations punishing companies that put out intentionally misleading inventory data.
Mr. Harvey of the EIA said a number of measures are being implemented to cut down on the number of errors, even in the absence of new funding. After a series of budget cuts in the mid-1990s, calls in recent years from the agency for additional funding largely have fallen on deaf ears.
The EIA "has clearly not devoted adequate resources to the ongoing evolution of the [weekly report] over the last decade," the SAIC consultants said in the report. While SAIC said the weekly report "is not broken," it added that "the current approachÂ?may create an unacceptable risk of failure for this flagship EIA report."
The EIA largely has cited budget problems for the lapses. In a 2009 budget request, the EIA said the data have become "increasingly compromised" and the problems will take "a significant investment over several years to resolve." Requests for additional funding have been mostly denied.
The current version of the 2011 fiscal budget includes $18 million in additional funding requested by Energy Secretary Steven Chu for the EIA. Sen. Jeff Bingaman (D., N.M.), chairman of the Senate's Energy Committee that oversees the department's budget, in a February hearing called additional funds for the EIA "long overdue."
The agency faces an uphill battle just to maintain its current level of accuracy, SAIC said.
http://finance.yahoo.com/banking-budgeting/article/109123/faults-exposed-in-oil-data-collection?sec=topStories&pos=7&asset=&ccode
Peak Oil Scares Germany
by Robert Morley
September 7, 2010
A leaked military report highlights a looming geopolitical firestorm.
On September 1, the German Der Spiegel confirmed a leaked German military document currently circulating on the Internet. The report’s explosive conclusions indicate that the German military ascribes to “peak oil” theory and is planning for a world in which Germany may soon have to go to extremes to obtain oil.
According to the Bundeswehr (German military) authors, the implications of a newly oil-constrained world will be dramatic. A world without ever-growing oil supplies quenching the thirst of an ever-growing population is a world in which have-not countries are doomed to economic and social decay. Conversely, those with oil will be the new power brokers, able to force their own agendas and even blackmail other countries into subservience.
The concept of peak oil—if true—is frightening.
The term “peak oil” describes the point in time when global oil production passes its zenith and begins to decline. According to strict theory, “peak oil” is a geological phenomena. Just as individual oil fields mature and then eventually enter a relentless production drop-off, the world’s oil production is postulated to reach the same point.
Other energy experts note that “peak oil” may be brought about by political and technical phenomena too. Environmentalists are working to reduce oil exploration and production, while other possible oil regions are off limits due to unstable governments or unsavory regimes. Then there is the technical challenge of increasing oil production on a global level. The world has millions of oil wells, each producing fractionally less oil each and every day. It is a constant race against the clock to keep oil supplies up.
For peak oil adherents, the end result is the same: a permanent supply crisis!
Unless the West takes action, and soon, it is doomed, the Bundeswehr authors argue.
Lt. Col. Thomas Will and the other report authors claim that there is “some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later.”
In case you missed that, 2010 is this year.
As the authors are aware, global oil production has stagnated for the past few years—possibly just barely increasing. Why else does a barrel of oil trade at $75 per barrel at a time when the world is locked in its worst recession since the 1930s? Consumer demand for oil has plummeted, yet the price remains disturbingly high.
Do insiders fear a looming oil crunch? As evidenced by the leaked report, at least some within German military circles do. At the very least, according to Der Spiegel, the leaked report not only shows “how intensively the German government has engaged with the question of peak oil,” but “that the German government fears shortages could quickly arise.”
Don’t be fooled into thinking that the effects of an oil shortage won’t be felt for 15 to 30 years.
Economic analysts and military strategists alike understand that if peak oil really is here (or shortly will be here), the time to take action to secure oil supplies is now, before severe, economy-crippling shortages arrive and before major oil producers gain too much geopolitical and military power.
This is especially true for Germany.
Although the United States is by far the world’s largest oil importer, it at least has some domestic reserves. Germany, however, is forced to import almost 100 percent of its oil. Other European Union members are not much better off. The Netherlands, Italy and France also import virtually all their fuel too. Taken together, the European Union is the most oil-dependent power in the world—by far.
In no other region of the world is securing foreign oil supplies of such vital importance.
But if the German military’s covert adherence to peak oil theory isn’t startling enough, even more startling and potentially explosive are the recommendations put forth by the military report’s energy experts.
For example, Germany will need to cut a deal with Russia if it wants to ensure a secure supply of Russian oil. The language in the report stirs unpleasant memories. According to its authors, German access to Russian oil and gas is of fundamental importance. “For Germany, this involves a balancing act between stable and privileged relations with Russia and the sensitivities of [Germany’s] eastern neighbors.”
In other words, according to Der Spiegel, if Germany “wants to guarantee its own energy security, [it] should be accommodating in relation to Moscow’s foreign-policy objectives, even if it means risking damage to its relations with Poland and other Eastern European states.”
You could be forgiven for thinking this sounds a bit like a return to 1939 when Vyacheslav Molotov and Joachim von Ribbentrop, the Russian and German foreign ministers, signed a non-aggression pact before carving up Eastern Europe between the two powers.
Germany is growing more aware of Russia’s power. Russia literally controls the pipes that bring the vast majority of gas and oil into Europe—but with each passing day, those pipes are beginning to look a lot less like an energy lifeline and more like a hangman’s noose.
On August 29, Russian Prime Minister Vladimir Putin opened a new section of the East Siberian-Pacific Ocean Pipeline that will carry crude oil from Russia’s vast Siberian oil deposits to markets in the Pacific. “This is an important project” for Russia, he said at the ceremony. “[W]e are beginning to diversify the delivery of our energy resources.”
“Thus far, shipments were made to our European partners,” noted Putin, but now they can also flow to China.
Russian oil and gas can now flow two directions—and the significance of this development for Germany and Europe can hardly be overstated.
In the past, when Russia has had pricing disputes with Europe, its threats of an embargo were an obvious bluff. It had no other alternative outlet for its oil. Without the Europeans, its oil would sit in Samotlor and Tyanskoye, costing money instead of making it. But now Moscow can turn off the tap to Europe and still pump in the profits by opening the pipe wide to its energy-hungry Asian partners.
Russian oil deliveries to Europe no longer provide even the facade of a secure supply. And that means there is only one other place Germany can go to for oil.
As was brought out by the leaked military report, peak oil will also necessitate major changes in Germany’s relations with the one other region with excess oil supplies: the Middle East. Germany can expect to deal with “a more aggressive assertion of national interests on the part of the oil-producing nations,” says the leaked document (emphasis mine). Oil will empower nations like Iran, it predicts.
Thus Berlin will be forced to “show more pragmatism toward oil-producing states in their foreign policy” in order to not offend Arab oil-exporting nations. This will mean altering its foreign-policy relations with Israel and reevaluating its stance on Israel’s right to exist, conclude the authors. And strains in the relationship between Germany and Israel are inevitable, they argue.
There is, however, one additional option for Berlin to secure a source of oil that the report’s authors do not comment on: Germany’s military option.
Back in 1994, the Trumpet’s editor in chief wrote that Iran had become the most powerful Islamic country in the Middle East. “Can you imagine the power [the Iranians] would have if they gained control of Iraq, which was at one time the third-leading exporter of oil in the world?” he asked.
“Such a takeover [of Iraq] by Iran would shock the world—especially Europe. It would be a strong impetus for Europe to unite quickly. Such a move would, in all likelihood, give Iran power to cause a sizable increase in the price of oil …. This in turn could cause Europe to quickly unite into the most powerful economic bloc in the world.”
Continuing on, Gerald Flurry wrote that Iran would use its oil leverage to push at Europe, specifically Germany. Oil would be a part of the push, he wrote. And that push will eventually trigger a military response.
As highlighted by the leaked Bundeswehr report, Germany is even now preparing for a world constrained by resource limitation. How will it all play out? Will Germany and the European Union invade Iran? Will the Russians divert most of their oil exports to China? And what will happen to America in an age of dwindling oil? For answers to these vital questions, read The King of the South and Russia and China in Prophecy. •
Robert Morley’s column appears every Tuesday.
http://www.thetrumpet.com/index.php?q=7460.6039.0.0
CMHC: Canadian Housing Starts Decline In August
by RTT Staff Writer
9/9/2010 8:38 AM ET
(RTTNews) - Canadian housing starts fell in August, reflecting a decrease in demand for both single and multiple family dwellings, industry data showed Thursday.
Canada Mortgage and Housing Corporation's seasonally adjusted annual rate of housing starts was 183,300 units in August, down 3 percent from a revised rate of 188,900 in July.
Economists were expecting starts to slip to 185,000.
The nation's housing market is losing momentum following a relatively robust recovery from a downturn sparked by the global recession.
http://www.rttnews.com/Content/USEconomicNews.aspx?Node=B2&Id=1413790
Canada's Trade Deficit Widens As Exports Slump
by RTT Staff Writer
9/9/2010 9:05 AM ET
(RTTNews) - Canada's trade deficit unexpectedly widened to a record high in July as exports to the United States fell sharply, official data revealed Thursday.
Statistics Canada said the nation's merchandise exports fell 0.7% in July, as volumes declined in most sectors, while imports grew 2.0% to their highest level since last November.
As a result, Canada's trade deficit with the world widened to C$2.7 billion in July from C$1.8 billion in June. Economists were expecting the shortfall to narrow to C$800 million.
Exports declined from C$33.0 billion in June to C$32.8 billion in July, the fourth decrease in six months. Export volumes declined 0.6%, and prices slipped 0.2%.
Conversely, imports saw the fourth increase in six months, growing from C$34.9 billion in June to C$35.5 billion in July. Import volumes rose 1.4%, while prices increased 0.6%.
Energy and automotive products accounted for over half the growth in overall imports.
Exports to the United States fell by 2.2%, while imports rose by 2.9%. As a result, Canada's trade surplus with the United States narrowed to C$1.2 billion in July from C$2.4 billion in June.
http://www.rttnews.com/Content/USEconomicNews.aspx?Node=B2&Id=1413837
Trade Deficit Narrows As Exports Rise And Imports Fall
by RTT Staff Writer
9/9/2010 9:26 AM ET
RTTNews) - With the value of exports rising and the value of imports falling in the month of July, the U.S. trade deficit for the month narrowed by much more than economists had been expecting, according to a report released by the Commerce Department on Thursday.
The Commerce Department said that the trade deficit narrowed to $42.8 billion in July from a revised $49.8 billion in June. The trade deficit had been expected to narrow to $47.3 billion from the $49.9 billion originally reported for the previous month.
A rebound in the value of exports contributed to the bigger than expected decrease in the size of the trade deficit, with the value of exports rising by 1.8 percent to $153.3 billion in July after falling by 1.3 percent to $150.6 billion in June.
The narrower than expected trade deficit also reflected a downturn in the value of the imports, which fell by 2.1 percent to $196.1 billion in July after surging up by 3.1 percent to $200.3 billion in June.
Paul Dales, U.S. economist at Capital Economics, said, "Total imports had been rising at an annual rate of close to 30%, which looked way out of line with domestic demand and the survey evidence, so a fall back always seemed likely."
With the monthly decrease, the annual rate of growth in the value of imports slowed to 20.5 percent in July from 29.1 percent in June.
The report also showed that the goods deficit narrowed to $55.2 billion in July from $62.2 billion in June, while the services surplus was nearly unchanged $12.5 billion.
Additionally, the Commerce Department said that the politically-sensitive trade deficit with China narrowed to $25.9 billion in July from $26.2 billion in June.
Noting that the real trade deficit narrowed to $47.9 billion in July, Dales said, "If it stayed at that level in both August and September, net trade would make a broadly neutral contribution to third-quarter GDP growth, whereas it subtracted a massive 3.5 percent from overall GDP growth in the second quarter."
http://www.rttnews.com/Content/USEconomicNews.aspx?Node=B2&Id=1413879
Eight myths about the VIX
By Adam Warner
Sept. 9, 2010, 9:20 a.m. EDT
Commentary: Playing volatility isn't as easy as it looks
NEW YORK (MarketWatch) -- The Chicago Board Options Exchange Market Volatility Index, commonly known as the VIX by its ticker or "the fear index" among traders, is a useful tool. Not only is it one of the most common measures of volatility, it can also be a source of profits for those inclined to bet on future VIX movement.
But here's the catch: While it can be very profitable to trade the VIX /quotes/comstock/20m!i:vix (VIX 22.55, -0.70, -3.01%) and related derivatives or use them as a hedge, it's not as simple as many think. Reading the VIX and profiting from it takes much more than anticipating a choppy market after big economic news or predicting lingering fear among investors for months to come.
The fact is that nothing you can trade on Wall Street moves exactly like you would think. And the VIX is no different.
But that's not to say trading the VIX or watching the index doesn't have its benefits. Here are a few myths about the index followed by the reality.
Myth: You can buy and sell the VIX
Reality: You can buy and sell VIX futures. That is a very big difference. VIX futures can (and always do) trade at premiums or discounts to the VIX. In fact they almost always trade at premiums to the VIX and that affects your potential profits. Read more about how to hedge with the VIX.
Myth: You can at least own some approximation of the VIX via futures
Reality: The VIX isn't a blue-chip stock or a piece of real estate. VIX futures cash out when they expire, based on a VIX settlement price. So unless you roll out, your position will vanish.
