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US Unemployment and Other Data Not Indicative of “Recovery”
By Bill Bonner
01/26/11 Baltimore, Maryland – There are two legs to American household wealth – jobs and housing. Here’s the latest on housing from The New York Times:
The long-predicted double-dip in housing has begun, with cities across the country falling to their lowest point in many years, data released Tuesday showed.
Prices in 20 major metropolitan areas fell 1 percent in November from October, according to the Standard & Poor’s Case-Shiller Home Price Index. The index is only 3.3 percent above the low it reached in April 2009 and has fallen fell 1.6 percent from a year ago.
Prices in Atlanta and Chicago fell more than 7 percent, exceeding even the drops in the perennially troubled Detroit and Las Vegas.
Housing is still going down. If you don’t mind, we’ll repeat what we said yesterday:
“House prices expected to decline for a fifth successive year,” says The Financial Times.
Foreclosures are rising and will continue to rise until March of 2012, according to the projections in the FT, wiping out possibly trillions more in household wealth. Sales are at a 13-year low.
Houses are Americans’ most important asset. And the average house is down about 25% since 2006. But that’s in terms of dollars. In terms of gold, the loss is over 60%.
Okay… Well, it looks like households are hopping on one leg. Now, let’s look at the good leg, employment.
Whoa… What’s this?
WASHINGTON (AP) – The unemployment rate rose in 20 states last month as employers in most states shed jobs.
The Labor Department says the unemployment rate rose in 20 states and fell in 15. It was unchanged in another 15 states. That’s nearly the same as in November, when the rate rose in 21 states, fell in 15 and was the same in 14.
The report is evidence that the job market is barely improving even as the economy grows. Most economists expect hiring to pick up this year, although the unemployment rate will likely remain high.
Employers in most states didn’t add any net new jobs last month. The number of jobs on employer payrolls fell in 35 states in December, the department said. Only 15 states reported gains. Layoffs have slowed dramatically in the past year, but hiring has yet to pick up.
This is not good news. Two gimpy legs. Household wealth is going to fall down.
But what do you expect? This is a Great Correction, isn’t it?
If you listen to the financial media, the State of the Union, or the stock market you’ll get a very different impression. Or just re-read the article above. It says “…the job market is barely improving.” In fact, it’s not improving at all. It’s getting worse. The population is growing. If employers don’t add new jobs, it means more people out of work.
Housing? Same story. It’s not “barely improving.” Houses are still losing value.
We could ask sarcastically: “So, where’s the recovery?”
But why bother? You know as well as we do that there is no recovery. And there’s not going to be a recovery.
Instead, the economy has to move on…to something new. If the financial and political authorities suddenly came to their senses, we could imagine that a couple of rough years of bankruptcies and losses would be followed by a long period of new growth.
But we weren’t born yesterday. This is not a dream. It’s reality. And if our new theory is correct, the authorities are not going to come to their senses. Because they’re paid not to. Ben Bernanke has to believe his crackpot activism will pay off. Otherwise, he’d have to renounce the whole project…and admit that he’s been a fool. He’d also be out of a job – because neither the bankers nor the politicians would allow the chips to fall where they may. Hey – they own those chips!
But couldn’t the feds all get a Ron Paul makeover and come to see that their interventions were actually making thing worse – by adding even more debt and delaying the necessary adjustments?
Nope. Not gonna happen. Remember, a government is the result of natural selection, not rational thought. Its primary objective is to survive. And it does so by protecting its niche – at all cost.
Peter Orzag, writing in The Financial Times:
Most fundamentally it is difficult to see how the medium-term federal deficit can be reduced to sustainable levels without additional tax revenues from those earning less than $250,000 a year. And yet it is equally difficult to see the political system embracing that reality without being forced to do so by the bond market.
The feds cannot suddenly stop rigging the system for the benefit of their favored groups and supporters. A flesh-eating dinosaur can’t suddenly become a vegetarian.
The elite, the privileged, the parasites and the zombies are the feds’ base of power. Lose them and the government is out of business.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: US Unemployment and Other Data Not Indicative of "Recovery" http://dailyreckoning.com/us-unemployment-and-other-data-not-indicative-of-recovery/#ixzz1CR5gFjqT
If We Were in Charge
By John Butler
01/26/11 London, England – With regard to equity market valuations, other factors equal, as the capital base erodes, so does aggregate corporate profitability. Fewer factories = fewer profits. That said, if there is inflation, then the price level and headline revenues may continue to increase, but real economic profits will nevertheless decline. Even if shrinking capacity results in stable price margins, investors should be wary about buying into an eroding capital stock, which is what we have at present. But if margins are under pressure due to soaring input costs, then the combined impact on corporate profits, over time, could be unusually severe.
No doubt mainstream economists will not see this coming, just as they nearly universally failed to forecast a financial crisis from the mid-2000s. Given the analysis provided above, it should be no surprise that many prominent Austrian economists generally did anticipate a crisis, although they were uncertain on timing, with some predicting a crisis as early as 2004. Going forward, we should now heed their predictions which, unfortunately, are rather grim. And to whatever extent that policymakers are serious about fixing the underlying problems of the US economic malaise, rather than merely treating the symptoms, they, too, should listen.
While it is beyond the scope of this essay to go into much detail, Austrian economists would generally recommend actions such as the following:
•Wind down current, inflationary monetary policies and either eliminate the Federal Reserve system or at a minimum place the dollar back onto some sort of explicit, metallic monetary standard to eliminate monetary inflation and restore international confidence in the dollar as a store of value;
•Wind down counterproductive government subsidies for consumption, including entitlement programs, thereby rebalancing economic activity from consumption to savings and investment;
•Lower (or eliminate entirely) taxes on payrolls, savings and investment. To the extent that taxes are required to finance services considered essential, shift from indirect to direct taxation;
•Encourage state and municipal bankruptcy as a way to get public sector costs under control;
Taken together, these actions would stop the erosion of the capital base in its tracks and prevent a further decline in the US standard of living down the road. Yes, they might cause a recession in the near-term, but if that is what it takes to restore sustainable economic growth for the future, we consider that a price worth paying. And no, we are not recommending some strange economic experiment here. The sorts of policies suggested above might be politically unpalatable but they are economically tried and tested
Indeed, the Austrian economic school came into existence as a coherent explanation for the increasingly negative, unforeseen economic consequences of an early lurch toward socialism in Germany and other central European economies in the 19th century. It was two generations later, in the early 20th century, when the Austrian school systematically refuted the tenets of Marxism, an extreme form of interventionism. In the late 1920s, von Mises and other Austrians were ringing alarm bells that the boom was unsustainable and, as such, predicted the 1929 stock market crash and subsequent global financial crisis. As the US lurched toward interventionism in 1930–yes, folks, Hoover was an interventionist notwithstanding FDR’s 1932 campaign rhetoric–the Austrians warned that this would prolong the recession for years to come. (We encourage readers to ponder why, given this impressive track record, the Austrian economic school has been generally out of favor for decades. Could it be that policymakers don’t generally embrace ideas which imply that their various interventions are not only unnecessary, but outright dangerous to economic health?)
We do not presume to predict what a given stock market, or bond market, or commodity market will do this day or the next. What we do know is that, as prices rise and fall, for their various reasons, investors learn lessons which, once internalized, can change their behavior for years to come. They cannot, by their individual actions, change the world in short order. In aggregate, however, through the entirely voluntary, non-violent act of investing sensibly, rather than falling prey to the deceptions of policymakers, they can force enormous, positive changes on the system over time.
We notice in the mainstream economic press an increasingly fearful, even hostile tone directed toward those, like us, who offer up Austrian-style, generally free-market policy suggestions. This is highly encouraging. Why? Well, consider the following: Earlier this month the US celebrated Dr. Martin Luther King Day, in honor of a man who, through entirely peaceful, non-violent methods, contributed to enormously positive social changes during and after his time. (What on earth does this have to do with Austrian economics? Please bear with us for a moment.)
Dr. King was known to have fashioned his methods, to some extent, on those which had been employed successfully by Dr. Mahatma Gandhi some two decades earlier. And as Dr. Gandhi once said: “First they ignore you; then they ridicule you; then they fight you; then you win.” Well, as the economic mainstream is no longer ignoring but rather fighting credible, alternative views, Gandhi’s wisdom should give those of an Austrian economic persuasion reason to be optimistic for the future. We need not be heroic, only patient.
Regards,
John Butler,
Read more: If We Were in Charge http://dailyreckoning.com/if-we-were-in-charge/#ixzz1CR0fSZf7
A Few Suggestions to Improve the State of the Union
By Bill Bonner
01/25/11 Baltimore, Maryland – Tonight, Barack Obama issues his State of the Union address. We are tempted to send him some ideas:
“My Fellow Americans,” we would begin. “I’ve got good news. And I’ve got bad news.
“The good news is that we’ve eliminated the paperwork associated with the Food Stamp program.
“The bad news is that we’ve eliminated the program too. Well, that could be good news too, depending on how you look at it. I don’t know how the US federal government got into the business of feeding people, but now it’s getting out.
“And the good news is that the troops are coming home from Iraq, Afghanistan and 100 different other countries. We have so many troops overseas, we’ve lost track of them; for the life of me, I can’t figure out what they were supposed to be doing over there.
“The bad news is that they probably wouldn’t be able to find jobs in America today.
“But the good news is that we’re doing something about that too. I’m eliminating all the labor legislation and all the nonsense regulations that keep people from hiring. You want a job? Get in line behind all those Hispanics waiting on a street corner. You want a job done? Find yourself a good worker.
“Oh…and here’s some more good news. The US isn’t going broke. Not on my watch.
“Why… I’m proposing a balanced federal budget. What was the matter with George W. Bush, anyway? It’s not that hard. You just figure out how much you’ve got to spend and you don’t spend a penny more. Simple arithmetic. The budget deficit for this year? Zero.”
Of course, if we were delivering a State of the Union address, we’d probably be impeached before we got to the end of it. The nation wouldn’t accept a president that didn’t go along with the game.
What’s the game? Well, the US government has a mission. Its mission is survival. And as the years go by, more and more people want the government to survive. Because more and more people have a stake in it.
Like the 43 million people who get food stamps. Or the thousands who get rich on military contracts. Or the millions of retirees who are counting on Social Security.
Not that we begrudge these people their ill-gotten gains. Not at all. They’re just playing the game too.
But over time, the game comes to be more and more expensive. More votes to buy. More people to pay off. More favors to pass out. More and more deficits. More and more debt. More and more interest to pay on the debt. Then, you have to borrow just to cover past borrowings.
And eventually, you can’t continue. Lenders balk. You run out of money. Game over.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: A Few Suggestions to Improve the State of the Union http://dailyreckoning.com/a-few-suggestions-to-improve-the-state-of-the-union/#ixzz1CQzKy9Be
iggy is a beautiful thing...
...not worth the time.
the feds can't raise rates...eom
I guess lack of federal spending caused the current recession/ depression?
nl,
good article.
-fuge
100% agree.
Ethanol was a good idea at first.
ADM and other millers have left over stuff that they could not do anything else with. Turning that "scrap" into ethanol and biodiesel made sense and was benefical.
Grinding food into fuel at a net energy loss and subsidized by an insolvent currency is incredibly stupid.
*****Riots spread as global food shortage worsens*****
Posted: 20 Jan 2011 02:34 PM PST
http://feedproxy.google.com/~r/MarketSkeptics/~3/dM7UOXU8JM0/riots-spread-as-global-food-shortage.html?utm_source=feedburner&utm_medium=email
Nzherald.co. nz reports that Riots spread as global food shortage
worsens.(emphasis mine) [my comment]Gwynne Dyer: Riots spread as global
food shortage worsens
By Gwynne Dyer
5:30 AM Saturday Jan 15, 2011
Youth face police forces in Annaba, eastern Algeria. Photo / AP
If all the food in the world were shared out evenly, there would be enough
to go around. That has been true for centuries now - if food was scarce,
the problem was that it wasn't in the right place.
But there was no global shortage. However, that will not be true much
longer.
The food riots began in Algeria more than a week ago, and THEY ARE GOING TO
SPREAD. During the last global food shortage, in 2008, there was serious
rioting in Mexico, Indonesia and Egypt. We may expect to see that again,
only more widespread.
Most people in these countries live in a cash economy and a large
proportion live in cities. They buy their food, they don't grow it. That
makes them vulnerable, because they have to eat almost as much as people in
rich countries do but their incomes are much lower.
The poor, urban multitudes in these countries (including China and India)
spend up to half of their entire income on food, compared with only about
10 per cent in rich countries.
When food prices soar, these people quickly find that they simply lack the
money to go on feeding themselves and their children properly - and FOOD
PRICES NOW ARE AT AN ALL-TIME HIGH.