Myth: A rolled position will track VIX moves
Reality: VIX futures price based on where the market expects to see the VIX on a given date in the future, the day the VIX expires. That estimate may or may not move on a given day with a move in the VIX. The further out in time, the less it will track VIX moves.
Myth: OK, so VIX options and futures are complicated. But the VXX fund tracks the index better, and it trades like a regular stock.
Reality: Well, the iPath S&P 500 VIX Short Term Futures ETN /quotes/comstock/13*!vxx/quotes/nls/vxx (VXX 18.70, -0.55, -2.86%) does trade like a regular stock, but it does not track particularly well. In fact it underperforms over time so long as VIX futures trade in an upwardly sloped term structure. And VIX futures virtually always trade in an upwardly sloping term structure. Read about two new ways to trade market volatility.
Myth: Well, since VXX trades like a stock you can chart it like a stock to better predict moves.
Reality: Run, don't walk, from anyone that tells you about a key chart point on VXX. VIX is a statistic, VIX futures trade based on estimates on a forward price for that statistic. VXX creates a constant duration 30-day VIX future, and loses money each day simply rolling from the nearest month future to the next month out if the next month out trades at a premium. Hence VXX is really just a number relative to itself the day before, it's the tail of a tail of a tail of a dog.
Myth: As a volatility gauge, holding VXX can protect a portfolio in rough markets.
Reality: VXX works fine as a short-term trading vehicle. On a day to day basis, it will track about 50% of the VIX move. But it works terribly as a portfolio hedge for the reasons I just stated. It loses money over time in an upward sloping VIX term structure. Owning and rolling 2-month to 3-month VIX futures yourself works better if you're hedging.
Myth: VXZ has outperformed VXX by a wide margin, ergo that's the best portfolio hedge of all
Reality: Well, the iPath S&P 500 VIX Mid-Term Futures ETN /quotes/comstock/13*!vxz/quotes/nls/vxz (VXZ 87.09, -1.31, -1.48%) has done relatively well since inception. The difference between VXX and VXZ is that the latter tracks 4-month to 7-month VIX futures instead of 30-day VIX futures tracked by the former. As a result VXZ has no "contango trouble" like VXX as the VIX curve gets pretty flat out that far. But I would caution that VXX and VXZ only listed in January 2009, and thus neither has had to show its mettle through a VIX storm. 4- to 7-month VIX futures hold their premium to VIX almost always, but would move to a significant discount in a serious VIX explosion. In 2008 they lagged by 20 to 30 points. So I suspect VXZ would not provide great protection when you wanted it most. It's a fine volatility proxy in a quiet market, but if the goal is insurance, it may disappoint. Read about what a record breaking VIX means for investors.
Myth: High VIX, VIX call buying and so on means that smart money wants to own options -- so get out or get short
Reality: Well, I don't agree with that. But I can't prove it wrong. I will say this: VIX is a mean-reverting statistic. High VIX, excessive VIX call buying (and actual SPX put buying, or betting against the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,107, +8.54, +0.78%) ) represent extremes in nervousness and/or bearish sentiment. In theory, that's a time you want to actually buy, not sell. But take that with a major grain of salt, because trends do take on a life of their own, like the VIX explosion and market implosion of 2008.
Adam Warner is a proprietary options trader with Addormar Co. Inc. He is the author of "Options Volatility Trading: Strategies for Profiting From Market Swings ." He is currently options editor at Minyanville.com and a contributing writer for InvestorPlace.com
http://www.marketwatch.com/story/eight-myths-about-the-vix-2010-09-09
How the Stimulus Is Changing America
By Michael Grunwald
Thursday, Aug. 26, 2010
http://www.time.com/time/nation/article/0,8599,2013683,00.html
The Case Against Homeownership
By Barbara Kiviat
Thursday, Aug. 26, 2010
Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Franklin Roosevelt held that a country of homeowners was "unconquerable." Homeownership could even, in the words of George H.W. Bush's Secretary of Housing and Urban Development (HUD), Jack Kemp, "save babies, save children, save families and save America." A house with a front lawn and a picket fence wasn't just a nice place to live or a risk-free investment; it was a way to transform a nation. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.
But the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double-dip. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still.
(See pictures of Boise's struggling housing market.)
For the better part of a century, politics, industry and culture aligned to create a fetish of the idea of buying a house. Homeownership has done plenty of good over the decades; it has provided stability to tens of millions of families and anchored a labor-intensive sector of the economy. Yet by idealizing the act of buying a home, we have ignored the downsides. In the bubble years, lending standards slipped dramatically, allowing many Americans to put far too much of their income into paying for their housing. And we ignored longer-term phenomena too. Homeownership contributed to the hollowing out of cities and kept renters out of the best neighborhoods. It fed America's overuse of energy and oil. It made it more difficult for those who had lost a job to find another. Perhaps worst of all, it helped us become casually self-deceiving: by telling ourselves that homeownership was a pathway to wealth and stable communities and better test scores, we avoided dealing with these formidable issues head-on.
(Comment on this story.)
Now, as the U.S. recovers from the biggest housing bust since the Great Depression, it is time to rethink how realistic our expectations of homeownership are — and how much money we want to spend chasing them. As members of both government and industry grapple with re-envisioning Fannie Mae, Freddie Mac and the rest of the housing finance system, many argue that homeownership should not be a goal pursued at all costs.
See high-end homes that won't sell.
See pictures of the housing crisis in Cleveland.
This is an abridged version of an article that appears in the Sept. 6, 2010, print and iPad editions of TIME magazine.
http://www.time.com/time/business/article/0,8599,2013684,00.html
Will Shipping Water from Alaska to India Help Solve the Water Crisis?
Posted by Krista Mahr Monday
September 6, 2010 at 8:09 am
Happy World Water Week! Yes, it's that time of year again, as water wonks who spend their worthy careers thinking about how to get more people access to clean H20 kick off meetings in Stockholm today. So as you kick back on your sprinkled lawn or float in your pool this Labor Day, spare a moment to consider water, the element that puts the 'iced' in that Long Island Iced Tea:
With water — as with so many things — geography is destiny. Depending on where we live, it's something we are either condemned to think about all the time, or something we have the luxury to almost entirely ignore. Over the years, more than a few entrepreneurs have seen the $$$ in that schism, and much anxiety about water becoming the 'blue gold' of the 21st century has followed.
Water exports have been considered on both the sending and receiving end since the middle of last century, particularly between the U.S. and Canada, though no major international operations have yet to get underway. In places where there is some bilateral water trade, like Singapore's import of Malaysian water, there is a push for greater water independence on the importing end.
But hope springs eternal. In July, a Texas-based company announced plans to start the ambitious venture of exporting water from Alaska to India. While politicians duke it out over whether or not to open up the Arctic regions of the 49th state to offshore oil drilling, Alaskans further south are ready and waiting to sell off their local resource. S2C Global Systems, which owns a 50% stake in the subsidiary Alaska Resource Management, intends to start shipping billions of gallons of fresh water from Blue Lake in Sitka, Alaska, to a coming-soon “World Water Hub” in India, from which water will then be shipped again to water-poor nations around the Arabian Sea.
What's a World Water Hub? Good question. Basically, Alaska Resource Management plans to have water loaded directly from a large pipe on the glacially fed Blue Lake, which is also home to a deepwater port. From there, cargo ships would carry the water to an as-yet undisclosed location in India, where an awaiting tank system would be used to store the water and maintain the quality of the water for distribution to countries in the Middle East and north Africa that are constantly grappling with water shortages.
It would basically serve as an alternate to desalination — the process by which salt is extracted from sea water to make it potable. Desalination is already widely used in areas without a lot of water options and advocated by water management types, but some protest that the process, which is energy intensive, sucks up too many fossil fuels. But shipping does too – in spades. Add to that the fact that desalinized water is currently cheaper than the water that S2C reckons it will sell — plus the likelihood that someday Alaskans are going to wake up and realized they have sold off billions of gallons of their local lake at bargain basement prices — and the plan starts to get a little hazy.
Nevertheless, it has an extremely instructive point: most of the planet's fresh water is located near the poles, and most of the planet's human beings are located on the equator. That makes for an alarming scarcity of access to water on our blue planet, and it's only going to get scarcer as the global population is fixing to increase up to 50% over the next 50 years. Over one billion people lack access to safe drinking water today. That's one in every six people. About 4000 children die every day from water-borne diseases.
Here's a graphic, courtesy of the World Water Council, that illustrates the correlation between location and water stress across the globe in 1999:
As climate change continues to deliver increasingly unpredictable rainfall and shrink glaciers whose meltwater is a lifeline to some of Asia's most populous places, governments' are going to have to start rethinking their approach to improving their populations' water security. A study released today by the International Water Management Institute (IWMI) outlines how the longstanding practice of relying on large dams to store water for drinking and for agriculture may not be the best option in this new era of uncertainty. Some 50,000 large dam have been built around the globe since the 1950s, displacing up to 80 million people and disrupting the lives of another 470 million who live downstream from dammed rivers.
IWMI suggests the better way to secure water supply, particularly for the rural poor who rely on rainfall for farming, is to develop combined systems of large and small-scale options like using water from wetlands, groundwater, and collecting rainfall in ponds, tanks and reservoirs. “Unless we can reduce crippling uncertainty in rainfed agriculture through better water storage, many farmers in developing countries will face a losing battle with a more hostile and unpredictable climate,” Matthew McCartney, the report's lead author and a hydrologist at IWMI, said in a press release. IWMI estimates that some 500 million people across India and Africa would benefit with the simple, top-down restructuring of water resources that the report recommends.
Collecting groundwater, of course, not nearly as colorful a solution as a series of World Water Hubs. But improving local infrastructure for small scale farmers to manage their own water does offer them something that no privately owned water source ever could – a measure of control over their own destiny.
And if that's not something to raise your glass to on Labor Day, I don't know what is.
http://ecocentric.blogs.time.com/2010/09/06/will-shipping-water-from-alaska-to-india-help-solve-the-world%e2%80%99s-water-crisis/
Probe Circles Globe to Find Dirty Money
By CARRICK MOLLENKAMP
SEPTEMBER 3, 2010
A black-market financial investigation spreading from Iran to Sudan, London and Cuba began in a cluttered fifth-floor cubicle in an old-school district attorney's office in Manhattan featuring dark corridors and frosted glass.
There, an intelligence analyst named Eitan Arusy began studying a slim lead. Suspicious money was flowing to and from an Iranian nonprofit operating in a Fifth Avenue office tower in Midtown Manhattan. Mr. Arusy's probe, later merged with a Justice Department inquiry, ultimately widened to some of Europe's vaunted banks, helping spark a global inquiry that found they actively evaded U.S. law in aiding sanctioned countries, banks or other enterprises move some $2 billion undetected.
Nine banks have been caught up in the probe, and some are in discussions to settle, according to a person familiar with the case. Three have already. Last month, Barclays PLC in London agreed to pay $298 million and admitted to allowing payments on behalf of clients in Cuba, Sudan and other countries. Lloyds Banking Group in London and Credit Suisse Group in Zurich—banks that operated extensive transfer systems for Iranian clients—have agreed to settlements totaling $350 million and $536 million, respectively.
A Fateh-110 missile is test-fired on Aug. 25 by Iran, which is among the sanctioned nations
These weren't rogue operations. The investigators discovered that the banks ran dedicated units to systematically aid the undetected transfer of money through the U.S. banking system. They did that by removing identifying coding on fund transfers so they could evade automated U.S. bank computer systems designed to spot money flowing from a sanctioned state.
The far-reaching inquiry started small. Mr. Arusy arrived at the district attorney's office in 2005 to help ferret out illegal financing tied to the Middle East. Though the office prosecutes everyday crime, it carved out a role infiltrating crimes tied to the city's financial markets and institutions. Its expertise dates to the 1990s, when it led the investigation of Bank of Credit & Commerce International, or BCCI, which collapsed in a fraud and money-laundering scandal.
Adam Kaufmann, executive assistant district attorney for Manhattan, said his office was seeing questionable flows of money between South America and the Middle East. Mr. Arusy was hired to help track the Middle Eastern end.
An Israeli-American who speaks Arabic—he learned the language from his grandparents and teachers in Israel—Mr. Arusy for a time worked for the Israeli army, where his job included giving Arab media better access to Israeli forces.
In New York, Mr. Arusy hunkered down in the building used in Woody Allen's "The Curse of the Jade Scorpion" because of its 1940's era-look. Mr. Arusy scrutinized documents that detailed the money flows tied to a group called the Alavi Foundation. The group devotes itself to promoting Islamic culture, including the Persian language, according to its Web site. Alavi refers to the descendants of Ali, a relative and potential successor to Prophet Muhammad.
But in the past two years, federal prosecutors have alleged that the foundation is closely tied to the Iranian government. Prosecutors claim in federal court proceedings that Alavi served as a U.S. operations arm for the Iranian government, including managing a Fifth Avenue office tower, running a charity and moving money from the office tower to Bank Melli. Prosecutors allege the bank is controlled by the Iranian government.
Throughout 2006 and 2007, Mr. Arusy, and his boss, Mr. Kaufmann, worked to crack the foundation. Mr. Arusy went after the investigation "like a dog with a bone," Mr. Kaufmann said. "We found this whole system that let them [the Iranian banks] move their money."
An Alavi Foundation employee referred questions to an outside lawyer. The lawyer didn't respond to repeated requests for comment.