€ ¢â’ ¦MSNBC reports that Global food chain stretched to the limit.
Global food chain stretched to the limit
Soaring prices spark fears of social unrest in developing world
Prakash Singh / AFP/Getty Images
Activists from India's main opposition Bharatiya Janata Party (BJP) women's
wing shout slogans against the Congress-led government during a protest
against an increase in milk, vegetables and food prices in New Delhi on
April 1, 2010. The BJP activists protested against the price hikes of
essential commodities. Food inflation is still at 17 percent according to
official figures.
By John W. Schoen Senior producer
updated 1/14/2011 10:51:29 AM ET 2011-01-14T15: 51:29
Strained by rising demand and battered by bad weather, the global food
supply chain is stretched to the limit, sending prices soaring and sparking
concerns about a repeat of food riots last seen three years ago.
Signs of the strain can be found from Australia to Argentina, Canada to
Russia.
On Friday, Tunisia's president fled the country after trying to quell
deadly riots in the North African country by slashing prices on food
staples.
"We are entering a danger territory," Abdolreza Abbassian, chief economist
at the U.N.'s Food and Agriculture Organization (FAO), said last week.
The U.N.'s fear is that the latest run-up in food prices could spark a
repeat of the deadly food riots that broke out in 2008 in Haiti, Kenya and
Somalia. That price spike was relatively short-lived. But Abbassian said
the latest surge in food stuffs may be more sustained.
"Situations have changed. The supply/demand structures have changed,"
Abbassian told the Australian Broadcasting Corp. last week. "Certainly the
kind of weather developments we have seen makes us worry a little bit more
that IT MAY LAST MUCH, MUCH LONGER. Are we prepared for it? Really this is
the question."
Price for grains and other farm products began rising last fall after poor
harvests in Canada, Russia and Ukraine tightened global supplies. More
recently, hot, dry weather in South America has cut production in
Argentina, a major soybean exporter. This month's flooding in Australia
wiped out much of that country's wheat crop.
As supplies tighten, prices surge. Earlier this month, the FAO said its
food price index jumped 32 percent in the second half of 2010, soaring past
the previous record set in 2008.
Prices rose again this week after the U.S. Department of Agriculture cut
back its already-tight estimate of grain inventories. Estimated reserves of
corn were cut to about half the level in storage at the start of the 2010
harvest; soybean reserves are at the lowest levels in three decades, the
USDA estimates, in part because of heavy buying by China. The ratio of
stocks to demand is expected to fall later this year to "levels unseen
since the mid-1970s," the agency said.
Story: Wholesale prices post biggest gain in a year
"I haven't seen numbers this low that I can remember in the last 20 or 30
years," said Dennis Conley, an agricultural economist at the University of
Nebraska. "We are at record low stocks. So if there any kind of glitch at
all in the U.S. weather, supplies are going to remain tighter and we might
see even higher prices."
€ ¢â’ ¦Pravda.ru reports about doom and gloom.Doom and gloom
17.01.2011 09:48
Have you noticed that most Americans seem to know far more about American
Idol, Dancing with the Stars, Justin Bieber and their favorite sports teams
than they do about world affairs? Most Americans cannot even find Tunisia
and Algeria on a map, and if you told them that food riots are happening in
those nations right now most of them would not even care anyway. We have
become a very self-centered, self-involved and self-absorbed nation. Quite
a few people have accused this column of being obsessed with "doom and
gloom", but the truth is that the world really is falling apart out there.
What are we supposed to do? Are we all supposed to stick our heads in the
sand and pretend that everything is going to be okay? Should we all not try
to warn others so that they can prepare for what is coming? Until people
understand that we are facing absolutely massive problems they are not
going to be motivated to take significant action, and hopefully those of us
that are proclaiming "doom and gloom" are doing a good enough job of
describing what is really going on out there that some people are starting
to wake up and actually make changes.
Most Americans may not care, but the food riots that are starting to erupt
around the globe are actually very serious.
Do you remember what happened back in the summer of 2008?
That summer, the price of oil spiked to an all-time high of $147 a barrel
and that caused a substantial increase in the price of food all over the
globe. Suddenly millions of poor people couldn't afford to feed themselves
anymore and food riots erupted all over the world.
Well, here we are in 2011 and the price of oil hasn't even reached $100 a
barrel, and yet the food riots are already beginning.
Violent food riots are being reported in Tunisia, in Algeria, in Chile and
in Mozambique.
In Tunisia, the riots have been so intense that the President of Tunisia,
Zine El Abidine Ben Ali, has been forced to step down and flee for his life.
Yes, that is how serious things are getting already.
Unfortunately, it looks like the global food situation is only going to get
even worse.
Australia is a major food producer and right now they are experiencing
flooding of Biblical proportions. In fact, it has been reported that at one
point the flooding covered an area greater than France and Germany combined.
In Brazil, another major food producer, horrific flooding has killed more
than 500 people so far. This flooding is being called the "worst-ever
natural disaster" in the history of Brazil.
Meanwhile, record cold temperatures and record snowfalls are playing havoc
with winter crops all over the Northern Hemisphere.
But even before all of these weather disasters struck the price of food had
been going up significantly. The UN recently announced that THE GLOBAL
PRICE OF FOOD HIT AN ALL-TIME HIGH DURING THE MONTH OF DECEMBER, and world
leaders all over the globe are openly expressing concern about what 2011 is
going to bring.
Sadly, the truth is that there has been a trend of rising food prices for
quite some time. According to Forbes, corn is up 94% since June, soybeans
are up 51% since June, and wheat is up 80% since last June.
As one of my readers recently pointed out to me, it usually takes about six
months for the prices of agricultural futures to filter down into the
supermarkets. So the very high prices for agricultural commodities that we
are seeing right now should really start to be felt around the globe by the
middle of 2011.
In addition to everything else, reports continue to come in of thousands of
birds and millions of fish suddenly dying all over the globe, and nobody
seems to really know what is causing it.
Do you want some more doom and gloom?
*There are reports of "panic buying" of silver and other precious metals
right now.
*Investors are bailing out of municipal bonds at an absolutely staggering
rate.
*S&P and Moody's have both warned once again that the United States is in
danger of having its credit rating slashed if it does not get government
debt under control.
*U.S. housing prices have now fallen further during this economic downturn
than they did during the Great Depression of the 1930s.
Meanwhile, America's economic infrastructure continues to be taken apart
piece by piece.
The United States is losing more jobs to China. In fact, the United States
is losing more high technology "green jobs" to China.
Evergreen Solar, a company that manufactures solar panels, is closing their
factory in Devon, Massachusetts and they are moving their production
facilities to China. This is going to result in the loss of 800 good
American jobs.
The following is what the company had to say in a statement about the
move....
"Solar manufacturers in China have received considerable government and
financial support and, together with their low manufacturing costs, have
become price leaders within the industry."
Is it any wonder that a recent survey found that 47 percent of Americans
now believe that China is the world's leading economic power while only 31
percent still believe that the United States is the world's leading
economic power?
As America continues to lose good jobs, millions of Americans find
themselves simply unable to pay the bills. In fact, at this point one out
of every six Americans is now enrolled in at least one government-run
anti-poverty program.
As things have fallen apart in the United States, many private citizens
have tried to step forward and do what they can to help people, but now in
many areas of the country the government is actually stepping in and
shutting down these private avenues of assistance.
For example, in the city of Houston, Texas a couple named Bobby and Amanda
Herring has been feeding homeless people for over a year. They never left
behind any trash and no trouble was ever caused.
But now the city of Houston is shutting them down.
Why?
Because they don't have a permit.
So will they be able to get a permit? Well, it turns out that city
officials are saying that this "Feed a Friend" effort most likely will be
denied one.
Apparently the city "officials" believe that the homeless "are the most
vulnerable to foodborne illness" and that therefore the warm meals that the
Herrings were providing for them were potentially dangerous.
Can you believe this?
This is what happens when political correctness and bureaucracy get wildly
out of control.
Now it is illegal to go out and feed homeless people?
What is American turning into?
As the economy continues to fall part, the iron grip of the government is
likely only going to get tighter as it desperately tries to keep order.
But do we really need to be giving tickets to 6-year-olds?
Yes, you read that correctly.
According to one recent report, police in Texas have given "1,000 tickets
to elementary school children in 10 school districts" over the past six
years. [See Texas school police ticketing students as young as 6]
For more examples of how America is turning into a police state, please see
my recent article entitled "Almost Everything Is A Crime In America Now: 14
Of The Most Ridiculous Things That Americans Are Being Arrested For".
AMERICA IS RAPIDLY BECOMING A VERY DARK PLACE.
The truth is that there is a reason why so many websites are now reporting
so much "doom and gloom". Things really are getting bad out there.
Sadly, most Americans have only known tremendous prosperity all of their
lives, so they can't even conceive of what it would be like to go through
difficult times.
Most Americans have been conditioned to believe that while we may have
brief "recessions" once in a while, in the end our economy will always get
better and the good times will continue to roll.
But the good news is that an increasing number of Americans are waking up
and are trying to warn their family and friends about what is coming.
So do you believe that the food shortages and the food riots are going to
get even worse throughout the rest of 2011? [Oh yes, much worse.]
My reaction: In December 2009, I warned about a food crisis in 2010, and,
in December 2010, the global price of food hit an all-time high.
1) The global food supply chain is stretched to the limit with stocks at
record lows. US soybean reserves are at the lowest levels in three decades
because of heavy buying by China.
2) it usually takes about six months for the prices of agricultural
futures to filter down into the supermarkets. So the very high prices for
agricultural commodities that we are seeing right now should really start
to be felt around the globe by the middle of 2011.
3) The supply/demand structures have changed. Unlike the 2008 food
crisis, the latest surge in food stuffs will be sustained (you will never
see 3 dollar corn again).
4) "We are entering a danger territory," Abdolreza Abbassian, chief
economist at the U.N.'s Food and Agriculture Organization (FAO), said last
week.
Food Riots
1) The food riots began in Algeria more than a week ago, and they
spreading.
2) Violent food riots are being reported in Tunisia, in Algeria, in Chile
and in Mozambique.
3) On Friday, Tunisia's president fled the country after trying to quell
deadly riots in the North African country by slashing prices on food
staples.
America is rapidly becoming a very dark place
1) America's economic infrastructure continues to be taken apart piece by
piece
2) U.S. housing prices have now fallen further during this economic
downturn than they did during the Great Depression of the 1930s.
3) Investors are bailing out of municipal bonds at an absolutely
staggering rate.
4) "panic buying" of silver and other precious metals right now.
5) it is now illegal to go out and feed homeless people in many places.
6) 47 percent of Americans now believe that China is the world's leading
economic power while only 31 percent still believe that the United States
is the world's leading economic power.
Conclusion: Faced with the threat of food riots and violent revolution,
central banks around the world will soon start dumping the foreign reserves
to appreciate their currencies and bring down domestic food prices. This
will collapse the US treasury market and the dollar. All hell will break
lose€ ¢â’ ¦ (more on this in my next entry)
BP view on energy till 2030
http://www.telegraph.co.uk/finance/newsbysector/energy/8269590/BP-energy-outlook-demand-forecasts-in-graphs.html?image=3
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2008/STAGING/local_assets/2010_downloads/2030_energy_outlook_booklet.pdf
BP energy outlook: main points
BP has released its take on global energy over the next 20 years. Here
are the main points.
Primary energy use is set to grow by nearly 40pc over the next 20 years,
with 93pc of this growth expected from non-OECD countries such as China.
Overall energy demand from non-OECD countries is set to rapidly increase
from the current level of just over half, to two-thirds.
- Non fossil fuels, such as nuclear, hydro and renewables are together
expected to provide the biggest source of growth for the first time.
Renewable energy over the next 20 years including solar, wind, and
geothermal are projected to grow from 5pc to 18pc.
- Natural gas is projected to be the fastest growing fossil fuel, with
coal and oil losing market share as fossil fuels as a whole experience a
decline in growth, falling from 83pc to 64pc. Coal will increase by
1.2pc per year and by 2030 it is likely to provide virtually as much
energy as oil, excluding biofuels.
- Coal's recent gains in market share, on the back of rapid
industrialisation in China and India in particular, are reversed by
2030, with all three fossil fuels converging on market shares around
27pc.
- Oil demand from OECD countries peaked in 2005, and in 2030 is expected
to be roughly back at its level in 1990.
- Towards the end of 2030, coal demand in China is no longer expected to
rise and China is projected to become the world's largest oil consumer.
- OPEC's share of global oil production is set to increase to 46pc,
levels not seen since 1977. At the same time, oil and gas import
dependency in the US is likely to fall to levels not seen since the
1990s, because of improved fuel efficiency and the increased share of
biofuels.