The district attorney's office subpoenaed financial institutions that were mentioned in the documents discussing suspicious money transfers tied to the Alavi Foundation.
That led the investigators to another set of documents the institutions had on file. Those listed email addresses and telephone numbers for individuals tied to the Alavi Foundation who were behind the money transfers.
A big break came when the district attorney's office obtained the individuals' email traffic. Those emails, which surprisingly hadn't been deleted, detailed money transfers from Bank Melli to U.S. banks.
"You had to scrub your eyes when you see these incriminating emails," said Mr. Arusy, who left the district attorney's office in 2007 and today works as deputy managing director of Arcanum, an intelligence firm that specializes in asset-tracing and financial crimes. He declines to give his age.
Mr. Arusy found that European banks that carried out the transfers avoided U.S. filters, software at U.S. banks that screen for illegal or improper transactions. They did so by removing or "stripping" wire-transfer information that identified that the transfer originated from a sanctioned source.
Credit Suisse, according to court records, removed Iranian names, addresses, telephone numbers and identification codes from payment messages sent to U.S. financial firms. In some cases, the bank then replaced the information by using names such as "Order of a Customer" or "Credit Suisse."
When the district attorney's office subpoenaed the European banks and obtained the wire transfer instructions, pieces of the puzzle began to fit together. References to Bank Melli had been scrubbed from the transfer. That signaled to the district attorney's office that the banks purposely had helped conceal the ties to Bank Melli.
By 2007, the district attorney's probe was overlapping in part with a Justice Department inquiry focused on Credit Suisse. A unit of the bank was using code names to conceal securities trading through a New York office and other brokerages on behalf of financial firms in Sudan and Libya.
By late 2008, Mr. Arusy's initial work on the Alavi Foundation was paying off. Information given by the district attorney's office to the U.S. Attorney in Manhattan helped provide evidence tying together the Alavi Foundation, Bank Melli and the Iranian government.
In December 2008, prosecutors sought the forfeiture of a 40% stake in the 36-story, 650 Fifth Ave. building, alleging that Bank Melli had disguised owning its stake in the building through a company called Assa Corp. Then in November 2009, federal prosecutors stepped up the probe, moving for the forfeiture of a 60% stake in the 650 Fifth Ave. building owned by the Alavi Foundation as well as properties in New York, California, Texas, Virginia and Maryland.
The wire-stripping case, meanwhile, was operating on a different track and also yielding information. In January 2009, Lloyds became the first of the three European banks to agree to a fine and forfeiture. Credit Suisse followed last December, and Barclays settled last month.
"If you want other banks to be caught, you need to have innovative ways to conduct investigations," Mr. Arusy says.
Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com
http://online.wsj.com/article/SB10001424052748703431604575468094090700862.html?mod=WSJ_hps_MIDDLEFifthNews
Death By Globalism
By PAUL CRAIG ROBERTS
September 1, 2010
Economists Haven't Got a Clue
Have economists made themselves irrelevant? If you have any doubts, have a look at the current issue of themagazine, International Economy, a slick publication endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times and Washington Post, both of which declare the magazine to be “ahead of the curve.”
The main feature of the current issue is “The Great Stimulus Debate.” Is the Obama fiscal stimulus helping the economy or hindering it?
Princeton economics professor and New York Times columnist Paul Krugman and Moody’s Analytics chief economist Mark Zandi represent the Keynesian view that government deficit spending is needed to lift the economy out of recession. Zandi declares that thanks to the fiscal stimulus, “The economy has made enormous progress since early 2009,” an opinion shared by the President’s Council of Economic Advisors and the Congressional Budget Office.
The opposite view, associated with Harvard economics professor Robert Barro and with European economists, such as Francesco Giavazzi and Marco Pagano and the European Central Bank, is that government budget surpluses achieved by cutting government spending spur the economy by reducing the ratio of debt to Gross Domestic Product. This is the “let them eat cake school of economics.”
Barro says that fiscal stimulus has no effect, because people anticipate the future tax increases implied by government deficits and increase their personal savings to offset the added government debt. Giavazzi and Pagano reason that since fiscal stimulus does not expand the economy, fiscal austerity consisting of higher taxes and reduced government spending could be the cure for unemployment.
If one overlooks the real world and the need of life for sustenance, one can become engrossed in this debate. However, the minute one looks out the window upon the world, one realizes that cutting Social Security, Medicare, Medicaid, food stamps, and housing subsidies when 15 million Americans have lost jobs, medical coverage, and homes is a certain path to death by starvation, curable diseases, and exposure, and the loss of the productive labor inputs from 15 million people. Although some proponents of this anti-Keynesian policy deny that it results in social upheaval, Gerald Celente’s observation is closer to the mark: “When people have nothing left to lose, they lose it.”
The Krugman Keynesian school is just as deluded. Neither side in “The Great Stimulus Debate” has a clue that the problem for the U.S. is that a large chunk of U.S. GDP and the jobs, incomes, and careers associated with it, have been moved offshore and given to Chinese, Indians, and others with low wage rates. Profits have soared on Wall Street, while job prospects for the middle class have been eliminated.
The offshoring of American jobs resulted from (1) Wall Street pressures for “higher shareholder returns,” that is, for more profits, and from (2) no-think economists, such as the ones engaged in the debate over fiscal stimulus, who mistakenly associated globalism with free trade instead of with its antithesis--the pursuit of lowest factor cost abroad or absolute advantage, the opposite of comparative advantage, which is the basis for free trade theory. Even Krugman, who has some credentials as a trade theorist has fallen for the equation of globalism with free trade.
As economists assume, incorrectly according to the latest trade theory by Ralph Gomory and William Baumol, that free trade is always mutually beneficial, economists have failed to examine the devastatingly harmful effects of offshoring. The more intelligent among them who point it out are dismissed as “protectionists.”
The reason fiscal stimulus cannot rescue the U.S. economy has nothing to do with the difference between Barro and Krugman. It has to do with the fact that a large percentage of high-productivity, high-value-added jobs and the middle class incomes and careers associated with them have been given to foreigners. What used to be U.S. GDP is now Chinese, Indian, and other country GDP.
When the jobs have been shipped overseas, fiscal stimulus does not call workers back to work in order to meet the rising consumer demand. If fiscal stimulus has any effect, it stimulates employment in China and India.
The “let them eat cake school” is equally off the mark. As investment, research, development, etc., have been moved offshore, cutting entitlements simply drives the domestic population deeper in the ground. Americans cannot pay their mortgages, car payments, tuition, utility bills, or for that matter, any bill, based on Chinese and Indian pay scales. Therefore, Americans are priced out of the labor market and become dependencies of the federal budget. “Fiscal consolidation” means writing off large numbers of humans.
During the Great Depression, many wage and salary earners were new members of the labor force arriving from family farms, where many parents and grandparents still supported themselves. When their city jobs disappeared, many could return to the farm.
Today farming is in the hands of agri-business. There are no farms to which the unemployed can return.
The “let them eat cake school” never mentions the one point in its favor. The U.S., with all its huffed up power and importance, depends on the U.S. dollar as reserve currency. It is this role of the dollar that allows America to pay for its imports in its own currency. For a country whose trade is as unbalanced as America’s, this privilege is what keeps the country afloat.
The threats to the dollar’s role are the budget and trade deficits. Both are so large and have accumulated for so long that the prospect of making good on them has evaporated. As I have written for a number of years, the U.S. is so dependent on the dollar as reserve currency that it must have as its main policy goal to preserve that role.
Otherwise, the U.S., an import-dependent country, will be unable to pay for its excess of imports over its exports.
“Fiscal consolidation,” the new term for austerity, could save the dollar. However, unless starvation, homelessness and social upheaval are the goals, the austerity must fall on the military budget. America cannot afford its multi-trillion dollar wars that serve only to enrich those invested in the armaments industries. The U.S. cannot afford the neoconservative dream of world hegemony and a conquered Middle East open to Israeli colonization.
Is anyone surprised that not a single proponent of the “let them eat cake school” mentions cutting military spending? Entitlements, despite the fact that they are paid for by earmarked taxes and have been in surplus since the Reagan administration, are always what economists put on the chopping bloc.
Where do the two schools stand on inflation vs. deflation? We don’t have to worry. Martin Feldstein, one of America’s pre-eminent economist says: “The good news is that investors should worry about neither.” His explanation epitomizes the insouciance of American economists.
Feldstein says that there cannot be inflation because of the high rate of unemployment and the low rate of capacity utilization. Thus, “there is little upward pressure on wages and prices in the United States.” Moreover, “the recent rise in the value of the dollar relative to the euro and British pound helps by reducing import costs.”
As for deflation, no risk there either. The huge deficits prevent deflation, “so the good news is that the possibility of significant inflation or deflation during the next few years is low on the list of economic risks faced by the U.S. economy and by financial investors.”
What we have in front of us is an unaware economics profession. There may be some initial period of deflation as stock and housing prices decline with the economy, which is headed down and not up. The deflation will be short lived, because as the government’s deficit rises with the declining economy, the prospect of financing a $2 trillion annual deficit evaporates once individual investors have completed their flight from the stock market into “safe” government bonds, once the hyped Greek, Spanish, and Irish crises have driven investors out of euros into dollars, and once the banks’ excess reserves created by the bailout have been used up in the purchase of Treasuries.
Then what finances the deficit? Don’t look for an answer from either side of The Great Stimulus Debate. They haven’t a clue despite the fact that the answer is obvious.
The Federal Reserve will monetize the federal government deficit. The result will be high inflation, possibly hyper-inflation and high unemployment simultaneously.
The no-think economics establishment has no policy response for economic armageddon, assuming they are even capable of recognizing it.
Economists who have spent their professional lives rationalizing “globalism” as good for America have no idea of the disaster that they have wrought.
Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. The economic critique in this column is powerfully laid out in his latest book, HOW THE ECONOMY WAS LOST, which has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
http://www.counterpunch.org/roberts09012010.html
In The Headlights
By James Howard Kunstler
on September 6, 2010 9:47 AM
The toils of summer are bygone now. The days grow shorter and America stands in the darkling road of its own prospects like a dumb animal frozen in the blinding light of approaching fury. The White House must be a strange place these days with the management of the USA turned over to astrologasters, alchemists, prayer-wheel spinners, fakirs, viziers, necromancers and other visitors from occult realms unaffiliated with the dominion of reality.
One of these characters, Ms. Christina Romer, at a luncheon celebrating her departure as chief of the White House Council of Economic Advisors (i.e. readers of spilled goat innards) even blurted out that she had no idea what's been going on in banking and business and how come America can't be more like it was in 1999. Don't cry for Christina. A cushy chair awaits her at the Hogwarts Berkeley outpost where she can repose in a trance of unknowing until California slides into its own tar pit of default and disintegration.
It's all a mystery in Washington. Nobody can figure out what happened to their green-eyed champion called Growth, that savior who rights all wrongs and insures our eternal exception from the sad fates of other less-blessed empires. Isn't there a book of conjures somewhere in the Harvard Business School that guarantee perpetual growth -- even if there are different tomes around the campus that describe the essential tragic nature of life, viz., that there is a beginning, a middle, and an end to everything. And while this might not be the end of the human project in North America, it is certainly the end of the cheap oil abbondanza, and everything spun off of it in the way of mass consumer luxury, with air-conditioning and a cherry on top.
My own view -- I might be wrong-- is that we are going through an epochal compressive contraction, which is the opposite of growth. Money is disappearing because debts are being welshed on in such a volume that all the digital dollars conjured out of chief wizard Ben Bernanke's magic booty box are but empty spells cast into a hurricane of broken promises. This is no Hurricane Earl - which stared into the discharge tube of Lloyd Blankfein's cappuccino machine and skidded off whimpering into the fogs of Newfoundland. This economic contraction storm has a long way to go, and it will be taking the USA on a strange journey, a trip more marvelous and hazard-fraught than the trek across the Oregon Trail -- and the destination may be a strange country where promises are taken seriously. What an idea!
In the meantime, the managers of US polity, Mr. Barack Obama and Company, look to continue scattering goat innards on the new carpet in the Oval Office in their desperate seeking for a miraculous return to the non-stop celebration that was ringing through the nation a decade ago. Any moment now, the President will announce some new "program" aimed at propping up house prices -- in order, you understand, to allow banks to pretend that they are still solvent. It won't do a thing for the poor schlemiels who already paid way too much for a house, and it won't do a thing for anyone looking to buy a house with a shrinking income, but it's probably what he'll do, along perhaps with some other cockamamie flim-flams, like temporarily suspending the payroll tax so the American people can stock up on Cheez Doodles and beer for the football festival known as Thanksgiving. I have a better idea: put a seven-trillion-dollar tax on Lloyd Blankfein's cappuccino machine.
I voted for Barack Obama. I don't know about you, but I'm a tad disappointed in how things turned out with him. These days he makes Millard Fillmore look like Frederick the Great. His speech last week on Iraq and, incidentally, economic matters, was such a puffery of hollow platitudes that I was a little surprised he didn't go up in a vapor at the end of it like a genie and retreat inside his desk lamp in a little trail of steam. Nobody can figure out why he keeps the same krewe of viziers at his elbow after all these months of failure to engage with reality. The voters were expecting a champion and got a Labradoodle instead.