- Wind, solar, bio-fuels and other renewables continue to grow strongly,
increasing their share in primary energy from less than 2pc now to a
projected level of more than 6pc by 2030. Biofuels will provide 9pc of
transport fuels, and nuclear and hydropower will grow steadily and gain
market share in total energy consumption.
- Global liquids demand are forecast to reach 102.4 million barrels per
day in 2030, up from 85.5m today. The net growth of 16.5 over the next
20 years comes exclusively from the emerging economies of the non-OECD.
- Biofuels production is expected to reach 6.7m barrels per day by 2030,
from 1.8m in 2010 and will contribute 125pc of net non-OPEC supply
growth over the next 20 years. Continued policy support, high oil
prices, and continued technological innovations will all contribute to
the rapid expansion.
The Onset of Catabolic Collapse
http://thearchdruidreport.blogspot.com/2011/01/onset-of-catabolic-collapse.html
The Onset of Catabolic Collapse
I’ve commented more than once in these essays on the gap in perception between history as it appears in textbooks and history as it’s lived by people on the spot at the time. That’s a gap worth watching, because the foreshortening of history that comes with living in the middle of it quite often gets in the way of figuring out a useful response to a time of crisis – for example, the one we’re in right now.
This is all the more challenging because the foreshortening of history cuts both ways; it makes small but sudden events look more important than they are, and it also helps hide slow but massive shifts that will play a much greater role in shaping the future. Recent increases in the price of oil, for example, kicked off a flurry of predictions suggesting that hyperinflation and the sudden collapse of industrial society are right around the corner; identical predictions were made the last time oil prices spiked, the time before that, and the time before that, too, so the traditional grain of salt may be worth adding to them this time around. (We’ll most likely get hyperinflation in the US, granted, but my guess is that that will come further down the road.) Look at all these price spikes and notice that the peaks and troughs have both tended gradually upwards, on the other hand, and you may just catch sight of the signal hidden in all that noise – the fact that providing industrial civilization with its most important fuel is loading a greater burden on the world’s economies with every year that passes.
The same gap in perception afflicts most current efforts to make sense of the future looming up ahead of us. Ever since my original paper on catabolic collapse first found its way onto the internet, I’ve fielded questions fairly regularly from people who want to know whether I think some current or imminent crisis will tip industrial society over into catabolic collapse in some unmistakably catastrophic way. It’s a fair question, but it’s based on a fundamental misreading both of the concept of catabolic collapse and of our present place in the long cycles of rise and fall that define the history of civilizations.
Let’s start with some basics, for the sake of those of my readers who haven’t waded their way through the fine print of the paper. The central idea of catabolic collapse is that human societies pretty consistently tend to produce more stuff than they can afford to maintain. What we are pleased to call “primitive societies” – that is, societies that are well enough adapted to their environments that they get by comfortably without huge masses of cumbersome and expensive infrastructure – usually do so in a fairly small way, and very often evolve traditional ways of getting rid of excess goods at regular intervals so that the cost of maintaining it doesn’t become a burden. As societies expand and start to depend on complex infrastructure to support the daily activities of their inhabitants, though, it becomes harder and less popular to do this, and so the maintenance needs of the infrastructure and the rest of the society’s stuff gradually build up until they reach a level that can’t be covered by the resources on hand.
It’s what happens next that’s crucial to the theory. The only reliable way to solve a crisis that’s caused by rising maintenance costs is to cut those costs, and the most effective way of cutting maintenance needs is to tip some fraction of the stuff that would otherwise have to be maintained into the nearest available dumpster. That’s rarely popular, and many complex societies resist it as long as they possibly can, but once it happens the usual result is at least a temporary resolution of the crisis. Now of course the normal human response to the end of a crisis is the resumption of business as usual, which in the case of a complex society generally amounts to amassing more stuff. Thus the normal rhythm of history in complex societies cycles back and forth between building up, or anabolism, and breaking down, or catabolism. Societies that have been around a while – China comes to mind – have cycled up and down through this process dozens of times, with periods of prosperity and major infrastructure projects alternating with periods of impoverishment and infrastructure breakdown.
A more dramatic version of the same process happens when a society is meeting its maintenance costs with nonrenewable resources. If the resource is abundant enough – for example, the income from a global empire, or half a billion years of ancient sunlight stored underground in the form of fossil fuels – and the rate at which it’s extracted can be increased over time, at least for a while, a society can heap up unimaginable amounts of stuff without worrying about the maintenance costs. The problem, of course, is that neither imperial expansion nor fossil fuel drawdown can keep on going indefinitely on a finite planet. Sooner or later you run into the limits of growth; at that point the costs of keeping wealth flowing in from your empire or your oil fields begin a ragged but unstoppable increase, while the return on that investment begins an equally ragged and equally unstoppable decline; the gap between your maintenance needs and available resources spins out of control, until your society no longer has enough resources on hand even to provide for its own survival, and it goes under.
That’s catabolic collapse. It’s not quite as straightforward as it sounds, because each burst of catabolism on the way down does lower maintenance costs significantly, and can also free up resources for other uses. The usual result is the stairstep sequence of decline that’s traced by the history of so many declining civilizations—half a century of crisis and disintegration, say, followed by several decades of relative stability and partial recovery, and then a return to crisis; rinse and repeat, and you’ve got the process that turned the Forum of imperial Rome into an early medieval sheep pasture.
It’s easy enough to track catabolic collapse at work in retrospect, when you can glance over a couple of centuries of decline in an evening with one of Michael Grant’s excellent histories of Rome in one hand and a glass of decent bourbon in the other. Catching it in process, though, can be a much more challenging task, because it happens on a scale considerably larger than a human lifespan. In its early stages, the signal is hard to tease out from ordinary economic and political fluctuations; later on, it’s all too easy to believe that any given period of stabilization has solved the problem, at least until the next wave of crises rolls in; late in the game, as crisis piles on top of crisis and cracks are opening up everywhere, your society’s glory days are so far in the past that it’s surprisingly easy to lose track of the fact that calamity isn’t the normal shape of things.
Still, the attempt is worth making, and I propose to make it here. In fact, I’d like to suggest that it’s possible at this point to provide a fairly exact date for the onset of catabolic collapse here in the United States of America.
That America is a prime candidate for catabolic collapse seems tolerably clear at this point, though I’m sure plenty of people can find reasons to argue with that assessment. It’s considered impolite to talk about America’s empire nowadays, but the US troops currently garrisoned in 140 countries around the world are not there for their health, after all, and it requires a breathtaking suspension of disbelief to insist that this global military presence has nothing to do with the fact that the 5% of our species that live in this country use around a quarter of the world’s total energy production and around a third of its raw materials and industrial products. The United States has an empire, then, and it’s become an extraordinarily expensive empire to maintain; the fact that the US spends as much money on its military annually as all the other nations on Earth put together is only one measure of the maintenance cost involved.
That America is also irrevocably committed to dependence on dwindling supplies nonrenewable fossil fuels also seems clear at this point, though here again there are plenty who would dispute the point. Even if there were other energy resources available in the same gargantuan amounts – and despite decades of enthusiastic claims, every attempt to deploy other energy resources to replace a significant amount of fossil fuels has run headfirst into crippling problems of scale – the political will to carry out a transition soon enough to matter has not been present, and the careful analyses in the 2005 Hirsch report are among the many good reasons for thinking that the window of opportunity for that transition is long past. The notion that America can drill its way out of crisis would be funny if the situation was not so serious; despite dizzyingly huge government subsidies and the best oil exploration and extraction technology on Earth, US oil production has been in decline since 1972. As the first nation to develop a commercial petroleum industry, it was probably inevitable that we would be among the very first to hit the limits to production and begin slipping down the arc of decline. As for coal and natural gas, the abundance of the former and the glut of the latter are the product of short term factors; while press releases aimed mostly at boosting stock prices insist that we’ll have supplies of both for centuries to come, more sober analysts have gotten past the hype and the hugely inflated reserve figures and predicted hard peaks for both fuels within thirty years, and quite possibly sooner.
That being the case, the question is simply when to place the first wave of catabolism in America – the point at which crises bring a temporary end to business as usual, access to real wealth becomes a much more challenging thing for a large fraction of the population, and significant amounts of the national infrastructure are abandoned or stripped for salvage. It’s not a difficult question to answer, either.
The date in question is 1974.
That was the year when the industrial heartland of the United States, a band of factories that reached from Pennsylvania and upstate New York straight across to Indiana and Michigan, began its abrupt transformation into the Rust Belt. Hundreds of thousands of factory jobs, the bread and butter of America’s then-prosperous working class, went away forever, and state and local governments went into a fiscal tailspin that saw many basic services cut to the bone and beyond. Meanwhile, wild swings in markets for agricultural commodities and fossil fuels, worsened by government policy, pushed most of rural America into a depression from which it has never recovered. In the terms I’ve suggested in this post, the US catabolized most of its heavy industry, most of its family farms, and a good half or so of its working class, among other things. It also set in motion the process of catabolizing one of the most important resources it had left at that time, the oil reserves of the Alaska North Slope. That oil could have been eked out over decades to cushion the transition to a low-energy future; instead, it was pumped and burnt at a breakneck pace in order to deal with the immediate crisis.
The United States was not alone in embracing catabolism in the mid-1970s. Britain abandoned most of its own heavy industry at the same time, plunging large parts of the industrial Midlands and Scotland into permanent depression, and set about catabolizing its own North Sea oil reserves with the same misplaced enthusiasm that American politicians lavished on the North Slope. The result was exactly what history would suggest; by embracing catabolism, the US and Britain both staggered through the crisis years of the 1970s and came out the other side into a breathing space of relative stability in the Reagan and Thatcher years,. That breathing space was extended significantly when the collapse of the Eastern Bloc, beginning in 1989, allowed American and British economic interests and their local surrogates to snap up wealth across Eurasia for pennies on the hundred-dollar bill, in the process imposing the same sort of economic collapse on most of a continent that had previously been inflicted on the steelworkers of Pittsburgh and the shipbuilders of Glasgow.
That breathing space ended in 2008. At this point, I’d suggest, we’re in the early stages of a second and probably more severe round of catabolism here in America, and throughout Europe as well. What happened to the industrial working class in the 1970s is now happening to a very broad swath of the middle class, as jobs evaporate, public services are slashed, and half a dozen states stumble down the slope that will turn them into the Rust Belt equivalents of the early 21st century. Exactly what will happen as that process continues is anybody’s guess, but it’s unlikely to end as soon as the round of catabolism in the 1970s, and it may very well cut deeper; neither we nor Britain nor any other of our close allies has a big new petroleum reserve just waiting to be tapped, after all.
It’s crucial to remember, though, that catabolism is a response to crisis and at least in the short term, much more often than not, an effective response. The fact that we’re moving into the second stage of our society’s long descent into catabolic collapse doesn’t mean that America will fall apart in the next decade or so; quite the contrary, it strongly suggests that America will not fall apart this time around. As the current round of catabolism picks up speed, a great many jobs will go away, and most of them will never return; a great many people who depend on those jobs will descend into poverty, and most of them will never rise back out of it; much of the familiar fabric of life in America as it’s been lived in recent decades will be shredded beyond repair, and new and far less lavish patterns will emerge instead; outside the narrowing circle of the privileged classes, even those who maintain relative affluence will be making do with much less than they or their equivalents do today. All these are ways that a society in decline successfully adapts to the contraction of its economic base and the mismatch between available resources and maintenance costs.
Twenty or thirty or forty years from now, in turn, it’s a fairly safe bet that the years of crisis will come to a close and a newly optimistic America will reassure itself that everything really is all right again. The odds are pretty high that by then it will be, for all practical purposes, a Third World nation, with little more than dim memories remaining from its former empire or its erstwhile status as a superpower; it’s not at all impossible, for that matter, that it will be more than one nation, split asunder along lines traced out by today’s increasingly uncompromising culture wars. Fast forward another few decades, and another round of crises arrives, followed by another respite, and another round of crises, until finally peasant farmers plow their fields in sight of the crumbling ruins of our cities.
That’s the way civilizations end, and that’s the way ours is ending. The phrasing is deliberate: "is ending," not "will end." If I’m right, we’re already half a lifetime into the decline and fall of industrial civilization. It can be challenging to keep that awareness in mind when wrestling with the day to day details of getting by in an ailing, sclerotic nation with a half-failed economy – or, for that matter, when trying out some of the technologies and tricks I’ve been discussing here in recent months. Still, it’s worth making the attempt, because the wider view arguably makes it a bit easier to keep current events in perspective and plan for the future in which we will all, after all, be spending the rest of our lives.
As we've already seen the bond holders will get screwed...eom
Even so I thought it was interesting.
Not being an extemist is benefical since one can read anything one wants.
Take care.
Our culture is toxic
by erik on January 20th, 2011
Welcome to the sewer. Here’s your haz-mat suit.
Want to send a nice, artful note to a friend to commemorate an important event? Well you can’t make you’re own. You don’t have time or you’re bad at art. Just buy a nice card from Hallmark and add your note. That’ll be $2.95 plus tax. But you have to drive to Target to get one. That’s $1 for gas and car maintenance. Oh and while you’re don’t you want to buy some other things? …
Our culture takes away from us our divine ability to create art. And sells crappy commercial art back to us. Our culture is toxic.
You’ve been sitting/standing/running around all day… don’t you want to move to some music? Don’t you want to feel rhythm and melody move through your body? You can’t make music. You suck… when was the last time you practiced? Don’t practice. Have you heard The Black Keys? Isn’t their sound incredible? You can’t do that. Anyway, their album is only $9.99 on iTunes.
Wait, you’re dancing alone in your house? What a loser. You should be hanging out with people. It’s friday night. Invite people over? OK, you better clean the house. It should be spotless. You need a Swiffer. Go to target and get one, it’s only $19.99. And you need appetizers. What’s that, no one ever taught you to cook? That’s OK. Go to Trader Joe’s. They have amazing spanikopita triangles you can just put on a pan and bake them. $4.99. And some hummous and pitas. You don’t even know what’s in hummous do you? That’s good. $4.99 for 8oz. Boy, pitas are a mystery aren’t they? I wonder how they make them*. $3.99 for 10. I should get a bottle of wine too. $2.99 for Two Buck Chuck… classy. More expensive must be better. $6.99 for this one, and it comes from Australia. Sounds exotic. $2 for gas to Trader Joe’s and Target. And your guests will each bring $10 worth of alcohol or snacks. Good work, what a classy party. Now you’re not a loser who is totally alone.
Our culture is toxic.
Or maybe you want to avoid that. Go out somewhere. Much easier than throwing a party. And just as cool. Maybe cooler. Too bad every square inch of property for 10 miles is owned by someone, and it’s illegal to tresspass. There’s a park down the street, but don’t go there. Parks are dangerous at night. Drug addicts, you know. Anyway, there’s a bar two miles away. Why not drive there? You don’t want to drive though… drunk driving and all. It’s too bad you live in an enormous residentially zoned area where it’s illegal to operate a bar. Guess you’ll have to get a cab. $10 plus tip.
Great, you’re at the bar. You now have permission to move your body to music. As long as you pay the $5 cover. That’s not much money, is it? After all that bottle of wine you bought would’ve been $5 more, but the grapes were harvested but undocumented workers who don’t have any way to get health care. That’s $5 burning a hole in your pocket! Give it to the bouncer. Great.
Now you’re in the bar, time to buy a drink. Don’t get a beer, it’ll make you fat. Vodka is sexy. Absolut. Reminds you of sexy skinny women in tight dresses, right? That’s the whole point of this bar thing, isn’t it? $4 for well drinks. Tastes like shit… maybe I’ll get a specialty drink. Ginger spiced moroccan pear vodka with algerian tonic. Mmm, tasty! $8 is a lot… but boy, I feel fancy! We’re really living it up, huh? Boy this drinking makes me want to drink. Sure I’ll leave my tab open. $20. Sure I’ll buy you a drink! $30. Tip. $40. I wonder how they make alcohol. What a mystery. Thank god for bars.
Want to get home? That’s another $10.
Our culture is toxic.
You’re moving to a new city? Great, you need an apartment. Too bad all of the properties cost hundreds of thousands of dollars, huh? Oh, you found an apartment that’s $300/month? Ew, gross. That’s a bad neighborhood. Filthy. And listen to that music the neighbors are playing. You know that’ll keep you up on the weekend. Here’s an apartment. It’s $1200/month. You and your boyfriend can afford that, can’t you? Good. Sign a 1 year lease. Oh he cheated on you? OMG DUMP HIM! Good, now 50% of your paycheck is going to rent. Better not lose that job. What’s that you’re thinking about starting your own business? Sorry, bills to pay. Anyway, you need furniture for your new house. Thrift stores are gross. Don’t bother with craigslist, how are you going to get those things home? Oh, you want to borrow a truck? Too bad all of the business around are huge chains. You don’t know any of the local businesses owners, so no one can lend you a big truck. How about Uhaul. $29.99 per day in town. Plus it guzzles gas, so that’ll be another $20.
But that’s all crazy, isn’t it? Why not just go to IKEA? Everything is flat-packed in China by people who earn $0.50 a day! Look this couch is $150! And it’s new! No weird smells. You don’t want someone else’s couch with weird smells. You want a new couch. It smells like advanced chemicals. The chemicals they have these days! So advanced! Good, you’re buying it. Now you need end tables right? And a coffee table. And a dining table. And a breakfast table. And a desk. Otherwise your house will feel empty. And so cheap! $49.99 each! And look at these paper lanterns! Only $9.99! You might as well buy 4! And look at this cute shower curtain! I wonder where plastic comes from? Whatever, it’s so cute!
Our culture is toxic.
Oh, are you bored? It’s Thursday. You’ve been working all day, haven’t you. You deserve something nice. There’s nothing happening anywhere near you, is there? That whole residential zoning thing. No free plays. No free music. You’re dog tired from having worked under the thumb of your boss for 8 hours, and then commuted 45 minutes each way. Traffic is frustrating isn’t it? You spend 45 minutes with hundreds of other people literally feet away from you. But don’t talk to them. You’re in a glass bubble, there’s no talking to the other commuters. You have to keep your eyes on the road anyway. All of you, focus on the road for 45 minutes. You can talk to people later, when you’re paying $5 an hour for the privilege of talking to your friends in a bar.
OK, good. You’re all sitting there in the car… bored, but tied up. Aren’t you bored? How about some radio? XM is only $9.99 a month? That’s nothing! You just saved $200 by having your furniture made in China where they can leech those chemicals into the environment indiscriminately. That’ll pay for almost two years of XM! Go for it. Or just listen to FM, it doesn’t matter. What’s that you’re listening to talk radio? How about a new mattress? Your back is hurting you from driving, right? Let’s get you a new mattress. You deserve it. Aren’t you making more money now that you got promoted? Let’s sell you a new mattress.
Our culture is toxic.
OK, you’re home. Why not watch a movie? Netflix is $9.99 a month, and none of your friends, no one in your neighborhood can make anything nearly as entertaining as Netflix. This is amazing art! Films of the decade! So entertaining…. so easy… don’t stage a play. Don’t write a song. Just pay $9.99. Anyway making art is work. You’re too tired for that. And you don’t really want to go OUT to see something, do you? Too tired for that. Stick to your day job. And Netflix.
What’s that, you want to make some cupcakes? OK, great. You love baking. It’s good to have a hobby. Here’s some books you should buy. And look at this blog… look at her cupcakes! Lavender infused Madagascar vanilla bean! Look how beautiful! You should just by this $100 worth of exotic ingredients and tools so you can make cupcakes like that. Yours should be perfect. Perfect. You can make this perfect. What, you want to start a business selling cupcakes? Hah. Try to do that while paying your bills. And anyway, you only make cupcakes every couple weeks. You’re not that good. You’re not good like these people with blogs… look how good they are? This is just a hobby. Anyway, you can’t sell them to your neighborhood. Your kitchen isn’t certified by the city. That would be illegal. You could pay hundreds of dollars to get your kitchen regularly inspected… but no one wants to buy food outside of the grocery store. They have to buy their cupcakes at the grocery store. And the grocery store is a huge chain. They don’t care about you. They would never sell your cupcakes. Even if the manager wanted to they couldn’t. That’s just how things are.
Our culture is toxic.
Everything we do, everything we love, everything we think of as the normal way to live, eat, work, relax, and celebrate, is designed to do two things: take away our ability to take care of ourselves, and then sell it back to us.
Every holiday tradition.
Every leisure activity.
Every piece of music.
Every magazine.
Every article of clothing.
It’s taking away our livelihood.
Or it’s selling it back.
We’re swimming in toxic waste, nickel-and-dimed all day for the privilege of living in a tiny, pathetic bubble of modest protection.
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http://snowedin.net/blog/2011/01/20/our-culture-is-toxic/
I notice none of the economic experts touched this...
Let me say that I am an engineer. Can fix almost anything mechanical, not bad at construction, fair with electrial work, marginal with electronics and can pick up other skills fairly fast.
My employer might move to Greeneville next month. If they do I am not going and do not plan on missing too many paychecks.
Seems to be a connection between those who want to tax the working to death and those who think it is too hard to find work.
Just saying....
dup, sorry- deleted. eom
Both parties celebrate ignorance on a scale that would not have been tolerated a mere generation ago and I suspect will not be tolerated much longer...
Products of the Past
By Bill Bonner
01/17/11 Paris, France – You know what else is a product of the past? Solar panel manufacturing in Massachusetts. The state gave Evergreen Solar at least $45 million in subsidies. “Green” technologies got help from the federal government too – in the form of tax breaks. But last week, the company said it was moving its manufacturing business to…China!
And guess what else is a product of the past – Paul Krugman. The New York Times columnist tries to explain the division in US politics as a split between Republicans, who want less government and more liberty, and Democrats, who want more government and more fairness.
Yeah, yeah…
In Krugman’s simpleminded world…it is a struggle between good and evil…smart and dumb…progress and backsliding. He sees the democrats as the good guys. The republicans are bad guys.
Such a simpleton’s world must be a comfort. You don’t really have to do much thinking. Everything is black. Or it is white.
Too bad for Krugman, but most of the world is actually gray. If the republicans were so squarely in favor of limited government and liberty, how come they didn’t actually cut government spending when they had the chance? They ran the show for years. And during those years government spending went up faster than it did under the democrats.
A look back over the last 100 years finds trends that go way beyond republican or democratic administrations. Almost every year, the reach of the federal government expanded. More people were covered by more programs…with more debt and spending obligations pushed farther into the foggy future. Now, according to Prof. Laurence Kotlikoff, the full measure of that unfunded, largely off-the-books, debt is over $200 trillion – making the US government, effectively, insolvent. And that didn’t get there just because of democrats.
Nor will electing a republican make it go away.
And guess what else. If you look at the situation here in France, you see much the same thing. The cultural references are different. The debaters use different words and different concepts. There are no republicans…no democrats. And yet…except for the fact that France no longer has imperial aspirations…the situation is much the same. The government has promised everything to everybody.
Look…according to our new Daily Reckoning theme…political parties, voting, the blah, blah of partisan debates…as well as Paul Krugman…
…they are all almost irrelevant…all “products of the past”…
…relics…emblems…icons…symbols…
…full of sound and fury, but signifying nothing.
The real trends are bigger than that. What is at stake here is a model of government that began with Otto von Bismarck. It is a model in which the state supposedly serves the interests of the citizens. (Under the previous model, there were no citizens…just subjects who owed a duty of obedience to the sovereign…and in exchange received protection.) In Bismarck’s model, citizens give up a portion of their output…and stand ready to protect the state with their lives. In return, the state gives them the right to participate (through elections etc)…provides protection from foreign states and domestic outlaws…and makes sure that their physical needs are taken care of.
This model seems to be headed for bankruptcy. The big question is: when the state is unable to provide the benefits it has promised…what will happen? Will the masses accept less? Or will they revolt? Or will a new model evolve…peacefully?
Stay tuned.
Regards,
Bill Bonner,
for The Daily Reckoning
Read more: Products of the Past http://dailyreckoning.com/products-of-the-past/#ixzz1BRc8ghlg
Study: Many college students not learning to think critically
By Sara Rimer, The Hechinger Report | The Hechinger Report
NEW YORK — An unprecedented study that followed several thousand undergraduates through four years of college found that large numbers didn't learn the critical thinking, complex reasoning and written communication skills that are widely assumed to be at the core of a college education.
Many of the students graduated without knowing how to sift fact from opinion, make a clear written argument or objectively review conflicting reports of a situation or event, according to New York University sociologist Richard Arum, lead author of the study. The students, for example, couldn't determine the cause of an increase in neighborhood crime or how best to respond without being swayed by emotional testimony and political spin.
Arum, whose book "Academically Adrift: Limited Learning on College Campuses" (University of Chicago Press) comes out this month, followed 2,322 traditional-age students from the fall of 2005 to the spring of 2009 and examined testing data and student surveys at a broad range of 24 U.S. colleges and universities, from the highly selective to the less selective.
Forty-five percent of students made no significant improvement in their critical thinking, reasoning or writing skills during the first two years of college, according to the study. After four years, 36 percent showed no significant gains in these so-called "higher order" thinking skills.