Not that his political adversaries are any better. In fact, I wouldn't depend on John Boehner to pull a straight furrow in three feet of dry loam, or Mitch McConnell to tie his own shoelaces and chew gum at the same time but its certainly reassuring to know that Sarah Palin is waiting offstage to enter the 2012 national beauty pageant and that all of America can stop wasting money on education now that Fox News has installed a blackboard on Glenn Beck's soundstage.
Let me tell you exactly what is going on "out there." The so-called developed world is watching two giant forces race each other to put an end to business-as-usual for industrial civilization. These two forces are the catastrophe of debt and predicament of oil supplies. They had been running neck-and-neck for a few years, but now the catastrophe of debt is pulling slightly ahead. But even this is an illusion because these two forces are actually hitched in tandem, with the rickety cart of civilization bouncing perilously behind them, and whatever one of these forces does will affect the other. Bad debt will eventually cripple the global oil industry's ability to perform, and the failures of the oil industry will only amplify the killing force of debt. It's that simple.
And the simple moral of the story is that the only sane thing America can do is simplify itself, de-complexify its dangerously hyper-complex organs of daily life. I've stated them before but, briefly, this means simplifying the way we do farming, commerce, transportation, inhabiting the landscape, schooling, medicine, and banking. Everything we do to add additional layers of complexity to these already tottering systems will guarantee an eventual orgy of blood and material destruction to this land. Everything we do to prop up the unsustainable instead of reconstructing the armatures of everyday life will make American life a nightmare in a very few years ahead.
It must be the case that President Obama and the other denizens of high places do not have a clue what I might mean by all this -- though I am hardly the only one advancing this set of ideas and it is not really radical considering the alternatives. But our leaders' foolish intransigence insures a political convulsion that will follow the onset of an involuntary restructuring that can't be avoided anymore, because reality has mandates of its own, and is closer to God than all the hosts of our ridiculous politics.
http://kunstler.com/blog/2010/09/in-the-headlights.html
Rome is Burning
by Karl Smith in Economics
Tuesday ~ September 7th, 2010
There is a critical point that I fear the commentariat is just not getting. In my darker moments I fear that some of my fellow economists aren’t getting it either but we aren’t going to go there.
Look at these two graphs because they tell you the fundamental problem in America today:
We have very low capacity utilization (75%) and very high unemployment (10%).
That is, we have factories sitting idle for lack of workers – low capacity utilization. At the same time we have workers sitting idle for lack of factories – high unemployment.
There are machines waiting to be worked and people waiting to work them but they are not getting together. The labor market is failing to clear.
This is a fucking disaster.
Excuse my language, but you have to get that this is a big deal. This is not a big deal like the GOP doesn’t appreciate public goods. Or, Democrats don’t understand incentives. Or some other such second order debate that could reasonably concern us in different times.
This is a failure of our basic institutions of production. The job of the market is to bring together willing buyers with willing sellers in order to produce value. This is not happening and as a result literally trillions of dollars in value are not being produced.
Let me say that again because I think it fails to sink in – literally trillions of dollars in value are not being produced. Not misallocated. Not spent on programs you don’t approve of or distributed in tax cuts you don’t like. Trillions of dollars in value are not produced at all. Gone from the world entirely. Never to be had, by anyone, anywhere, at any time. Pure unadulterated loss.
Time and time again I see people speak about recessions as if they are a bad harvest – an unfortunate event wherein we have to figure out how to go with less. Some say we should all sacrifice – some say the sacrifice should be based on X or Y. Some say each family should take their lumps as they come.
However, they are all getting the basic idea wrong. This is not a bad harvest. The problem isn’t that there is less to go around. The problem is that we are creating less, building less, making less.
We have people who would be working but are instead watching Judge Judy. We have machines that could be spinning but are literally rusting for lack of use. This is a coordination disaster.
The question is how do we end this thing as quickly as possible. How do we stop wasting our basic resources (men and machines), day-after-day, month-after-month, year-after-year.
So when I hear this debate drift oft into how Republicans don’t appreciate the value of infrastructure – I suffer infinite eye roll. This is the time for this? You would watch the core economy grind down while you argue over the need to fix a pothole!
When I hear the GOP running some nonsense about how Obamacare is scaring small business I find myself beating back the desire for autodefenestration. Can we let this go already! There are real issues that need to be dealt with.
Now maybe some people want to explain to me how what appears to be a massive market failure is actually something else: a skill mismatch, a great recalculation, etc. I am willing to have that debate.
Of those that agree that this is the result of insufficient aggregate demand we can debate the fastest means of spurring such demand: aggressive monetary policy, payroll tax cuts, something else we haven’t thought of – I am all ears.
However, these are the limits of rational disagreement.
Side arguments that are basically proxy battles for your general theory of government are sadistic tribalistic grandstanding. You chatter and dawdle while Rome burns.
UPDATE: Savage Henry asks whether or not I am just pointing out that there is a recession and obviously recessions are a big deal.
My point is the extent to which a recession is a big deal.
Its often taken as a big deal in the simple sense that the experience of recession sucks. But, people say, there are lots of bad experiences and this is just one of them. Sometimes we have to suck it up.
My argument is no, this isn’t just another bad experience. Its a failure of our most basic institutions and is leading to pure loss.
It would be as if the door to your apartment was ripped off and heat was spilling out into the atmosphere and people said “Well you know sometimes you have deal with the cold, lets talk about the ideal size of an apartment. Big ones are draftier you know. No small ones cool down too quickly”
What! No! Lets fix the fucking door. Do you understand: the door is missing. This is not the time to argue about ideal apartment size, this is the time to keep our heat from spilling out purposelessly.
http://modeledbehavior.com/2010/09/07/rome-is-burning/
The wholly fallible Ben Bernanke
Dean Baker guardian.co.uk
Wednesday 8 September 2010 14.00 BST
Despite three crucial errors at the Federal Reserve, its chairman is still revered as if he is the pope – while we pay the price
Ben Bernanke, chairman of the Fed, testifying before the house
financial services committee on Capitol Hill in Washington in July.
Photograph: Alex Brandon/AP
Many have noted the resemblance between the Federal Reserve Board and the Catholic church. Both have long traditions of secret convocations: meetings of the open market committee and the College of Cardinals. Both have a revered leader: the chairman of the board of governors and the pope. And both have claims to infallibility.
OK, it is only the pope who can explicitly claim infallibility. In the case of the Fed chair, infallibility is bestowed by the business reporters and politicians who treat every word from the reigning Fed chair as a priceless pearl of wisdom.
This aura of infallibility is especially painful in the current economic situation when error seems to be the new religion of the Fed. Just to remind everyone – since so much denial has dominated the debate – the only reason that we are facing near double-digit unemployment and the worst economic calamity in 70 years is that the Fed was out to lunch in combating the housing bubble.
The Fed was apparently unable to recognise a massive and unexplained departure from a 100-year long trend in the largest market in the world as a bubble. Even after it had just seen the stock bubble grow and implode it still could not conceive of a bubble in the housing market. Ben Bernanke, chairman of the Fed, and other spokespeople for the body have also claimed there was nothing they could have done even if they did recognise the bubble.
Call this colossal error No 1. This is drunkenly driving the school bus into the lane of oncoming traffic, killing all aboard. In most lines of work, you would be fired immediately and barred from ever working again. For the Fed chairman this is just a bad break.
Having missed the largest financial bubble in the history of the world, Bernanke quickly moved to colossal error No 2, failing to take adequate steps to counteract the downturn. While Bernanke deserves credit for being more aggressive than some of the quacks who would have just let the financial system melt down completely, his response to mass unemployment has been woefully inadequate.
The Fed should be targeting a higher rate of inflation, in the 3-4% range. This would reduce real interest rates and debt burdens. What is the downside in this picture; inflation accelerates too much and hits 5-6%? How does that compare with years of excessive unemployment, with millions of people unemployed or underemployed needlessly? No reasonable calculation of costs and risks would justify Bernanke's timidity in the current circumstances.
Bernanke's third colossal error is playing along with the deficit fervour being promoted by those seeking to gut social security, Medicare and other areas of social spending. The downturn has predictably led to an explosion of the deficit, as public spending had to fill the gap created by the collapse of private spending.
However there is no reason whatsoever why this deficit should place any burden on the long-term federal budget. A responsible Fed chairman would announce his intention to simply buy and hold the government debt used to finance the deficit. This would prevent the debt from placing any future burden on the public budget since the interest payments on the debt would go to the Fed. The Fed would in turn refund the interest to the Treasury each year, leaving no net interest burden on the government.
Japan's central bank currently holds an amount of public debt that is almost equal to its GDP ($14.5 trillion in the case of the United States). As a result, Japan's interest burden is less than that of the US even though its ratio of debt to GDP is 220%, almost four times the ratio in the US.
If Bernanke was honestly doing his job he would be educating the public about why debt run up to counteract a downturn need not impose a burden on the budget. Instead, he is running around telling Congress to cut social security because "that's where the money is".
The country is paying an enormous cost for Bernanke's three errors. In any other line of work any one of these errors would be huge enough to have someone drummed out of the profession. But the Fed has more in common with the Catholic church than it does with normal institutions. As a result, Pope Bernanke is really messing up big time, yet he is still being allowed to wear the mantle of infallibility and the rest of us are being forced to suffer the consequences.
http://www.guardian.co.uk/commentisfree/cifamerica/2010/sep/08/ben-bernanke-federal-reserve
Hell Yes It’s Class Warfare! Parts 1 & 2
by The_Conservative_Lie Blog
September 8, 2010
PART 1
The Distribution of Wealth and Power
There is an intentional misconception out there in the market place of talking points and political discussion – it is that liberals are waging class warfare on the wealthy. It is perpetrated in the right-wing echo chamber by the likes of Neal Boortz, Rush Limbaugh and Fred Thompson. These pinnacles of wit and honesty are correct. There is, and has been, class warfare ongoing in these United States, but it is being waged against the middle and working class by the wealthy, the über wealthy and their lapdog GOP politicians.
Perhaps you might find it debatable that the wealthy and the GOP are waging class warfare against the rest of us. To that, I say “Let’s take a look at some of the facts, shall we?” After all, actions are supposed to speak louder than words, though the republican noise machine has gone a long way toward proving that old axiom wrong.
To give you, dear reader, an established starting point by which to measure the following points, let us first get some perspective.
The top 20% of households in America control an astounding 85% of the wealth, leaving only 15% for the bottom 80%. Those numbers, however, include primary residences. For the overwhelming majority of that bottom 80% of households, the equity, if any, in the primary residence represents most, if not all of the net worth. If you take the home out of the equation, as most Americans cannot effectively liquidate their residence, the numbers are more staggering. Minus residence equity, the top 20% of American households control 93% of the wealth in this nation. (I heard a caller on the Alan Colmes show on Labor Day complain that union auto workers are making $40 per hour and there is “no way” anyone is worth paying that much money. I wonder how he would justify these figures.)
The top 10% own about 85% of all stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. And as wealth is what really matter in terms of control of income-producing assets, it might be fair to say that a mere 10% of the people control the United States.
According to figures published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% (that‘s you and I) receive nothing.
Remember learning about the Great Depression? Well, one thing that we have in common today with our forbears is that the concentration of wealth in so small a group of Americans today is just about what it was in 1929.
During the trickle down economic theory period between 1983 and 2004 (the latest figures available), of all the new wealth created, 42% went to the top 1% of Americans, 94% to the top 20% and 6% did trickle down to the rest of us.
How does the U.S. compare to the rest of the industrialized world? Only 1 Western industrial nation has a greater concentration of wealth than we do – Switzerland. Must be the easy access to all those Swiss bank accounts.
As you may have heard, and you certainly have if you listen to Boortz, the economy has been growing and incomes have been rising, even during Bush the Lesser’s reign. To which I say, Touché. Income has grown by about 27% in the last 25 years, 33% of those gains went to the top 1% and bottom 60% were actually making less in real dollars. And the folks who sit between the 60% and 80% numbers saw only a 2% increase over that same period. By 2007, income inequality was at the highest levels since, you guessed it, just before the great depression. In fact, as bad as most Americans had it in 2007, the average income for the top 400 households doubled from 2006 to 07 reports.
Having said all that, you might be thinking that those are impressive numbers, but they hardly suggest, much less prove that the rich (and their Republican lapdog politicians) are waging war on the rest of us. You have a point, if you were indeed thinking that. And I… I have a counter point, in which I will demonstrate to you that, hell yes, it is class warfare. And I will do that… tomorrow
http://cons-lie.com/2010/09/07/hell-yes-its-class-warfare-part-1/
Hell Yes It’s Class Warfare! Part 2
Wealth Is Power
As I demonstrated in Part 1, there is a gross inequity in the way wealth is distributed in this country. And wealth is power – often the self-interested use that power to make sure the playing field remains uneven. Wealth is translated into power in several ways.
As indicated in Part 1, the top 10% of American households own about 85% of stocks. As shareholders, the wealthy are often able to influence corporate policy and corporate culture.
As the majority of CEOs and board members of the largest companies are also included in the top 10%, they more directly influence corporate America. Corporate America spends billions of dollars each year lobbying our politicians to influence public policy and additional billions each election year funding the campaigns of both parties in a very successful effort to “buy votes”.
Private citizens also donate money to campaigns. The top 10% of households contribute 60% of all political and campaign donations, and more than 90% of all donations of more than $200. In 1996, the top 10 highest income zip codes contributed over $7 million dollars, while the bottom 100 zip codes contributed $7,000.