Combining the hours spent studying and in class, students devoted less than a fifth of their time each week to academic pursuits. By contrast, students spent 51 percent of their time — or 85 hours a week — socializing or in extracurricular activities.
The study also showed that students who studied alone made more significant gains in learning than those who studied in groups.
"I'm not surprised at the results," said Stephen G. Emerson, the president of Haverford College in Pennsylvania. "Our very best students don't study in groups. They might work in groups in lab projects. But when they study, they study by themselves."
The study marks one of the first times a cohort of undergraduates has been followed over four years to examine whether they're learning specific skills. It provides a portrait of the complex set of factors, from the quality of secondary school preparation to the academic demands on campus, which determine learning. It comes amid President Barack Obama's call for more college graduates by 2020 and is likely to shine a spotlight on the quality of the education they receive.
"These findings are extremely valuable for those of us deeply concerned about the state of undergraduate learning and student intellectual engagement," said Brian D. Casey, the president of DePauw University in Greencastle, Ind. "They will surely shape discussions about curriculum and campus life for years to come."
Some educators note that a weakened economy and a need to work while in school may be partly responsible for the reduced focus on academics, while others caution against using the study to blame students for not applying themselves.
Howard Gardner, a professor at Harvard's Graduate School of Education known for his theory of multiple intelligences, said the study underscores the need for higher education to push students harder.
"No one concerned with education can be pleased with the findings of this study," Gardner said. "I think that higher education in general is not demanding enough of students — academics are simply of less importance than they were a generation ago."
But the solution, in Gardner's view, shouldn't be to introduce high-stakes tests to measure learning in college because, "The cure is likely to be worse than the disease."
Arum concluded that while students at highly selective schools made more gains than those at less selective schools, there are even greater disparities within institutions.
"In all these 24 colleges and universities, you have pockets of kids that are working hard and learning at very high rates," Arum said. "There is this variation across colleges, but even greater variation within colleges in how much kids are applying themselves and learning."
For that reason, Arum added, he hopes his data will encourage colleges and universities to look within for ways to improve teaching and learning.
Arum co-authored the book with Josipa Roksa, an assistant professor of sociology at the University of Virginia. The study, conducted with Esther Cho, a researcher with the Social Science Research Council, showed that students learned more when asked to do more.
Students who majored in the traditional liberal arts — including the social sciences, humanities, natural sciences and mathematics — showed significantly greater gains over time than other students in critical thinking, complex reasoning and writing skills.
Students majoring in business, education, social work and communications showed the least gains in learning. However, the authors note that their findings don't preclude the possibility that such students "are developing subject-specific or occupationally relevant skills."
Greater gains in liberal arts subjects are at least partly the result of faculty requiring higher levels of reading and writing, as well as students spending more time studying, the study's authors found. Students who took courses heavy on both reading (more than 40 pages a week) and writing (more than 20 pages in a semester) showed higher rates of learning.
That's welcome news to liberal arts advocates.
"We do teach analytical reading and writing," said Ellen Fitzpatrick, a history professor at the University of New Hampshire.
The study used data from the Collegiate Learning Assessment, a 90-minute essay-type test that attempts to measure what liberal arts colleges teach and that more than 400 colleges and universities have used since 2002. The test is voluntary and includes real world problem-solving tasks, such as determining the cause of an airplane crash, that require reading and analyzing documents from newspaper articles to government reports.
The study's authors also found that large numbers of students didn't enroll in courses requiring substantial work. In a typical semester, a third of students took no courses with more than 40 pages of reading per week. Half didn't take a single course in which they wrote more than 20 pages over the semester.
The findings show that colleges need to be acutely aware of how instruction relates to the learning of critical-thinking and related skills, said Daniel J. Bradley, the president of Indiana State University and one of 71 college presidents who recently signed a pledge to improve student learning.
"We haven't spent enough time making sure we are indeed teaching — and students are learning — these skills," Bradley said.
Christine Walker, a senior at DePauw who's also student body president, said the study doesn't reflect her own experience: She studies upwards of 30 hours a week and is confident she's learning plenty. Walker said she and her classmates are juggling multiple non-academic demands, including jobs, to help pay for their education and that in today's economy, top grades aren't enough.
"If you don't have a good resume," Walker said, "the fact that you can say, 'I wrote this really good paper that helped my critical thinking' is going to be irrelevant."
(This article was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet affiliated with Teachers College, Columbia University.)
Read more: http://www.mcclatchydc.com/2011/01/18/106949/study-many-college-students-not.html?utm_source=twitterfeed&utm_medium=twitter&utm_term=news#ixzz1BPRw4Gk7
Very difficult to do heavy construction in your sixties...
And that's not to say Boehner is much better.
up-down,
It only gets worse.
No leadership.
Entitlement mentality.
Capitalists leaving the country in droves.
The wrongheaded codified into positions of power.
To take the politics out- can you imagine JFK letting Nancy Pelosi sit as his speaker?
'Nough said....
- fuge
Is Inflation Finally Here?
by: Econophile January 16, 2011
This article originally appeared in The Daily Capitalist.
Inflation is occurring but it is not what you think it is.
There were a number of articles Thursday commenting on the producer price index (PPI) numbers saying that "inflation" is upon us because prices are rising (click on charts, below, to enlarge). I think we are on the verge of experiencing true inflation, but the PPI is mostly revealing supply and demand factors rather than price inflation.
The month-over-month increase of 1.1% is high (13.2% annualized) but it is a result of food and oil prices increasing internationally because of demand, temporary supply shortages, and OPEC manipulation. This shows up in the year-over-year index as well, at 4.1%. But again, the core Y-o-Y is 1.4%. Monthly core prices are up only 0.2%.
The Consumer Price Index for December mirrored the PPI:
The CPI in December jumped 0.5 percent, following a modest 0.1 percent rise the month before. Analysts had projected a 0.4 percent boost for the latest month. Excluding food and energy, CPI inflation came in at 0.1 percent, equaling the rise for November and matching expectations.
By major components, energy jumped 4.6 percent, following a 0.2 percent rise in November. Gasoline spiked a monthly 8.5 percent, following a 0.7 percent increase the prior month. Food price inflation actually slowed to 0.1 percent from 0.2 percent in November.
As in recent months, shelter helped keep the core rate soft. The index for shelter rose 0.1 percent for the third month in a row. The rent index rose 0.2 percent while the index for owners' equivalent rent increased 0.1 percent. Motor vehicles also helped the core. The index for new vehicles was unchanged in December while the used cars and trucks index fell 0.1 percent, its fourth consecutive decline. Also falling in December were the indexes for recreation, communication, and household furnishings and operations.
So where is the price inflation everyone is talking about? In a true inflation all prices go up. Here we are seeing supply and demand issues and many commentators confuse the two. Inflation, again, is an increase in the supply of money, and one of the impacts of inflation, among others, is price increases.
So are we also experiencing inflation? I believe we are and the core PPI increase of 1.4% is an example of price inflation when you consider real estate price and rent declines, and things like retail "deflation" found in small packaging, both considerable headwinds against price inflation.
Since inflation is the expansion of money supply, is that increasing?
Money supply continues to expand. As Michael Pollaro shows in his True (Austrian) Money Supply data (see The Contrarian Take), money supply has been increasing and is likely to increase further this year. In his December Money Watch he argues for higher money supply growth in 2011:
First, the recent surge in TMS2 – up an annualized 10% the past six months and 15.2% the past three – should be supportive of higher twelve-month rate of change increases over the coming months.
Second, the full impact of the Federal Reserve’s QE II asset purchase program was not felt in the money supply aggregates. Coming as it did mid-month, plus what appears to be a larger than projected draw-down in the Federal Reserve’s Agency portfolio, QE II yielded an annualized impact of just $600 billion in November instead of the projected $900 billion.
Third, and most important, private banking institutions are not only continuing to print money, but appear to be doing so at an accelerating rate. In fact, Uncovered Money Substitutes, i.e., bank deposit liabilities not covered by bank reserves, the issuance of which is the result of the banking systems’ efforts to lever up its loans and investments on top of what is currently a mountain of excess reserves, is growing at a year over year rate of 19.9%, a post credit crisis high.
This is the reason I part with the deflationists on inflation versus deflation. You have to look at money supply growth to determine what is happening. It is growing, but will it explode in 2011?
While Pollaro also makes a good argument (above) for credit expansion through banks buying securities, I believe it will take bank credit (loans) to make explosive money growth and dramatic price inflation happen.
Pollaro believes that loan volume, and thus money growth through credit expansion, is increasing. I too have been following bank loans and they have been growing, but the activity is primarily at the large banks. I believe that bank loan expansion has been rather modest. Pollaro looks at the chart of total loans and leases of all commercial banks (LOANS), based on a scale of percentage change from a year ago, and gets a chart (click to enlarge) that shows an apparent dramatic increase in loans:
While true, I prefer what I believe is a more realistic view of the same chart (LOANS) but measured by the volume of loans being made. And that view shows loan volume continues to be weak:
Pollaro also notes, correctly, that bank excess reserves (EXCRESNS) have been declining, something I have also pointed out. But as I see it, the decrease has been modest. The economic assumption behind the decrease is that this vast hoard of money the Fed "printed" has been sitting in banks vaults and not being lent out. I put "printed" in quotes because the Fed didn't really "print" money. Remember this isn't money base (currency), but rather an extension of credit the Fed made to banks during the early stages of the collapse to provide liquidity to the system, and it was created out of thin air, or by a keystroke, if you will. Bankers woke up the next morning and saw the Fed credited their accounts at the Fed with almost limitless credit. Banks create more money through credit expansion because the rules only require them to keep 10% or less on reserve (multiplier effect). The Fed's dilemma was and still is that banks didn't lend and thus expand the money supply as they wished. They believe, falsely, that money supply expansion will create economic growth.
Thus an indication that banks have started lending again will support the argument that we are headed for price inflation.
Lending is starting to loosen up, and is expanding the money supply. But bank lending is far from rapidly expanding. Latest Fed numbers show loan activity still contracting--for the third straight quarter. The big banks just broke even on their lending activity (i.e., loans made and loans retired were equal). Activity is still shrinking at the small banks. I still see substantial problems in the economy that would not lead me to conclude that businesses will start borrowing again as in a normal post-recession recovery, nor do I see banks lowering loan underwriting standards to accommodate marginal borrowers who need the money to stay afloat. Look for steady improvements but nothing dramatic in 2011 on this front.
I think quantitative easing (mostly QE I) has been the major factor in money supply expansion (see Pollaro's True Money Supply's data), and that QE II will further increase money supply this year. It is likely that because of long-term problems underlying our capital structure that economic growth will remain stagnant. As unemployment continue to remain high, the Fed is likely to engage in more quantitative easing in 2011, as the Administration pressures them to "do more."
This is why I think the deflationists and the hyper-inflationists are wrong. This is why we will have stagflation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/246778-is-inflation-finally-here?source=email_the_macro_view
Thinking the Unthinkable: The Threat of the Irish
by: John Mauldin January 16, 2011
The Fed Adds a Third Mandate
The Fed has two mandates: keeping prices stable and creating an economic climate for low unemployment. I am sure I was not the only one to listen to Steve Liesman’s interview of Ben Bernanke this week and shake my head at the spin he was giving us. First, let’s set the stage.
In a paper with Alan Blinder early last decade, Bernanke made the case for the Fed to target a specific inflation number, and the number that came to be accepted as his target was 2%. In his famous helicopter speech in late 2002, he assured us that inflation could not happen “here,” even if the short-term rate was zero, because the Fed would move out the yield curve by buying large amounts of medium-term bonds. This would have the effect of lowering yields all along the upper edge of the curve. This became known as quantitative easing. In Jackson Hole last summer, he made very clear his intention to launch a second round of liquidity-injecting quantitative easing (QE2). In that speech, in later speeches in the fall, and in op-ed pieces he said that such a program would lower rates.
Then a funny thing happened on the way to QE2: long-term rates began to rise all over the developed world. As Yogi Berra noted, "In theory, there is no difference between theory and practice. In practice, there is." It’s got to be driving Fed types nuts to see the theory of QE, so lovingly advanced and believed in by so many economists, be relegated to the trash heap, along with so many other economic theories (like that of efficient markets). The market has a way of doing that.
So, Liesman asked Bernanke about one minute into the clip about the little snafu that, following QE2, both interest rates and commodity prices have risen. How can that be a success? Ben’s answer (paraphrased):
“We have seen the stock market go up and the small-cap stock indexes go up even more.”
Really? Is it the third mandate of the Fed now to foster a rising stock market? I wonder what the Fed’s target for the S&P is for the end of the year? That would be an interesting bit of information. Are we going to target other asset classes?
Understand, I am not against a rising stock market. But that is not the purview of the Fed. And certainly not a reason to add $600 billion to the balance sheet of the Fed when we clearly do not understand the consequences. If it looks like they’re making up the rules as they go along, it’s because they are.
A Rational Voice in Dallas
Richard Fisher is the president of the Federal Reserve branch in Dallas and a voting member this year of the FOMC committee. (Also a true gentleman, one of the nicest guys you could want to meet, and my neighbor, just a few blocks down the street.) But being a nice guy doesn’t keep him from espousing some strong and dissenting views about Fed policy. He recently gave a speech to the Manhattan Institute that should be required reading for all policy makers at all levels of government, and not just Fed types. As an anecdote to the Bernanke spin above, let me quote a few paragraphs:
“The new Congress and the new staff in the White House have their work cut out for them. You cannot overstate the gravity of their duty on the economic front. Over the years, their predecessors — Republicans and Democrats together — have dug a fiscal sinkhole so deep and so wide that, left unrepaired, it will swallow up the economic future of our children, our grandchildren and their children. They must now engineer a way out of that frightful predicament without thwarting the nascent economic recovery.
“I have been outspoken about the limits of monetary policy as a salve for the nation’s fiscal pathology. The Fed has done much, in my words, to provide the bridge financing until the new Congress gets to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures here at home.
“The Federal Reserve has held rates to nil. We have expanded our balance sheet to unprecedented levels. After much debate — which included strong concern expressed by one member with a formal vote and others, like me, who did not have voting rights in 2010 — the FOMC collectively decided in November to temporarily undertake a program to purchase U.S. Treasuries that, when added to previous policy initiatives, roughly means we are purchasing the equivalent of all newly issued Treasury debt through June.
“By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance. To avoid that perception, we must vigilantly protect the integrity of our delicate franchise. There are limits to what we can do on the monetary front to provide the bridge financing to fiscal sanity. Last Friday, speaking in Germany, [European Central Bank President] Jean-Claude Trichet said it best: ‘Monetary policy responsibility cannot substitute for government irresponsibility.’
“The entire FOMC knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt. Barring some unexpected shock to the economy or financial system, I think we have reached our limit. I would be wary of further expanding our balance sheet. But here is the essential fact I want to emphasize today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place.
“Those lawmakers who advocate ‘Ending the Fed’ might better turn their considerable talents toward ending the fiscal debacle that has for too long run amuck within their own house. The Fed does not create government debt; fiscal authorities do. Deficits and the unfunded liabilities of Medicare and Social Security are not created by the Federal Reserve; they are the legacy of those who control the purse strings — the Congress, working with the president. The Fed does not earmark taxpayer money for pet projects in local communities that taxpayers themselves would never countenance; only the Congress does that. The Congress and administration play the dominant role in creating the regulatory environment that incentivizes or discourages job creation.
“… A reader of Shakespeare will recall the dialogue between Glendower and Hotspur in Henry IV. Glendower claims, ‘I can call spirits from the vasty deep.’ And Hotspur replies, ‘Why, so can I, or so can any man; But will they come when you do call for them?’
“We shall see if the new Congress will prove worthy of the power the American people have ‘loaned’ them, and, together with the president, actually draw the spirits of fiscal reform and sanity from the ‘vasty deep’ to at long last implement meaningful fiscal and regulatory policy that incentivizes private-sector job creation here at home while arresting the hemorrhaging of our Treasury. If they do, then more Americans will find work and be better off, better paid, and freer to make their own decisions about the economy.
“If they don’t, then woe to our children, their children, and the American Dream.”
Let us hope President Fisher will find support within the FOMC. I commend his speech to you. And now on to Europe.
Thinking the Unthinkable
My baseline assumption is that Europe kicks the sovereign debt can down the road for the rest of the year. We have seen Portuguese debt sales go well this week, even if at a very steep price. Spain looks like it will also do OK. Trichet is beginning to drum up support for an even bigger fund to stave off the bond vigilantes. It is unthinkable, we are told in many corners of Europe, that a sovereign nation would default on its debt or obligations. But, in my experience, it is the unthinkable things that can rise up to bite you in the derriere. Sometimes rather viciously. It was unthinkable that US subprime mortgages would infect the entire planet. Well actually, not entirely, as some of us did think that very thing in writing, well in advance of the crisis.
It is one of my jobs in Thoughts from the Frontline to sit around and think about the unthinkable. What is there on page 16, or in some obscure research paper, that is going to make its way to the top of page one?
When asked in interviews what my number one concern is today, I readily answer, “European sovereign debt and European banks.” (In 2006 it was subprime debt. In 2007 it was bank debt and derivatives. Etc.) That heads a long list of present concerns, I will admit, but it is clearly at the top.
Italy, Spain, Belgium, and Portugal will need to raise over $800 billion this year to cover rollover debt and new borrowing. Add in Greece, Ireland, and a few other countries and it quickly gets to a trillion or so. Doable. But is does add a lot of debt.
I posted a piece a few months ago about Belgium. Belgium is not on the “usual suspects” list when we talk about European debt woes. But this page-16 story may be making its way to page one over the next few years.
Belgium’s total debt is pushing 100% of GDP and, given its fiscal deficits, probably will push through that level soon. This is a country of just 10 million people, and a deeply divided one at that, unable to elect a government. They are making progress on getting their fiscal house in order, but are not there. And the market is getting nervous.
My good friend and data maven Greg Weldon gives us some details. Belgian interest rates, while down from the depths of the credit crisis, are once again beginning to rise, along with those of Spain and Italy.
Click to enlarge
It is unthinkable that Belgium could have a problem, isn’t it? Except that there is a very serious and growing contingent of citizens who want to divide the country into two parts. I am sure cool heads will prevail, but I do pay attention to Belgium’s politics. I will also be in Brussels in March, so I will get some first-hand stories.
But that is not a 2011 story. No, for this year my concern is the large amount of Irish sovereign debt on the books of European banks.
The Threat of the Irish
In the midst of the credit crisis last year, the Irish government guaranteed not only the deposits of Irish banks but their bonds. Irish banks, like Icelandic banks, were larger than the GDP of the country. As it turns out, those guarantees are going to cost a great deal of money, about 30% of GDP. That would be the equivalent of over $4 trillion for the US, just for some perspective. And many of those guarantees are to German, French, and British banks. Irish taxpayers are in effect bailing out not only their own banks but banks all across Europe.
The “bailout” engineered by the ECB and European authorities will require that the Irish pay around 10% of their national income in a few years just to service the debt, according to Barry Eichengreen, professor at U Cal Berkeley. How can you take 30-50% of your government taxes and pay down such high debt loads at 6% interest? That doesn’t leave much for actual government services. The short answer is, only with a lot of local pain and none for the bank bondholders, which again are German, French, and British banks. As Eichengreen writes:
“This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know. A populist backlash is inevitable. The Commission, the ECB, and the German Government have set the stage for a situation where Ireland’s new government, once formed early next year, rejects the budget negotiated by its predecessor.
“Do Mr. Trichet and Mrs. Merkel have a contingency plan for this?
“Nor is the situation economically sustainable. Ireland is told to reduce wages and costs. It must engage in ‘internal devaluation’ because the traditional option of external devaluation is not available to a country that lacks its own national currency.
“But the more successful it is at reducing wages and costs, the heavier will be its inherited debt load. Public spending then has to be cut even more deeply. Taxes have to rise even higher to service the debt of the government and its wards such as the banks.
“This in turn implies the need for yet more internal devaluation, which further heightens the burden of the debt in a vicious spiral. This is the phenomenon of ‘debt deflation’ about which the Yale economist Irving Fisher wrote in a famous article at the nadir of the Great Depression.”
This is precisely the same phenomenon that I was describing last year when I was writing about Greece. I deal with it at length in my new book, Endgame, out in early March (I hope). This debt deflation / devaluation spiral will end in tears. The question is, will those tears be from Irish eyes?
Let’s think what is unthinkable by most Europhiles, but not to Eichengreen or your humble analyst.
All the polls indicate that the governing party, which cut the deal to increase the debt load by some 30% of GDP, will lose the elections, most likely to parties that are campaigning on repudiating that debt. Irish bank bondholders could face a haircut of some 80% or more, which is more like a leg amputation than a haircut.
The party (or parties if there is a coalition) will have a mandate to simply not guarantee Irish bank debt, which would get their total debt-to-GDP down to a still-high but manageable 100%. Not good, but something they can grow out of over time. There are a lot of good things still happening in Ireland, and you don’t have to look too hard to find some positives.
I read a very good blog about Ireland written by Ronan Lyons, whom I hope to share a pint or two with some day, when I make my first pilgrimage to the Fair Isle. He gives us eleven reasons to be optimistic about Ireland. Maybe it’s just the nature of the Irish to find that silver lining, but this comes under the heading of optimistic realism. Here’s Ronan:
“So, while Ireland faces very significant challenges, we should not write ourselves off just yet. Yes, our problems are largely our own fault in not preparing for life in the eurozone. Yes, the next five Budgets are going to be tough ones for everyone. And yes, Ireland in 2016 will not be what we might have thought it would in 2006…
“But Ireland in 2016 will probably be a far better place to live than any of us thought possible in 1996, 1986 or indeed any previous decade. The Celtic Tiger was not a mirage. And we have a very real economy that, with a good bit of hard work and with a fundamental reorganization of how government raises and spends money, can deliver for us again. That starts in 2011.”
But part of that reorganization may involve some very tough negotiations. The incoming parties should stick to their mandate. Why should they back Irish bank debt to the Germans and the French at the expense of being mired in a depression for a decade or more? At least I think that is what the political discussion will be.
If the ECB, IMF, and the rest of the EU says, “If you don’t take on that debt we will not buy any more of your debt. You will be shut off from the subsidized debt markets,” then what? Ireland could answer back, “You want us to pay the rest of this debt? Go pound sand.” Or whatever the Irish equivalent is. It will be a very intense and interesting set of negotiations.
But while that is happening there is a lot of uncertainty, and markets hate, hate, hate uncertainty. Will the EU or ECB buy that bad bank debt off the books of the private banks? (Refer to the graph below to see where the debt is.) Who picks up the tab? German taxpayers? The Bank of England? Note that nearly $100 billion is owed to US banks. That is NOT chump change.
Click to enlarge
Britain is particularly exposed. What would it do to the pound if the Bank of England had to bail out British banks to the tune of almost $200 billion? Note that Royal Bank of Scotland (RBS) and Lloyds (LYG) are almost wards of the state, as it is. And the euro could come under intense pressure.
If eurozone leaders do not act, such a confrontation could spiral out of control rather quickly. Think November 2007. Think Bear Stearns and Lehman. Interbank lending could dry up almost overnight.
Will it happen? No one knows. But it should be on our radar screen. Here’s a side issue. If Ireland walks away, what does that say to Greek voters? Or to the Portuguese? Is it a one-off —Ireland just not wanting to back their bank debt — or could it be the first domino of a general debt restructuring? This we will need to watch. There. We thought about it.
Has China Found a Miracle Business Cycle?
Quickly, let’s look over the Pacific Ocean to China. They seem to have repealed the laws of business-cycle gravity, going from one fabulous growth year to the next. Most analysts are predicting another solid year of high single-digit growth. And that is the base-case scenario. But what if the unthinkable happens?
Official inflation is in the high single digits. Unofficial inflation may be running closer to 20%. Simon Hunt wrote last year:
“Our friends in Beijing talk about the daily cost of living rising at an annual rate of around 20%. In Shanghai gas prices to the home have risen by some 600% in two years and electricity by over 300%.”
More recently he wrote:
“The large increase in minimum wages announced after Christmas have two powerful implications. First, de facto, they suggest that actual inflation is higher than is being shown in the official CPI data; and, second, that China’s pool of surplus labor is drying up. The latter has important implications for wage inflation and the structure of manufacturing.
“Beijing announced an increase in minimum wages of 21%, after raising them by 20% in June this year. Across China every municipal authority has already raised its minimum wage with most only six months ago. Further hikes are possible early this year. Wage increases of this size are more than can be warranted by normal living adjustments. They reflect an abnormal rise in inflation and a tightening labor market.”
The Chinese central bank keeps raising reserve requirements for banks, and is slowly allowing interest rates to rise. Can the Chinese central bank engineer a soft landing with inflation so high?
I am not sure about this year, but I do know this: no country has ever figured out how to repeal the business cycle. Eventually there is a recession. And when China has a recession, the rest of the world will feel it, just as the world responds to a US recession. Recessions are just nature’s way of wringing out excesses. They are not permanent. In fact some research suggests that the longer a recession is delayed, the worse the excesses get. This is yet another situation we will need to give close attention.