According to Campaignfinance.org, about 90% of congressional elections are won by the candidate that spends the most money. The respective parties have both overwhelmingly chosen the presidential candidate who garnered the most cash as the party nominee.
Wealth also pays for “think tanks” and experts who are employed to influence public and political opinion, or to simply think up new policies to benefit their employers’ interests.
And how have the self-interested among the wealthy used this power to wage war on the rest of America? By putting into office politicians who write and vote for policy that is intended to keep the money at the top of the social pyramid and out of the hands of The Great Unwashed.
As shown in Part 1, the wealth of the top 400 Americans doubled during Bush the Lesser’s administration. Where did that money come from? The liars who are selling America the myth of trickle down economics would have you believe that it is not a zero-sum game; that the pie gets larger for everyone. However, it is obvious that the money came from the bottom 80% of Americans, who lost median income and increased personal debt over the same period of time. This was done in a variety of ways with the help of mostly Republican politicians who also lined their own pockets along the way.
The most obvious are the gratuitous tax cuts for the wealthy – the tax cuts about which in no less than two presidential debates Bush promised you, the American public, “overwhelmingly favored the middle class.” In addition the tax cuts in capital gains and inheritance, which only benefit the wealthy, Bush sold you a pig in a poke with income tax cuts. Obviously, the more money one earns, the larger the dollar figure results from the same percentage of tax cuts; but more to the point, most Americans pay the majority of their taxes in the form of payroll taxes. Most Americans, but not the wealthy. So a cut in income taxes results in staggering amounts of money for those in the top 10%, but the rest of us received an average of $800 a year as a result of these tax cuts. And to make it even more unfair, the wealthy only pay payroll taxes on the first $150,000 of their income, while the rest of us pay it on all of ours.
The effective tax rate on the top 1% of families has decreased from 85.5% in the 1950s to 30.9% under Bush’s latest tax cut. In contrast, the effective tax rate on the middle class has risen from 5.3% in 1948 to 24.6%.
Sales taxes also work on an unfair sliding scale. Because it is a flat tax that everyone pays, and the working and middle classes spend more of their income by necessity, they pay a higher percentage of their income in sales taxes than do the rich.
While working and middle class Americans put nearly 100% of their income back into the economy, the rich continue to amass and hold more and more of our nation’s total wealth. As our economy nose dives, and wealth continues to become more concentrated, it is imperative that those who both use and benefit the most from our system of laws and governance, infrastructure and populace return to paying their fair share of the burden.
In part three I will address how special interests (read wealthy) have influenced policy on issues that have weakened labor unions, weakened bankruptcy protection, and weakened entitlement and social programs all the while putting more money in the hands of those who already have it.
http://cons-lie.com/2010/09/08/hell-yes-its-class-warfare-part-2/
Show Me the Recovery
David M. Katz - CFO.com | US
September 3, 2010
While second-quarter sales increases are encouraging, weak cash generation is worrisome.
While U.S. companies have displayed slightly improved sales over the past two quarters, sluggish inventories and capital spending reveal a lack of conviction in the recovery, new data from a cash-flow study suggests.
To be sure, as of the quarter ending in June, signs of a comeback in the economy were starting to show up. For the second straight reporting period, median revenues for a sample of 3,807 public nonfinancial companies with market capitalizations of more than $50 million increased, according to a research report issued by the Georgia Tech Financial Analysis Lab earlier this week. Based on 12-month trailing periods, the median revenue figure grew to $542 million in the quarter ending in June from $528 million in March 2010 and $523 million in December 2009.
Similarly, operating cushion (operating profit before depreciation and amortization) also improved, rising to 14.96% in the second quarter from 14.84% in March 2010 and 14.63% in June 2009, according to the report, which analyzed data supplied by Cash Flow Analytics LLC. Even though such upticks are modest, they're "encouraging" because they show positive movement over a six-month period, according to Charles Mulford, a Georgia Tech accounting professor and research director of Cash Flow Analytics. Further, since overall prices have held steady, the rise in revenues represents "real improvements in quantities being sold," he says.
Nevertheless, companies are acting as if the increase in sales and profits isn't sustainable. "If they truly believe that revenue growth is here to stay, we'd see inventories growing, and we're not seeing that," says Mulford. "We'd see increased capital spending, and we're not seeing that." For example, median inventory days remained relatively flat at around 26 in the second quarter of this year when compared with March, when the figure was about 24. In the quarter ending in June, median capex as a percentage of revenue was 2.79%, down from 2.83% in March 2010 and 3.76% in June 2009.
In their overall assessment of companies, the Georgia Tech researchers observed that firms continued to display a "hunker down," attitude, "sheltering resources and shunning new investments in inventory and capital equipment." Despite the increase in revenues, they "saw no evidence that firms were beginning to embrace growth or invest for the future. Instead, they appeared to be treading water, protecting their cash resources from future unknowns and waiting for a clearer economic picture to emerge."
And those cash resources might be eroding. After a steady climb that began in the last quarter of 2008 and peaked at 6.69% in the first quarter of 2010, median free cash margin (free cash flow divided by revenue) decreased to 5.97% in the second quarter of this year.
Of the 20 industry sectors the researchers looked at in terms of free cash margin, 11 are stable and 4 are declining. "That's 15 that are either stable or declining. If we generalize to the economy," says Mulford, "we can say that there's a lot of weakness in cash generation that's starting to show up."
The industries with declining median free cash margin in the second quarter were materials; transportation; consumer durables and apparel; household and personal products; and technology, hardware, and equipment. The sectors that saw a rise in their margins were commercial and professional services, automobiles and components, food and staples retailing, and health-care equipment and services.
http://www.cfo.com/article.cfm/14522495/c_14522931?f=archives&origin=archive
Bogus Debt Collectors Impersonating Bank Regulators
By Mark Huffman
ConsumerAffairs.Com
September 7, 2010
Latest attempt to scam victims into paying phony debts
They've impersonated lawyers, police officers, private investigators and agents for a number of different payday lenders. Now these scammers try to convince their victims they work for the Federal Deposit Insurance Corporation (FDIC).
So far, it's one of the fastest-growing scams of 2010. The scammer has obtained the Social Security number or other sensitive information about the victim and claims the victim owes a debt of some kind. Better pay up immediately, they are told, or risk losing their jobs, getting arrested, or both.
Officials at FDIC, which has nothing to do with consumer debt in the first place, report getting numerous reports of suspicious telephone calls where the caller claims to represent the FDIC and is calling regarding the collection of an outstanding debt. Why the scammers choose the little known federal agency is not clear, though FDIC has crept into the public consciousness lately by handling a large number of bank closings over the last two years.
"The caller attempts to authenticate the claim by providing sensitive personal information, such as name, Social Security number, and date of birth, supposedly taken from the loan application," the agency said in a statement. "The recipient is then strongly urged to make a payment over the phone to 'avoid a lawsuit and possible arrest.' In some instances, the caller is said to sound aggressive and threatening."
Just hang up
These suspicious telephone calls, of course, are fraudulent. FDIC says recipients should consider them an attempt to steal money or collect personal identifying information. The FDIC said it generally does not initiate unsolicited telephone calls to consumers and is not involved with the collection of debts on behalf of operating lenders and financial institutions.
If a caller demonstrates that he or she has the recipient's sensitive personal information, such as Social Security number, date of birth, and bank account numbers, the recipient may be the victim of identity theft and should review his or her credit reports for signs of possible fraud.
The individual should also consider placing a "fraud alert" on his or her credit reports. This can be done by contacting one of the three consumer reporting companies listed below. Only one of the three companies needs to be contacted. That company is required to contact the other two, which will place an alert on their versions of the report.
Contacting the credit reporting agencies
• TransUnion: 1-800-680-7289; Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, California 92834-6790
• Equifax: 1-800-525-6285; ; P.O. Box 740241, Atlanta, Georgia 30374-0241
• Experian: 1-888-EXPERIAN (397-3742); P.O. Box 9554, Allen, Texas 75013
http://www.consumeraffairs.com/news04/2010/09/fdic_debt_collector_scam.html
Is It Worth the Extra Money?
ConsumerAffairs.com
September 9, 2010
Consumer Reports latest taste tests find some store brands at least as good as national brands
When it comes to taste, store brand products can compete with their name-brand counterparts and save shoppers more than a thousand dollars a year on grocery bills, according to a new Consumer Reports study.
In 21 head-to-head taste matchups, national brands won seven times, the store brand came out on top in three instances, and the remainder resulted in ties.
"The study reaffirms that store brands are worth a try," said Tod Marks, senior projects editor for CR. "For a family that spends $100 a week on groceries, the savings could add up to more than $1,500 a year."
Consumer Reports' price study evaluated five supermarket chains and compared store-and name-brand prices for 30 everyday items at five chains, collecting a total of 283 price quotes. The magazine found the average savings with store brands was 30 percent, but shoppers saved as much as 52 percent on some items.
Store-brand stigma
Although the savings are significant, some shoppers are still reluctant to try store-brand products, according to a Consumer Reports nationally-represented survey. The top reasons for those who don't buy store brands are: "I prefer name brands," "The name brand tastes better," and "I don't know if store brands are as high in quality." Respondents 18 to 39 years old were particularly likely to question the quality of store brands.
Still, 84 percent of Americans purchased store brands in the past year, and 93 percent of store-brand shoppers said they would keep buying as many store brands after the economy recovers. Nationwide, store brands accounted for almost one of four products sold in supermarkets and a record $55.5 billion in sales last year.
Consumer Reports found nutrition similar for most of the tested products, despite the perception among 17 percent of survey respondents who said that "name-brand foods are more nutritious." The most notable differences: Mott's applesauce has more sugar than Publix, Ore-Ida fries have more sodium than Jewel, and Kellogg's Froot Loops have 3 grams of fiber vs. 1 gram in Stop & Shop Fruit Swirls.
Exceptions
Shoppers are devoted to certain categories as well. Though they'll purchase store-brand paper goods and plastics, at least half of respondents rarely or never buy store-brand wine, pet food, soda, or soup. But CR's trained testers found that when it came to products like soup, the name brand didn't always reign:
• Chicken soup: Food Lion's (36 cents per serving) Lotsa' Noodles soup beat out Campbell's Chicken Noodle (41 cents per serving) for having a little more intense flavor. Campbell's had oily broth, with fatty pieces of chicken.
• Orange juice: Publix Premium won over Tropicana for having a bit less of a cooked flavor with slightly less bitter taste.
• Hot dogs: America's Choice (A&P, $2.64 per package) beef hot dogs trumped Oscar Mayer ($3.65 per package) for their juicy and flavorful franks.
Name brands trump
Name brands did win in seven of the categories, including mayonnaise, mozzarella cheese, and frozen French fries, but the majority of the matchups found that the store brand and name brand were of similar quality. A tie doesn't mean the taste was identical. Two products may be equally fresh and flavorful, with ingredients of similar quality, but taste dissimilar because the recipe or seasonings differ. Some products that tied include:
• Ketchup: Heinz ($2.76 per bottle) is spicier, while Target's Market Pantry ($1.174 per bottle) brand is more tomatoey.
• Peanut butter: Tasters detected more deeply roasted nuts in Skippy (19 cents per serving), while Albertsons (15 cents per serving) has a hint of molasses flavor.
• Potato chips: Both Lays (29 cents per serving) and Walmart's Great Value (15 cents per serving) have a nice balance of real potato flavor, fat, and saltiness.
Significant Savings
National brands are generally pricier than store brands, not so much because of what's in the package but because of the cost of developing the product and turning it into a household name.
There's no reason store brands shouldn't hold their own, according to CR, since some companies manufacture both, including Sara Lee, Reynolds, 4C, McCormick, Feit, Manischewitz, Joy Cone, Stonewall Kitchen, and Royal Oak. Plus, most grocers offer a money-back guarantee if their products can't meet the consumer's expectations. (National brands stand behind their products too, of course).
Despite the savings, the price advantage may be narrowing. In recent years, some national-brand makers have lowered prices and stepped up promotional activities
http://www.consumeraffairs.com/news04/2010/09/cr_taste_test.html
Congressional Leaders Make it Official: No Budget Resolution for FY 2011
by Cliff Isenberg
Posted Mon, Jun 28 2010
Last week congressional leaders confirmed what many have long suspected: Congress will not meet its obligation to pass a budget resolution for FY 2011. At a public forum, House Majority Leader Steny Hoyer said "It isn’t possible to debate and pass a realistic, long-term budget until we’ve considered the bipartisan commission’s deficit-reduction plan, which is expected in December." According to Hoyer, Congress will instead consider a resolution which could include allocations to the Appropriations Committees that are below the President's request, adjustments to the PAYGO rule, instructions to committees to identify waste, language supporting the goals of the President's fiscal commission, and a commitment to vote on the commission's recommendations.
For many years, similar procedural measures have been referred to as "deeming resolutions." As we have written before, deeming resolutions are procedural shortcuts Congress resorts to when it has been unable to pass a budget resolution. Deeming resolutions have been primarily used to move appropriations bills forward by establishing allocations that guide the process. They have also been used for other purposes such as making adjustments to points of order. According to the Congressional Research Service, however, a “deeming resolution” is not officially defined and there is no specific statute or rule governing their form and content.
In recent days, some in Congress have creatively renamed the deeming resolution "a budget enforcement resolution" and argued that it is "the functional equivalent of the budget resolution." While the term may sound official, "budget enforcement resolution" does not appear anywhere in the Congressional Budget Act of 1974, the Congressional Research Service's summary of the budget process, or in the Government Accountability Office's "Glossary of Terms Used in the Federal Budget Process." Inventing a new term to describe a measure that bears a striking resemblance to a deeming resolution is a rebranding attempt unworthy of an episode of Mad Men, let alone the United States Congress.
Whatever it is called, the resolution Hoyer described is not a budget resolution or equivalent to one. Section 301 of the Congressional Budget Act of 1974 requires a budget resolution to include at least the following levels for a period of at least five fiscal years: totals of new budget authority and outlays, total federal revenues, the surplus or deficit in the budget, new budget authority and outlays for each of the major functional categories, the public debt, and outlays/ revenues for the Social Security program. If the resolution Congress considers does not include these items, it is not a budget resolution.
It is also troubling that the work of the President's bipartisan fiscal commission is being used as a convenient excuse for not passing a budget resolution. Putting aside the fact that it is unclear whether the required 14 out of 18 members of the commission will even be able to reach consensus on a plan, the commission was not created to do the work of the House and Senate Budget Committees. As The Concord Coalition and Senate Budget Committee Chairman Kent Conrad have argued, the primary focus of the commission should be finding long-term solutions to the nation's unsustainable fiscal outlook and not addressing issues that are typically dealt with in the Congressional budget resolution. The commission's medium-term goal of balancing the budget (excluding interest payments on the debt) by 2015 will require some overlap with the congressional budget process, but the solution is not to cast aside the budget resolution. It is to adopt the Senate Budget Committee's approach of reporting a real budget resolution with enforcement mechanisms to accommodate the commission's work. In the meantime, if congressional leaders insist on delaying a budget resolution until the commission acts, perhaps they should also delay action on spending and revenue legislation that will add to the deficit.
It is commendable that the deeming resolution may include a discretionary spending limit below the President's request and language supporting the goals of the President's fiscal commission. However, in a fiscal environment in which the Congressional Budget Office (CBO) is forecasting baseline deficits totaling $6 trillion over ten years (excluding the cost of extending expiring tax provisions) and $9.8 trillion in the President’s budget, this is not enough. Our nation faces serious fiscal challenges that require more than a deeming resolution, regardless of how creatively it is named. A deeming resolution will not establish an effective framework to guide Congress as it considers spending and revenue legislation. It also can not be used for reconciliation instructions that may be needed for deficit reduction and compliance with the new PAYGO law.
With annual deficits that are over a trillion dollars, this is no time for Congress to decide to skip the budget resolution. As The Concord Coalition has argued for several months, the fiscal challenges facing our nation require a real budget resolution that will set fiscally responsible revenue, spending, and deficit reduction targets and include the credible budget enforcement mechanisms needed to meet them. It is true that this will require making difficult and politically unpopular decisions, but that is what it means to govern.
http://www.concordcoalition.org/tabulation/congressional-leaders-make-it-official-no-budget-resolution-fy-2011
Silver at $21 an ounce this September
By Melissa Pistilli
Tue, Sep 7, 2010
Soon after briefly touching a nearly 30-month high of $20.04 an ounce early in the trading session Tuesday, silver dipped as low as $19.68. The white metal managed to make a bid back up to its earlier highs, scratching $19.90 before falling back down to a close of $19.82 an ounce on the COMEX.
Profit-taking and outside market factors such as a stronger dollar, lower oil prices, and weak equity markets were no doubt responsible for the selling pressure. The greenback strengthened against a declining euro and other major currencies. News out of China concerning slower factory output in the second half of 2010 didn’t help industrial silver, either.
Throughout July and most of August, silver has remained range-bound between $17.50 and $18.50 an ounce. True to tradition, the white metal began to rally the last week of August closing in on $20 an ounce.
The sometimes precious, sometimes industrial metal is playing both sides as demand for safe haven assets continues alongside renewed hopes of economic recovery, no matter how slight.
As usual, silver has followed gold’s lead while at the same time outperforming its yellow cousin. “Each time a rise in gold hits the headlines, it steals the limelight from silver,” remarked Ashraf Laidi of CMC Markets. “Silver has not only followed rallies in gold, but usually outperformed, as can be seen in a fall in the gold/silver ratio.”
Many analysts believe both demand from investors and industrial uses has helped to bolster silver prices this year, which have increased by 18 percent, compared to gold’s 14 percent, since the start of 2010. Industrial demand has especially bounced back from last year when companies slashed purchases in the midst of the economic downturn. Silver demand from the electrical industry has ballooned by nearly 25 percent in the past year alone.
Rising speculative investment
Despite indications silver’s fundamentals are strong, there are some concerns over the role of speculative investment in pushing prices up.
Last week, the COMEX experienced the highest number of speculative bets on higher silver prices since last December, according to Suki Cooper, analyst at Barclays Capital. The bank also noted that investor interest will continue to overshadow industrial demand as a supply surplus is expected for the year.
Kitco’s Debbie Carlson points out that once December silver futures closed up over $19 an ounce, as they did on August 25, “trend-following funds” were quick “to snap up silver.” Now that prices are teasing with the $20 an ounce level, speculative buying is likely to continue.
While industrial demand does seem to be recovering from 2009 levels in some parts of the world, there are worries that a double-dip recession could send industrial demand plunging again. If too much of the gains in the silver price are based on speculative betting, there is real danger of a sharp downward correction in prices.
India big player in the silver market
While India is traditionally viewed as the center of the world as far as physical gold demand is concerned, the Asian nation is quickly becoming recognized for its strong role in the silver market as well. Rising gold prices are good for silver in this region of the world as would-be purchasers of gold jewelry and bullion turn to the white metal as a cheaper alternative during the festival and wedding season.
Also, as Jeff Neilson points out in a recent three-part article on TheStreet.com, “precious metals are the primary ‘savings instrument’ of India’s ‘peasant’ population (which generally lacks any access to banking services).”
Interestingly, this connection with the rural population makes the weather and agricultural harvests significant factors in India’s silver market, according to Neilson. A good monsoon season, like that experienced this year, leads to a better harvest and more money for silver jewelry and bullion purchases. “As market experts like Dan Norcini have pointed out, we have seen some very recent signs in North American trading that the return of the Indian silver-buyer could be having a significant impact on this market, globally,” said Neilson.
As proof of the Indian market’s influence over global silver prices, Neilson holds up Norcini’s observation that silver prices moved higher on demand last week even as most other commodities prices trended lower.
Could silver’s increasing status as an investment vehicle and savings instrument in India (and China) help to offset potential demand losses from the industrial sector?
Prices going forward
Silver should do well throughout September, and most silver analysts are confident the metal will soon reach the $21 an ounce highs last seen in March 2008. Silver’s advance “has been accomplished in steps without any serious pullbacks in between. This suggests underlying strength in sentiment which isn’t being seen in gold at the moment,” said Mineweb’s Laurence Williams. “Profit taking here only seems to be stemming the rise, not reversing it.”
While investors should expect some pullback in prices come October, the months of November and December historically represent a prime buying period for both gold and silver as the Indian wedding season and the Western holiday season begins. If silver doesn’t breach the $21 level this month, there’s still a high possibility we’ll see prices in that range before the year is out.
http://silverinvestingnews.com/4082/silver-at-21-an-ounce-this-september.html
Gov't: Spending to rise under health care overhaul
Ricardo Alonso-Zaldivar, Associated Press Writer
On Thursday September 9, 2010, 7:26 am
Gov't forecast: Moderate spending increase as 32 million gain coverage under health overhaul
WASHINGTON (AP) -- The nation's health care tab will go up -- not down -- as a result of President Barack Obama's sweeping overhaul. That's the conclusion of a government forecast released Thursday, which also finds the increase will be modest.
The average annual growth in health care spending will be just two-tenths of 1 percentage point higher through 2019 with Obama's remake, said the analysis. And that's with more than 32 million uninsured gaining coverage because of the new law.
"The impact is moderate," said economist Andrea Sisko of Medicare's Office of the Actuary, the nonpartisan unit that prepared the report.
Factoring in the law, Americans will spend an average of $13,652 per person a year on health care in 2019, according to the actuary's office. Without the law, the corresponding number would be $13,387.
That works out to $265 more with the overhaul. Currently, Americans spend $8,389 a year per person on health care.
The new bottom line is guaranteed to provide ammunition for both sides of a health care debate that refuses to move offstage. Republicans are vowing repeal if they win control of Congress this fall, although they are unlikely to have enough votes to override an Obama veto.
For critics, the numbers show that the law didn't solve the cost problem, although Obama repeatedly said he wanted to bend the spending curve down.
The analysis found that health care spending will grow to nearly 20 percent of the economy in 2019. That siphons off resources that could be invested in education, research, transportation or other areas. Medical costs now account for about 17 percent of the economy, and some experts think that's already too much.
For advocates of the law, the numbers show that expanding coverage to 93 percent of eligible Americans comes at a relative bargain price. Moreover, if Congress sticks to cost controls in the legislation, there's potential beyond 2020 to rein in the growth of health care spending. The new projections show a slowdown starting around 2018.
"By the end of the projection period, we estimate (costs) will grow more slowly," said John Poisal, who worked on the forecast.
It's a long way off, but under the health care law, the big coverage push doesn't start until 2014.
That's when the government will offer tax credits to help middle-class people buy private coverage through new insurance markets in their states. At the same time, Medicaid will be opened up to millions more low-income people. Insurers will have to accept all applicants, regardless of health problems. And most Americans will be required to carry coverage or face a fine from the IRS.
The study also showed:
--Government is becoming the dominant player in health care even without Obama's law. Federal, state and local government spending will overtake private sources in 2011, three years before the main provisions of the overhaul take effect. The biggest programs are Medicare and Medicaid.
--Even after the health care overhaul is fully phased in, three out of five people under age 65 will still have private coverage, with most continuing to get benefits through their employer.
--Two federal-state programs, Medicaid and children's health insurance, will grow dramatically under the overhaul. Enrollment will jump 34 percent between 2013 and 2014, to more than 85 million people. States will be bigger players in health care -- and face new pressures over the long run.
The White House released its own analysis of the report, calculating that total health care spending per insured person would be more than $1,000 lower under the law.
A White House blog post from health reform director Nancy-Ann DeParle said that by 2019 overall health care spending per insured person would average $14,720 under the law, compared with $16,120 if Congress and the president had not acted, or $1,400 less.
The White House average was not part of the Medicare analysts' projections, and there was no official response from the actuaries to the White House estimate. DeParle acknowledged that spending would rise in the short run as uninsured people gain coverage, but noted the rate of growth would slow in the second half of the decade. "A close look at this report's data suggest that for average Americans, the Affordable Care Act will live up to its promise," she said.
The Medicare analysts' report is available online from the journal Health Affairs.
Online:
www.healthaffairs.org
http://finance.yahoo.com/news/Govt-Spending-to-rise-under-apf-3465609881.html?x=0&sec=topStories&pos=3&asset=&ccode=
Goldman seen paying $30 million British fine
The Associated Press
On Wednesday September 8, 2010, 10:19 pm EDT
Goldman Sachs expected to be fined about $30 million by British regulator, newspapers report
Goldman Sachs & Co. is expected to be fined around $30 million by British authorities following an investigation of the big Wall Street bank's activities in London, according to news reports Wednesday.
The investigation by Britain's Financial Services Authority began in April after the U.S. Securities and Exchange Commission filed civil fraud charges against Goldman Sachs for allegedly misleading buyers of complex mortgage-related investments in 2007. Goldman settled the charges in mid-July by agreeing to pay $550 million -- the largest penalty against a Wall Street firm in the SEC's history.
Goldman's agreement to pay the British fine could be announced on Thursday, The Wall Street Journal and The Financial Times reported online Wednesday. Goldman spokesman Michael DuVally in New York declined to comment to The Associated Press on Wednesday.
The FSA was not immediately available to comment.
The Journal said that Goldman will acknowledge an error in its regulatory disclosures to the British agency regarding Fabrice Tourre, a London-based executive accused by the SEC of orchestrating the mortgage-linked securities deal. Tourre was promoted and moved to the company's London office to become executive director of Goldman Sachs International in late 2008. Tourre has denied any wrongdoing and has asked a federal court to throw out the SEC case.
The British regulator announced its investigation in April following pressure from then-Prime Minister Gordon Brown, who expressed shock at what he called Goldman's "moral bankruptcy" for planning multibillion-dollar bonuses for its staff. The British agency said it would work closely with the SEC.
The mortgage securities at issue in the SEC case cost two European banks that bought them nearly $1 billion while allegedly helping Goldman client Paulson & Co., a hedge fund, capitalize on the housing bust by betting on them to fail.
The SEC charges were the most significant legal action related to the mortgage meltdown that pushed the country into recession. They dealt a blow to the reputation of a Wall Street powerhouse that had emerged relatively unscathed from the financial crisis.