As an aside, I think the inflation predicament China finds itself in will give the Chinese some reason and room to gradually allow the renminbi to rise against the dollar. And the country is to be applauded for recently allowing more free trading of their currency in the US. Eventually they will float their currency, as it cannot become a real candidate for a reserve currency until they do. But that is clearly what they would like to see. It is just a matter of time.
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http://seekingalpha.com/article/246779-thinking-the-unthinkable-the-threat-of-the-irish?source=email_the_macro_view
The Growing Fiscal Disparity Between Insiders and Outsiders
By Bill Bonner
01/13/11 Paris, France – To the barricades!
Today, we continue to explore our new idea. Alert readers have already figured out that it is not a completely new idea. The ancient Greeks toyed with it too. Really new ideas are extremely rare.
In our modern version, it might be called the General Theory of Decadence…or the Cycles of Growth and Decline, or more playfully, the Unified Zombie Theory.
Life goes on. Material progress accumulates. The story of human life on earth grows longer, and more interesting. We see no end to it. But each component part comes to an end. Each life, each economy, each company, each society and each civilization still shrivels, corrodes, and exterminates itself. The past must become history so that the future may become the present.
It takes many downsides to make upside progress. And then, the progress – if there is any outside of real science and technology – is probably only barely positive…and painfully cyclical. One generation learns. The next forgets.
We’ll come back to this in a second…
First, a look at the news:
Dow up 83 points yesterday. Gold headed towards $1,400. And the Great Correction continues.
As to Europe’s debt problems, the press seems unable to make up its mind.
“Portuguese bond sale boosts confidence,” says The Financial Times.
Oh yeah?
“Portugal fails to quell fears with auction,” counters The Wall Street Journal.
The International Herald Tribune threw its lot with the FT:
“Pessimists kept at bay in Portugal’s bond sale.”
In short, who knows? Europe has too much debt. Just like America. Sooner or later, some of that debt will be written off. Or worse. Portugal is just like Illinois or California. Only smaller and less important.
Meanwhile, in the US…
“Housing weighs down the recovery,” writes Mort Zuckerman in the FT. There are 5.5 million households with mortgages that are at least 20% higher than their houses’ value, he says. Delinquencies are still rising. The loss so far is greater than in the Great Depression, adds Zillow. And the Case-Shiller numbers show it getting worse.
But let’s turn to murder for a minute…
“Obama says polarized nation needs healing,” says a headline at Yahoo! News.
A guy goes off his head and starts shooting people in Arizona. The whole nation needs “healing,” says the president.
The media is full of argument on the subject. Are Rush Limbaugh and Sarah Palin to blame? Strident political rhetoric? Loose gun laws?
Palin says she is a victim of “blood libel.” The New York Times refers to a “climate of hate.”
Why are people so angry at one another anyway?
Relax… Our theory explains it. When people are creating wealth they have little reason to get mad at one another. Sure, someone takes a shot at a Congressman from time to time, but it tends to be a personal matter. And the politico probably has it coming.
Not so in the degenerate phase. When people try to live at each other’s expense, it naturally gives rise to widespread rivalry and resentment. The poor want food-stamps, welfare and unemployment comp. The rich want tax cuts and government contracts. The feds try to give everything to everybody – especially to their insider friends. Then, they go broke and everyone gets mad.
Just take a look at the TSA’s new peek-a-boo screening machines. They probably do no more for the safety of Americans than US troops in Afghanistan. But, like the war, they make some people rich.
Government officials – including many ex-congressmen – pushed hard for the machinery…despite much evidence that it didn’t work…and then went to work for the manufacturer.
This kind of soft corruption is so ubiquitous that the media barely thought it newsworthy. But thanks to TSA, the wars in Iraq and Afghanistan, medicare, shovel-ready stimulus projects and hundreds of other initiatives, a lot of people are a lot richer than they were a few years ago.
Naturally, with so many greasy bones on the ground, no wonder the dogs fight.
And, naturally, the inside dogs are soon the envy of the outsiders. The insiders…smart, well-connected hustlers…are able to move fast and take advantage of the opportunities as they present themselves. The outsiders – the lumpen, the middle and lower classes, the taxpayers, mooches, and patsies – get the scraps…if there are any left.
One phenomenon that has been much discussed is the widening gap between rich and poor. Some economists think the gap itself causes financial crises. Others think it is merely “unfair” and needs to be addressed by government. Often they believe it is a consequence of a lack of intervention on the part of government. The feds shouldn’t have cut taxes on the rich, they say. Or, the feds should have regulated Wall Street more effectively.
Almost no economists have been able to identify the real cause of this wealth disparity. But it is obvious. It is explained by our theory…
As far as we know, this is the first time it has been explained. So pay attention: as a wealth-producing society degenerates into a wealth redistributing society…and then finally, a wealth-destroying society, the difference between insiders and outsiders becomes more pronounced.
A man with the right connections in Washington can get a juicy contract. Soon, he can be sipping coffee in Potomac, along with your editor. He has a huge advantage over the hoi polloi. He can leverage his insider status into million-dollar paydays.
On a larger scale, let’s look at the work of the US Federal Reserve. This insiders’ bank is supposed to be working for the good of all. It didn’t even exist during much of America’s most productive, wealth-producing history. But now it fiddles US money and interest rates. For whose benefit?
Again, it is obvious… It lends to insider banks below the rate of consumer price inflation. It has been doing so off and on for decades, and consistently for nearly the last 10 years. Even with free money coming their way, the bankers still manage to lose money, pay themselves fortunes and occasionally go broke. And then, the Fed steps in to bail them out.
Pretty nice deal, huh?
Less obvious, the Fed’s easy money policies encourage asset price speculation. Today, the Fed gives the bankers money. The bankers put the money to work where they think they can earn fast profits – not in difficult and risky new business ventures, but by betting against the Fed itself. They buy commodities. Emerging markets. And debt too.
This speculation provides no jobs to the working classes. In fact, it hurts them. It raises the cost of food and energy.
“World moves closer to food shock,” says one headline.
“India may ban wheat exports,” says another.
“Grain prices soar as US slashes outlook,” adds The Wall Street Journal.
Corn is at a 30-month high. Brent Crude oil hit $98 yesterday. And the poor working stiff is stuck. His income is falling. His costs are rising.
Meanwhile, the very few, very rich get richer. Their portfolios bulge with financial profits… And their businesses enjoy relatively low labor costs.
This is the kind of situation, left unchecked, that leads to revolution. In Germany, the hyperinflation of the ’20s led to street fighting…and the rise of Adolph Hitler. In France, hunger in the late 18th century led to the guillotine.
More to come…
Regards,
Bill Bonner
for The Daily Reckoning
Read more: The Growing Fiscal Disparity Between Insiders and Outsiders http://dailyreckoning.com/the-growing-fiscal-disparity-between-insiders-and-outsiders/#ixzz1B3z0aVip
Ayock,
That's the real problem- Americans are paying big bucks for BA degrees which is BS?
- fuge
The World Debt Crisis Lingers
by: John Mason January 12, 2011
The Federal Reserve, the European Central Bank, the Bank of England, and others, are all desperate to keep interest rates from rising. The debt overhang in the developed world is humongous and any substantial rise in interest rates would just exacerbate the financial crisis that hangs over Europe and America.
We observe the debt crisis all around us. Gretchen Morgenson writes in the Sunday New York Times about the need of commercial banks to write off billions of dollars of mortgage loans sold to Fannie Mae and Freddie Mac. The article is “$2.6 Billion to Cover Bad Loans: It’s a Start".
She writes,
Analysts in JPMorgan Chase’s own research unit published a report last fall stating that possible mortgage repurchase liabilities for the overall banking industry ranged from a best case of $20 bill to a worst case of $90 billion.
The Financial Times reports that “US Regional Banks Set for Consolidation". The gist of this article is that commercial banks have about $1,500 billion in commercial real estate loans coming due over the next four years. People have been watching these loans for about 18 months now, but they have been kept “evergreen” as bank lenders have continually renewed these loans to keep them on the books till “something good happens.”
The article list 15 regional banks that have loan portfolios consisting of, at least 38% of their loans in commercial real estate loans. Seven of these banks have more than 50% of their loans in commercial real estate. The smallest of these banks is $4.2 billion in asset size.
Many corporations in the United States and Europe still have massive debt loads that continue to increase. Several times a week there is more news about corporations facing bankruptcy. On Monday, Sbarro announced that it was hiring bankruptcy lawyers. Last week, the Philadelphia company Tastykake indicated that it was looking for someone to buy it because of the debt problems it was having.
Another article in the New York Times on Sunday reported on “The Crisis That Isn’t Going Away”. This article was about a report produced by Willem Buiter, Chief Economist at Citigroup, who claims that debt restructuring in Greece, Ireland, and Spain is inevitable: “All bank and sovereign debt is now at risk…” European debt levels, he argues, are unsustainable.
This argument is re-enforced by the information contained in another article in the Financial Times, “Europe’s Woes Put Debt Restructuring Back on the Agenda".
Not only is the sovereign debt of Portugal currently under attack but Belgian bonds came under attack Monday.
The debt estimates for 2013 are downright scary: Greece is expected to have its debt at 144% of GDP in 2013; Italy at 120%; Belgium at 106%; Ireland at 105%; Portugal at 92%; France at 90%; the UK at 86%; and Spain at 79%.
And, what about European banks? Check out the article “Fears Mount Over European Debt, Banks”. European banks are expected to go through a new “stress” test this year, one that will be much tougher than the “joke” that was administered last year. There is great concern about how these European banks will fare in the new test.
And what about government debt in America? New governors are taking a tough stance on the budgets for the upcoming year. Jerry Brown is seeking $12.5 billion in spending cuts for the upcoming California budget. And, Andrew Cuomo in New York is asking for salary cuts of 10% and is seeking even more cuts elsewhere. The governor of Illinois is (seriously) hoping that the lame-duck legislature will pass a substantial tax increase on corporations before they leave. Still many states are in dire straits, hoping to avoid bankruptcy. And, there are dozens of municipal governments on the edge of declaring bankruptcy.
Oh, and what about the federal government: Have you seen the projections for interest expense going forward given the deficits that are expected in the future?
Now, what if long term interest rates were to rise by another 100 basis points? 150% basis points?
Just how much longer can the central bankers of the world keep long term interest rates below where the market believe they should be?
Research indicates that central bank actions can keep long term interest rates lower than market conditions warrant for a short period of time. However, to maintain the rates at below market levels, central banks must inject increasing amounts of money.
QE2 was announced as a policy decision to get the economy growing faster so that the unemployment rate would be brought down.
Yet, now we see what a farce the Fed has been playing on us. Chairman Bernanke, himself, just told Congress that the unemployment rate was not going to improve much at all, even if the economy picks up speed, and that it would take five to six years for the unemployment rate to even show much of a decline.
So, one can conclude from this that QE2 is not really aimed at getting the unemployment rate down.
I have argued for a long time that the reason the Fed was providing the financial markets with so much liquidity was because of all the insolvent banks “out there”. The Fed was helping to keep banks “open” so that the FDIC could close all the banks that needed closing in an orderly fashion.
I believe that investors are coming to realize that the Fed is not trying to keep rates down in order to spur on the economy. To me, this realization contributed to the fact that the yield on 10-year Treasury securities rose by about 100 basis points after the Fed laid out its plans for QE2. The financial markets just rebounded to levels that more closely approximated where the market should be if the Fed were not “messing” with it.
Bottom line: The debt problem is still real. There is a lot of debt “out there” and the value of this debt is not really the economic value of the debt. The central banks of the world are just trying to keep long term interest rates low in order to push off the day when the debt will have to be written down to a more realistic value. The problem is that more and more attention is being paid to the fact that this debt needs to be written down. And, until this write-down takes place, we cannot really recover, economically.
http://seekingalpha.com/article/246081-the-world-debt-crisis-lingers?source=email_the_macro_view
China’s View From Across the Pacific
By Dave Gonigam
01/11/11 Baltimore, Maryland – All we can do this morning is pause to take a breath. In the last 48 hours, the Chinese have checked the following items off their national to-do list…
We discussed the last item yesterday. We’ll get to the other two shortly. But first, we pause to consider what it is the Chinese see when they look across the Pacific at the “sole superpower.”
“I saw Jared Loughner’s mugshot on The New York Times, The Washington Post, Time and Newsweek, etc.” writes a faithful reader, a teacher in Beijing whom Addison hears from every few weeks.
“I smell some reminiscence of political assassinations – some really famous ones after which the course of history was changed. This guy could be a hero to many. He looks proud and victorious on Time. Many nationalist nut jobs would kill for that front cover.