Goldman neither admitted nor denied legal wrongdoing in agreeing to the settlement with the SEC. It did acknowledge, however, that its marketing materials for the investment deal at the center of the charges omitted key information for buyers.
http://finance.yahoo.com/news/Goldman-seen-paying-30-apf-252768623.html?x=0&sec=topStories&pos=9&asset=&ccode=
US loses ground in competitiveness report
Joe Mcdonald, AP Business Writer
On Thursday September 9, 2010, 7:28 am
US falls to 4th place in competitivness ranking behind Switzerland, Sweden and Singapore
BEIJING (AP) -- The U.S. has slipped down the ranks of competitive economies, falling behind Sweden and Singapore due to huge deficits and pessimism about government, a global economic group said Thursday.
Switzerland retained the top spot for the second year in the annual ranking by the Geneva-based World Economic Forum. It combines economic data and a survey of more than 13,500 business executives.
Sweden moved up to second place while Singapore stayed at No. 3. The United States was in second place last year after falling from No. 1 in 2008.
The WEF praised the United States for its innovative companies, excellent universities and flexible labor market. But it also cited huge deficits, rising government debt and declining public faith in politicians and corporate ethics.
"There has been a weakening of the United States' public and private institutions, as well as lingering concerns about the state of its financial markets," the group said.
Mapping a clear strategy for exiting the huge U.S. stimulus "will be an important step in reinforcing the country's competitiveness," it said.
The report was released in Beijing ahead of a WEF-organized gathering of global business executives next week in neighboring Tianjin. The group is best known for its annual Davos meeting of corporate leaders.
The report ranks 139 countries by assessing business efficiency, innovation, financial markets, health, education, institutions, infrastructure and other factors.
The United States was followed by Germany, Japan, Finland, the Netherlands, Denmark and Canada.
Switzerland held its top rank due to its strong innovation, evenhanded regulation and one of the world's most stable economic environments.
The WEF cited education and regulation as key areas for improvement in a number of economies and warned leaders not to lose sight of long-term needs as they struggle with the global crisis.
"For economies to remain competitive, they must ensure that they have in place those factors driving the productivity enhancements on which their present and future prosperity is built," one of the report's co-authors, Columbia University economist Xavier Sala-i-Martin, said in a statement.
China performed best among major developing economies, rising two places from last year to 27th based on its large and growing market, economic stability and increasing sophistication of its businesses.
Japan gained two places, helped by strong innovative abilities, though its status was hurt by the country's two-decade-old financial malaise.
Greece plunged 12 places to 83rd, plagued by a debt crisis and mounting public concern about corruption and government inefficiency, according to the WEF.
Associated Press Writer Frank Jordans in Geneva contributed.
Online:
www.weforum.org
http://finance.yahoo.com/news/US-loses-ground-in-apf-2045545121.html?x=0&sec=topStories&pos=2&asset=&ccode=
Claims of Recovery But Results Nowhere To Be Found
by Bob Chapman
September 8th, 2010
A weekly excerpt from the subscription issue of The International Forecaster, taken from Bob Chapman's weekly publication.
September 8 2010: the public wants more than claims of recovery, a great loss in trust of the system, gold still the antithesis of money system, BofA troubles, naked shorting problem, businesses in the struggle to stay alive, shadow stats, bills are getting bigger.
The American public is alarmed at what they see going on. Most of them do not understand what has been done to them. The propaganda fed to them daily has them completely confused and that is understandable. They know the financial sector has been bailed out and they somehow have to pay the bill. They have been deceived and few of them want to admit it. They have been told their economy is in recovery, but improvement is nowhere to be found. Government tells them inflation is 1.6% when they know it’s certainly higher than that and has been for some time. The only beacon of light, if they can discover it, is the truth of talk radio and the Internet. Through these methods of communication the truth can be found and it is reaching all around the world.
The American and European banking sectors are generally insolvent and have been so now for a few years. Almost every day there are bank mergers you never hear about and more than 110 banks have gone under so far this year. Thousands of bank branches have disappeared and many unceremoniously have had name changes. The key to banking today is to carry two sets of books. One for the good assets and the other for the bad assets, as sanctioned by the Bank for International Settlements, the BIS, the governments in the US and Europe and the FASB. Most assets are marked to model, which means the bank determines their value arbitrarily, because no visible market exists for the assets. The bookkeeping is a travesty. The idea is to not let the public know how difficult and irreparable the situation really is. It is admitted that 829 banks are on a problem list, but that is just the tip of the iceberg. Failures should accelerate during the coming year. This loss of trust in the system is going to take its toll. Confidence will continue to wane as more and more pressure is brought up to bear versus dollar, which in turn will force gold higher, as it continues to reassert itself as the world’s only real currency. In the end it will spell failure for dollar denominated assets. That will finally bring recognition that the system has failed. This will bring great pressure on the banking system and some major banks will fail. This is why only enough cash should be kept in banks for three months expenses, or six months for businesses and in your safe at home along with your gold and silver coins and weapons, you should have $5,000 in small bills, for emergencies.
It is important to remember that this is part of a plan to nationalize the American banking system, so that it fits into the new National Socialist structure - the corporatist structure that members of the Council on Foreign Relations, the Trilateralists and the Bilderbergs have planned for us. This national banking system is to be the key to future World Government, or a New World Order.
As that effort moves forward the Fed is just short of two years of zero interest rates, a policy that they cannot easily change. If they raise rates at this juncture or stop increasing money and credit the bottom will fall out of the economy. These are the only methods they have of keeping the system alive. The Fed struggles to keep the ship afloat knowing this may be the last time this Band-Aid solution will work. The bubbles that were created, like in real estate, is in its fifth year of decline. Next will be bonds, the stock market and with them insurance companies and retirement plans. Looking at the scene objectively everything the Fed has thus far done has been a failure. A good part of the public is aware of all this and they seethe with anger. Just consider all the unemployed over 40, who will never have a job again and if they do become employed the wage will be ½ to 1/3 of what they once earned. We get letters every day describing the plight of the average American.
Bailing out the financial system hasn’t worked. The loans and special deals have only covered up the crimes these corporations were involved in and allowed them to escape bankruptcy, which they so richly deserve. There is no other way to describe what has transpired in the financial community than welfare for the mega rich. What is worse is that they go right on looting the public as if nothing has happened.
That brings us to the antithesis, which is gold.
We are sure you all remember the supposed swap of 349 tons of gold between commercial banks and the BIS, the Bank for International Settlements. Commercial banks usually work through central banks that represent them at the BIS; thus, this was an unusual procedure, only discovered when someone picked up a footnote in the BIS statement. Making the event more sinister was that there were no BIS official announcement and that the BIS refused to name the banks involved. This is similar to the Fed refusing to divulge to whom they lent $12.8 trillion. We believe these swaps terminate in January, so we anxiously wait to see what the conclusion will be. Will the gold be redeemed or will it become the property of the BIS, or will the swap terms be extended? We guess the real question is were those who did the swap gold bullion banks? Was the public sale of gold by the IMF a factor? Remember the IMF swore they would never dump gold on the open market, but yet they did just that. Adding to the mystery is that the BIS have seldom used gold swaps in recent years. Due to the secrecy involved we tilt toward a billion-bank bailout. In addition we saw fully qualified buyers rejected and gold sold into the market by the IMF. There can be only one reason for that and that is gold price suppression. As it has turned out every time the IMF sells the Russians go into the market and buy it. We also remember a similar episode in the late 1990s when Gordon Brown, the British Treasury Secretary, sold off half of England’s gold at about $275.00 an ounce to bail out London bullion banks.
For those who have an interest in gold they should be paying close attention to gold and silver shares. As of late they have been moving up strongly. Some eight to 20 percent depending on which indicator you watch. The tenor of the market has changed decidedly over the past several months. We could well be experiencing a renewal of share influence. Up until our government decided to manipulate gold and silver, bullion, share prices always led bullion.
We believe this renewal is being led by several factors. The triumph of gold as the only world currency as witnessed over the past 16 months; the use of massive amounts of money and credit in QE1, and now at the beginnings of QE2, which will have equally bad results; trillions of dollars being stolen by those in and around government; the realization that gold and silver production have fallen; the lack of affect of massive naked net shorts in the bullion pits and the LBMA and Comex and the multitude of naked shorts in the shares, all of which have failed to deter higher prices. Higher inflation is on the way, thus $1,600 gold looks very probable this year and $3,000 next year.
Historically September sees higher gold prices 81% of the time. Between now and the end of February gold and silver should do very well. Silver is poised to soon break out to $25.00 or higher. We are also about to see a parting of the ways in gold and silver versus commodities, just like we began to see between the US dollar and gold. In the future gold and silver will be assisted by a major fall in confidence in the Federal Reserve, which is already underway. Their failure to produce a recovery with $2.5 trillion that they injected into the system, along with the administration, has not sat well in the business world. Now the Fed is beginning another $2.5 trillion rescue, which may end up being $5 trillion. Monetary expansion and monetization means higher inflation, which means higher gold and silver prices. As you see in this issue the administration is going to mark mortgages to the market and rewrite new loans. That will add to more monetary expansion. In fact it may be part of the QE2. Word is that this program could put $50 billion into consumer’s hands to spend, which the taxpayer would be on the hook for. We also estimate, even with the programs, 40% to 50% would go into foreclosures.
Rumors reach us that Bank of America was in serious trouble in July and had the Fed not poured in funds the bank would have failed. We described earlier in the year why BofA had such problems; it had been a dumping ground for the Fed. It now looks like the bank may be dismembered with the biggest and best pieces going to JPM and GS.
We are also getting disturbing reports that some kind of secret rules regarding gold and silver bullion. It seems that naked shorting has become a major problem. It may be the only way they can neutralize the problem; and that is to seize bullion accounts to cover their shorts. We are sure holders will be compensated, but they’ll lose their positions and have to buy them back somehow. We just saw the Swiss government and the banking community rollover for imperial America, so it is conceivable that they would pull something like this. Forewarned is forearmed. That is why we always recommend taking physical delivery if possible. All banks and governments are no longer to be trusted.
Second quarter GDP was 1.6%, we had predicted 1.5% months ago. As we forecast the third and fourth quarters will be dreadful, probably between minus 1 and plus 1. The quantitative easy is not coming fast enough; banks finally trying to lend to small and medium businesses, which create 70% of the jobs has had only moderate success and the new US government mark-to-market bailout of mortgage holders won’t affect the market until next year. Adjusting payments by bringing loans down will push $50 billion into the economy will only create more debt and still 40% to 50% of homeowners will fall into foreclosure. Without jobs there can be no solution.
Worse yet, corporate earnings for 2011 should be flat.
Unemployment still is going nowhere although recent numbers on the face were not all that had. Of the 67,000 in job growth 10,000 was the result of the end of a construction strike. A figure government loves to hide is those forced into part-time employment by an additional 331,000, which certainly keeps the figure close to 10 million. In case you didn’t notice all the gains were part-timers – hours worked were flat. Manufacturing lost 27,000 jobs. In April the diffusion index was 68 and in August it was 53. Probably the most important figure of all U6 rose in August to 16.7% from 16.5% in July, as real unemployment after taking out the birth/death ratio rose again to 21-3/8%. This news should keep wage increases flat to slightly higher.
Retail was all over the place in distortion. There were jobless benefits that were released to those that had previously been cut off, and there were 17 states implementing tax holidays that added 2% to overall sales.
The Conference Index fell to 24.9 in August from 26.4 in July. We won’t quote the ISM manufacturing Index because we do not believe it. It was statistically impossible for it to be where it was reported to be. All employment increases were in the private service sectors in health and education, which was statistically impossible as well. We find no confusion, just more lies. The economy is slowing and it’s as simple as that. Productivity was dismal at a minus 1.8%; normal is plus 2.5%. This will negatively affect profit margins as labor costs grow 1.1% and that will force up prices and inflation. As far as GDP growth is concerned we are back to the last quarter of 2008 and the first quarter of 2009 officially. Who knows what the real numbers are. The momentum is gone and if it is to be regained QE2 had best come fast and furious. The loss of traction is now close to where it was when Lehman was destroyed, but 20% to 40% higher than other unfortunate events took place. The difference is the slowdown has been stealth and there has been no panic and no negative events. Such an event would bring the economy down to some of the worst levels in the last dozen years.
After seeing new home sales on an adjusted seasonal basis we suspect they are not correct. The unadjusted numbers fell 7% and that is hard to reconcile. We see no shift in direction. The coming mortgage giveaway will only delay the inevitable for a year or two. It is certainly no solution. Coming in September it amounts to cheap political pandering at the expense of all American taxpayers.
Business sees what we see and it does what it has to do to stay alive. You might call it a state of neutrality as business again dries up and more small and medium-sized businesses fall by the wayside. Owners are sick and tired of more regulations and taxes and idiotic car and appliance programs that do not work. They just steal future sales. The passing of the healthcare reform with onerous rules, additional taxes and confusion haven’t helped. The disagreements over the extension of the Bush tax cut renewals don’t help, especially with the President vowing to kill them. Then how dumb can rewriting underwater loans be? It’s just another temporary solution to aid the financial sector. Most small businesses will pay the fine and opt out of health care for employees completely, leaving valued employees at the mercy of the government and socialized medicine, as 25% of doctors, dentists and other professionals either retire or leave the country. We saw the same thing happen in England in the 1950s. Why would businesses expand and hire under these woeful circumstances? They know real growth is zero.
We know tariffs on goods and services would turn everything around, but our House and Senate have been purchased by the New World Order crowd that want America and Europe on their knees financially and economically so the public will be forced to accept a corporate fascist world government. Free trade, globalization, offshoring and outsourcing have been in full swing for 20 years and the damage done to the American economy has been incalculable. The only way the system can be saved before it crashes is for the system to be purged. The financial sector and others have to be allowed to go into bankruptcy and if they are not eventually chaos and revolution will ensue. Yes, we know that financial sector controls the government, so won’t voluntarily allow that to happen. That is why the November election is so important. All the incumbents have to be swept from Congress. Even removing half of these purchased criminals would give us a chance to heal the system. Without that there is little hope of a positive solution. At least you have been forewarned and at least you can protect what assets you have left by being invested in gold and silver related assets. It is all a sad commentary on our country and its citizens.
In addition, we found it illuminating that Sir Alan Greenspan, an Illuminist, is working with the Paulson Group advising them on monetary matters, money supply and gold prices. This is the same elitist who got us into this mess in the first place, at the direction of his controllers. Quantitative easing one and now quantitative easing 2 should cause inflation to surge and in that process gold and silver will surge as well. That has to be a reason why Greenspan is selling his services. That is to make sure Paulson understands the relationship created by the Fed, which is the creation of massive amounts of money and credit, overall monetary policy, inflation and hyperinflation and the prices of gold and silver.
The bottom line is the Illuminists, the Fed and Greenspan are advocating purchasing gold. The Fed as we have said so often has no other alternative but to reflate. This is the final stamp of approval on designating gold the only real world currency, which we have strongly forecasted for the past 16 months. They realize they have lost control of the dollar, finances and the economy. Gold is reassuming its rightful place as the only world currency.
Obama to Ask Congress to Pass $100 Billion Research Tax Credit
http://www.bloomberg.com/news/2010-09-06/obama-to-propose-100-billion-permanent-extension-of-research-tax-credit.html
Obama to Propose Tax Write-Off for Capital Investments allowing businesses to deduct from their taxes through 2011 the full value of qualified capital investments.
http://www.nytimes.com/2010/09/07/us/politics/07tax.html
U.S. to Deploy Broader Mortgage Aid - mortgage balances for homeowners that owe more than their homes are worth.
Officials say between 500,000 and 1.5 million so-called underwater loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes.
http://online.wsj.com/article/SB10001424052748704323704575461920164400014.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
Obama to Link Tax Plan, Hiring With the job market stuck in neutral, the Obama administration is moving toward using the revenue from expiring tax cuts for the wealthy to finance about $35 billion of tax cuts for small businesses and workers, administration and congressional officials said Friday.
William C. Dunkelberg, chief economist for the National Federation of Independent Business, said small business doesn't need another tax cut and that allowing the money to stay in the hands of consumers including by extending all the Bush tax cuts is what will ultimately help the economy recover.
"History shows that letting Washington have the money and spend it is very ineffective," he said. "If you give a small biz guy $20,000, he'll say, 'I could buy a new delivery truck, but I have nobody to deliver to.' "
http://online.wsj.com/article/SB10001424052748704855104575470063205601090.html?mod=WSJ_hpp_MIDDLETopStories
A combative President Barack Obama rolled out a long-term jobs program Monday that will exceed $50 billion to rebuild roads, railways and runways, and coupled it with a blunt campaign-season assault on Republicans for causing Americans' hard economic times.
GOP leaders instantly assailed Obama's proposal, and many Democrats will likely be reluctant to approve additional spending and higher federal deficits just weeks before elections that will determine control of Congress. That left the plan with low odds of becoming law this year.
http://www.chron.com/disp/story.mpl/ap/top/all/7188626.html
It appears that Obama’s latest Stimulus scheme is a political gambit that tries to get Republicans to vote against small business tax cuts. But there have already been several small biz tax cuts that have produced zilch. The plan will have little to no effect on the economy in coming months because businesses still see the record tax hike that will appear in four short months.
The BLS increased Birth/Death Model jobs to 115k vs. 98k last August. This is ludicrous and has been the prime ruse that the BLS has exploited to overstate job growth for years.
http://www.bls.gov/web/empsit/cesbd.htm
Another dubious fact in NFP is the 19k job gain in construction. 10k workers returned from strike. Part time workers for economic reasons soared by 331k. Working one hour per week counts as employment according to the BLS…Full-time employment tanked 254k per the Household Survey. According to the BLS, 331,000 Americans were forced to downgrade their employment status to part-time or some chunk of them would have lost their jobs.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. [This is a sign of econ weakness.]
If the ISM and Chicago PMI are so great and its employment component was so great why did August manufacturing jobs decline 27k vs. the expected gain of 10K? And why did stocks rally on negative manufacturing employment, when it rallied on ISM employment strength?
John Williams: The ability to play monthly games with seasonals, the nature of assumptions in the handling of hard data and revisions to same, and a 95% confidence interval of +/- 129,000 jobs around the reported payroll number change, provide significant reporting leeway should someone choose to target payroll reporting in the context say of consensus expectations tied to the financial markets, or of related media hype that could impact public political perceptions.
http://www.shadowstats.com
Please understand what John Williams is saying. Statistically, the confidence or accuracy of the employment report is 95% according to the BLS. This means any variance within +/-129k jobs is within the statistical margin of error.
Protection of money market investors at risk Investors in loss-making money market funds are less likely to be bailed out by fund sponsors in the future, increasing the risks of a run on the $5,000bn (£3,247bn, €3,896bn) sector, according to Moody’s, the ratings agency.
Justin Meadows, chief executive of the MyTreasury trading platform: “To be perfectly frank, neither the funds or their parents are prepared to wear the risk [of implicit guarantees] any more.”
One senior industry figure concurred, saying: “The bills are becoming bigger and bigger. $2.9bn is a big cheque and you wonder how long people are going to go on like this. “But the role that money market funds play in financing the economy is substantial. We are the ones that swallow all the short-term paper.” http://www.ft.com/cms/s/0/e369db2a-b782-11df-8ef6-00144feabdc0.html
Banks Bought Bonds Amid Debt Crisis Even as Europe’s sovereign debt crisis intensified early this year, banks continued to load up on debt from Greece and other countries with the most acute fiscal problems, according to a report released Sunday that also suggested that the European Central Bank inadvertently encouraged institutions to increase their risk.
http://www.nytimes.com/2010/09/06/business/global/06bi.html?_r=1&ref=business
Fury Over Public Pensions Sparks Lawsuits - Several state and local retirement funds have balked at disclosing the pensions of individual government workers, triggering lawsuits that claim taxpayers have the right to such information.
http://online.wsj.com/article/SB10001424052748703431604575468012858784890.html?mod=WSJ_hpp_sections_news
http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Claims_of_Recovery_But_Results_Nowhere_To_Be_Found
Hi bob,
I broke it down to one set of numbers as opposed to a group. BTW, where did you get your #'s (14 of 30 DJIA and your multipliers).
Choosing the SPDR S&P500 (SPY) line we have $110.41 per share with money flow of -$170.10M. Uptick is $1028.20M and $1198.30M is downtick, subtract the 2 and you get $170.1M or "Money Flow". Then dividing uptick and downtick equates to 85.80xxxxxxxxxz or .86 or the Up/Down ratio. I don't know, but the block trade selling #'s seem to correlate as well.
On the "Buying on Weakness" page, SPY is not even listed .. I suppose that gives SPY a "Buy" signal?
You're not going crazy bob, the #'s make no sense to me either unless I am looking at them incorrectly... Pick a line and let me know what you are seeing so that I can make a better judgement on what you are seeing.
Inflation, stagflation and you
By Bill Fleckenstein - MSN Money
9/3/2010 6:00 PM ET
How can you navigate the threat of the 'flations'? One option is to follow the yellow brick road and buy gold.
As we head into the homestretch of summer, deflation seems firmly entrenched as the prominent financial theme of the moment, even while, in my view, two other possible outcomes have a higher likelihood: inflation and stagflation.
In effect, that has created an additional theme: how best to protect yourself and your money. I think everyone should be aware of, if not actively pondering, the impact of these phenomena, as well as planning how to manage the risks that the likelier "flations" pose to one's financial well-being.
What's up? Only the things you need
Concern over deflation, Wall Street's current favorite "phantom menace," has reached near hysterical levels lately, so it was interesting to note that the Producer Price Index for July had gained more than 4% year over year.
In addition, regarding the Consumer Price Index, Jim Stack made the point in his most recent newsletter that the first half of 2010 had seen a 2.1% annualized increase -- this from a highly publicized statistic that everybody and his brother knows understates inflation. That's not to say that certain items haven't declined in price, but such a reading from the CPI is obviously not your grandfather's deflation.
Meanwhile, both The Wall Street Journal and The New York Times carried substantial articles about inflationary pressures on their websites Aug. 25.
The fact is that the cost of living is rising on many fronts, including almost anything touched by a government entity, where taxes and use fees continue to ratchet up. Of course, none of the items that are increasing can be linked directly to monetary policy, so folks continue to look at (declining) asset prices, which are more closely aligned with monetary policy, and see the environment as one of deflation. Yet if they looked at their checkbooks, they would have a completely different opinion.
The irony is that these same people didn't consider rising asset prices during our dual bubbles to be signs of inflation.
As I said two weeks ago, I believe it is more likely that we are in for a period of stagflation, which is an entirely different world from deflation. With stagflation, interest rates eventually rise, and bonds do poorly. Companies benefit when they have pricing power and barriers to entry that keep potential competitors away, as do companies that are growing rapidly.
In such an environment, people eventually come to understand that their paper money is depreciating in value over time, so stores of value (which protect against the impact of government money printing), such as gold, benefit as well.
Is gold really the Fed's guilty treasure?
On the subject of gold, newsletter editor Dennis Gartman recently put forth what I thought was a preposterous observation about my favorite beneficiary of that idea. I don't often respond to commentary that is contrary to my own views, but since Gartman's opinions tend to get a lot of attention, I thought I would offer my own side of the debate.
Gartman stated: "Finally, we suspect that Federal Reserve officials all have gold on their Bloomberg or Reuters terminals in their offices and are watching gold a bit more closely now than in the past. That is, we suspect that Fed officials will view gold trading above $1,250 as a sign that they are too easy and should tighten policy a tad, and shall view gold at or below $1,150 as a sign that they are too tight and should ease."
Federal Reserve Chairman Ben Bernanke has already admitted he doesn't quite understand gold. (Read this Wall Street Journal blog entry for those comments.) To the extent he does understand it, I think the Fed would cheer gold trading over $1,250 as a welcome sign that perhaps "deflation" wasn't here after all. But to think that Fed heads would even consider tightening -- raising interest rates -- as a result of gold trading at a certain price is absurd.
They are not about to do anything to disrupt the economy -- period. They don't care if gold is signaling more inflation. They want more inflation. So I think Gartman's line of logic is completely off base.
Wait, gold is money? That's heavy, dude
As to why gold has been climbing of late, the Aug. 21-22 weekend edition of The Wall Street Journal ran the article "Rethinking gold: What if it isn't a commodity after all?" that illuminates a critical but often-overlooked point.
Jeff Opdyke explains in the column that gold is not necessarily an asset that follows inflation or deflation. Instead, citing Paul Brodsky, a principal of QB Asset Management, Opdyke maintains that gold is in fact a currency -- the world's oldest -- and one "whose daily price is a gauge of the market's concern about the 'potential diminishment' of the purchasing power of the dollar and other paper currencies."
This is a view I have stated myself many, many times.
Opdyke goes on to note: "For investors convinced U.S. lawmakers and central bankers will successfully manage the budgetary woes and the massive unfunded liabilities of Social Security and Medicare, then gold is overvalued in the long term."
I might add that if we all believed the U.S. government (including the Fed) could thread the eye of a needle and solve all our problems, none of us would need gold.
Opdyke continues: "If, however, you worry the U.S. balance sheet is irreparably damaged, then gold currently reflects the likelihood that a weak-dollar trend still has years to run as the U.S. struggles with its financial mess. Investors -- and consumers -- looking to preserve their purchasing power will gravitate toward gold, since its quantity isn't easily manipulated."
In fact, the quantity of gold cannot possibly be manipulated, though it can be increased at whatever rate miners can find new deposits and yank them out of the ground.
Give them a home, where the hard assets roam . . .
Perversely, however, gold continues to be the bull market that people love to hate, as demonstrated by an Aug. 25 Bloomberg article headlined "Bank of Korea 'under pressure' to buy gold, Shinhan's Oh says."
The upshot was that with central banks from India, Russia and China already buying gold, sooner or later South Korea would have to as well. However, a former head of the Bank of Korea's reserve management department, Lee Eung-baek, threw cold water on the idea.
In his view, gold "offers little value," and, more importantly, he stated that gold "isn't the trend." (I guess the nine-year quintupling of the price doesn't count.) He went on to elaborate on that brilliant bit of investment wisdom: "We follow the big trend. . . . Out of more than 200 nations, how many countries have bought bullion?"
This is just textbook herd behavior, and while Lee is no longer with the Bank of Korea, it doesn't take much imagination to believe that mindset is still there. So somewhere down the road, after most other countries have purchased gold, South Korea will, too -- that is, once enough banks have bought in and pushed the price high enough to make it safe.
It is remarkable that while people love discounts when they are shopping for goods and services, when it comes to asset prices, they feel comfortable only when they have climbed high enough to be "cheap" enough to buy.
At the time of publication, Bill Fleckenstein owned gold.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/inflation-stagflation-and-you.aspx