“From his motivation, we can smell his mind deep drenched in the alcohol of Tea Party propaganda. The popularization of political assassination is the pretext of many authoritarian regimes. Before National Socialists became Nazis, we thought it was just a populist movement.
“The government can regulate the economy and Wall Street, but can’t regulate people’s anger. The Tea Party and the Tucson assassination [are] only the beginning of something big enough to start an ultra-nationalism movement on the path to a possible world war. What could we do to stop history from repeating itself?”
You don’t have to agree with all of this, or any of it. We just present it as a glimpse into what folks might be thinking over there, even as they accomplish new headline-grabbing feats.
China’s forex reserves grew a record $199 billion during the fourth quarter, far more than Western “experts” had figured. That brings the total to $2.85 trillion.
According to an analysis by Standard Chartered, less than half the increase was due to trade and government-approved foreign investments into China. Most of it was hot money – investors piling into real estate and other Chinese vehicles, searching for return in a world of zero interest rates.
Of course, this is a double-edged sword, fueling the fires of inflation in China. But the Chinese have a plan for that, too.
At the start of 2011, China quietly eased capital controls on its exporters. Up till now, exporters who generated their revenue in dollars had to take those dollars to the Chinese treasury and exchange them for yuan…which usually could be spent only within China.
This is one way the Federal Reserve has been able to “export inflation” to the developing world. But no more. Now those companies have a choice about what to do with the dollars they earn – even keep them overseas to invest in ventures outside China.
Defense Secretary Robert Gates just got some interesting news during his visit to Beijing: Chinese leaders confirmed they carried out a test flight of the J-20 – a “stealth” fighter jet that can evade radar.
First a “carrier-killer” missile, now this…
It was wheels down the whole time. “Nothing fancy” says a brief email from our resource expert and Renaissance man Byron King, whose CV includes 128 carrier landings as a Navy pilot. “Idea is just to get the bird off the ground and make sure it flies.” Mission accomplished.
It’s just a prototype, likely years away from deployment. But whenever the J-20 is ready, it’s a safe bet it won’t cost $350 million per plane, it won’t require 30 hours of maintenance for every hour of flight time and its stealth coating won’t fall victim to rain or blowing sand.
All those things are true of the American F-22 stealth fighter.
Of course, the Chinese don’t have to worry about building the J-20 in 44 states and God knows how many congressional districts just to keep everyone happy. No wonder we’re bumping up against a national debt ceiling of $14.3 trillion.
Read more: China's View From Across the Pacific http://dailyreckoning.com/chinas-view-from-across-the-pacific/#ixzz1AmzKc5ny
Volcker never had a chance.
Can you imagine trying to have an intellectually honest conversation with a group of people who think Krugman is brilliant and the final authority on all things related to the economy?
When will the recession end ?
Part 134 What could trigger a Global Double
Dip Recession in 2011? Russia
http://smarteconomy.typepad.com/smart_economy/2011/01/when-will-the-recession-end-part-134-what-could-trigger-a-double-dip-recession-in-2011-russia.html
When will the Recession End? Part 133 Why Russia doesn't fit into BRIC
http://smarteconomy.typepad.com/smart_economy/2010/12/when-will-the-recession-end-part-133-why-russia-doesnt-fit-into-bric.html
By printing money and taxing the rich (which is anyone still lucky enough to be working)...eom.
yes, oil prices would be a good excuse for the derailment of the recovery that never was...eom
Time to Prepare for a Greek Default?
by: Calafia Beach Pundit January 07, 2011
Swap spreads tend to be good leading indicators of systemic risk. Swap spreads started rising in the second half of 2007, for example, fully one year before the 2008 financial crisis hit.
So it is troubling to see that European swap spreads have been trending higher in recent months, even as U.S. swap spreads have been relatively low and flat (top chart). Swap spreads in both markets surged last May, when Greece teetered on the verge of default. U.S. spreads settled back down, however, as it became apparent that a sovereign default, if it occurred, would be small potatoes for the huge U.S. economy.
Now Greece is back in the news, as yields on 2-yr Greek government debt have risen to a post-crisis high (second chart). Other PIGS are in trouble as well (Portugal, Ireland and Spain), but Greek government yields and credit default swaps tower over those of the other countries facing the risk of default.
So despite the costly efforts of other Eurozone nations to bail out Greece, the market seems to be saying that a default of some magnitude is unlikely to be avoided. I would brace for that, even though I doubt it would have much of an impact on the global or the U.S. economy. The fact that the euro is only marginally weaker against the dollar in recent months, and European stocks are near their highs, I think confirms that a Greek default won't be an earth-shattering event.
With luck, markets have had enough time to price in this grim reality, so when it actually happens the impact won't be too painful.
http://seekingalpha.com/article/245488-time-to-prepare-for-a-greek-default?source=email_the_macro_view
Employment Situation Fails to Improve
by: Calafia Beach Pundit January 07, 2011
According to the December employment numbers, the employment situation failed to improve as I had hoped, and as had been suggested by the decline in unemployment claims and the surge in the ADP estimate of new private sector jobs. But while it failed to improve, neither did it deteriorate. Both the establishment and the household surveys report that the U.S. economy has been creating about 120,000 new private sector jobs a month, on average, over the past year, and the rate of growth has been fairly steady throughout the year.
Although this is about the rate of new job creation needed just to keep up with the 1% per year average growth in the labor force, the unemployment rate has declined because the labor force has shrunk (at least two million people have apparently stopped looking for jobs, so they are no longer considered to be part of the labor force). So while it's good that more people are working, we are far from a situation that might be called healthy or normal. In any event, it was probably premature to expect a pickup in job growth in December; the new and improved outlook for fiscal policy (e.g., the extension of the Bush tax cuts) didn't become a reality until after the elections, and few businesses are going to be reacting immediately—it takes time to make new plans and hire new people. Jobs, after all, are a lagging indicator of conditions in the economy. So if jobs growth doesn't pick up in the next several months, then it will be time to worry that something is amiss.
http://seekingalpha.com/article/245500-employment-situation-fails-to-improve?source=email_the_macro_view
The Honorable Harry Reid
Majority Leader
United States Senate
Washington, DC 20510
Dear Mr. Leader,
I'm writing in response to Treasury Secretary Timothy Geithner's appeal to you to raise the debt ceiling.
I understand that you didn't ask for my opinion. And with no political positions on my curriculum vitae, you may not even recognize my name. But I have co-authored two books warning about the United States' fiscal situation, starting with Financial Reckoning Day in 2003 and followed by Empire of Debt in 2005. I mailed copies of the latter to you and the other members of Congress free of charge. While it may not be sitting on your nightstand, I trust that you’re at least aware of the book.
After we published the book, I wrote and produced a documentary, I.O.U.S.A., which was screened in competition at the Sundance Film Festival, nominated for a Critics Choice award and shortlisted for an Academy Award. The film attempts to present the fiscal crisis facing the United States in a way that the average American could understand. The film took two years to produce and premiered on Aug. 22, 2008 — almost a month before Lehman Bros. declared bankruptcy, kicking off the Panic of '08.
So after a decade of attempting to bring the root causes of our economic woes to light, I humbly suggest that the shortsighted tone of Mr. Geithner's appeal is itself part of the problem. It is, in fact, no different than Secretary of Treasury Hank Paulson’s frantic three-page proposal that kicked off the bailouts in September 2008.
Sir, in short, by raising the debt ceiling, we're delaying the day of reckoning yet again. Instead of paying for our excessive spending today, we'll pass that burden on to our children and grandchildren. I have three young children. And I, like many Americans, already find it a challenge to educate them and provide for their health care. Now I must also worry about what their future is going to look like... what opportunities will they find when it's their turn to join the work force or start businesses?
Mr. Geithner shares his fears of a default in his letter to you. But his request simply means my children — everyone’s children — will have to deal with that default on their own.
Do we really want our children burdened by higher taxes, excessive government regulation, higher mortgage rates, reduced incentives to start their own businesses and, as things are going, the end of the freedoms that you, Mr. Geithner, the rest of the American public and I cherish?
Freedom is the very promise that America bestows on history. But now, through our own malfeasance, we are in a position of telling the world, "We cannot afford to offer you the opportunity to enjoy that freedom anymore."
How did it come to this? And why perpetuate the very malfeasance that threatens our future prosperity?
For most of America, understanding the fiscal condition of the nation is no easy task. For that, they place their trust in you. No doubt, it’s easier to do exactly what our Treasury secretary is asking you to do — ignore the problem and continue to kick the can down the road. But I’m asking you, on behalf of future generations, to think deeper about the problem and begin addressing it today.
To help you with your decision, here are some images you can use to illustrate the magnitude of the national burden.
As Mr. Geithner stated in his letter to you, “In February of 2010, Congress passed legislation to increase the debt limit to $14.29 trillion.” To grasp that staggering figure, imagine stacking $100 bills on top of one another. To reach $14.29 trillion, your stack would soar 9,721 miles into the sky!
Said a different way, that’s like 1,767 mountains of $100 bills the size of Mount Everest piled on top of each other.
Of course, the current debt wouldn’t be a problem if tax revenue were exceeding our spending and therefore reducing the debt. But we both know that is not happening. Even if we taxed all Americans 100% of their income for an entire year, we still wouldn’t be able to pay off our $14.29 trillion hole
What's more, the interest we’re paying on the current debt is forcing us deeper and deeper into the hole. According to the TreasuryDirect.gov website, the interest payment on our debt was a massive $1.13 billion per day — for a total of $413 billion — in 2010.
The interest payment alone amounts to record-breaking deficits hit during the Bush administration just a few short years ago. If you agree to raise the ceiling, you effectively agree to drive up the interest payments until they exceed tax revenue — creating a situation in which we’ll be forced to default, eventually. And the longer it takes to happen, the worse it will be for our children.
The Treasury secretary outlines how catastrophic a default would be for the financial system and the integrity of the United States:
Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs.
When, I ask you, do we begin addressing the root problem? When do we admit that we're spending beyond our means and begin to address the problem in earnest? "We can live beyond our means for a very long time," to paraphrase a leading financier from I.O.U.S.A., "and we can do it on a very large scale — but we cannot do it forever."
The United States is like a private company suffering from a pension burden it did not plan for and that is losing market share because its products are no longer competitive. And it is as if the management has decided to take an extended vacation, rather than hold a meeting to find a way out of the hole.
In Congress, you don't address the real problems. You talk around them, play politics with them and then make frantic appeals at the 11th hour to borrow more money to paper over the problems again for yet another year.
At this pace, how do you honestly believe the government will ever balance its books again? In the era of uncertainty created by mayhem in Washington and ever-increasing global competition, how do you expect the economy to get back on track?
Let's put the numbers aside for a second. I'd like to ask you a simple question:
Imagine for a moment that you’ve chosen to smoke cigarettes all your life. You’ve ignored the warnings about them that appear all around you. Then, eventually, and unfortunately, you get diagnosed with lung cancer.
Luckily, you’ve caught the disease in its very early stages. The doctor presents you with two choices.
First, you can enter chemotherapy. The road to recovery, the doctor tells you, will be harsh. You’ll suffer extreme nausea. You’ll hardly be able to swallow from the ulcers you develop in your mouth. In short, you’ll go through hell in an attempt to beat the disease. But because you caught the disease after the first symptoms appeared, you have a high chance at a full recovery.
The doctor also offers a second alternative. He’s worked out a deal that allows you to rid yourself of the disease instantly. No pain. No suffering. No hell. All you have to do is agree to give the disease to your 2-year-old grandson.
Would you make that deal, Mr. Leader?
I trust you'll make the right decision about our nation’s fiscal health. At the very least, there needs to be an honest debate over raising the debt ceiling. If you provide the rubber stamp Mr. Geithner is asking for, you will be as guilty as he of passing the buck. Each time the buck gets passed, the stakes get higher. The default Mr. Geithner fears only looms more ominous in our future.
The newly elected speaker of the House, John Boehner, has gone on record saying he'll agree to increase the debt limit because we have to be "adults" about addressing the fiscal crisis the nation faces.
What, may I ask, is "adult" about failing to address this issue altogether?
Sincerely,
Addison Wiggin
Executive publisher, Agora Financial
Co-author, Financial Reckoning Day and Empire of Debt
Executive producer, writer, I.O.U.S.A.
http://whiskeyandgunpowder.com/
The spending will stop soon:
US State Revenue Down a Third While Spending Increased
By Rocky Vega
01/07/11 Stockholm, Sweden – While US state governments continued spending at a voracious rate in 2009, recent US Census data that shows state tax revenue was plummeting, down almost a third.
The states were only able to finance their largesse via American Recovery and Reinvestment Act stimulus funds provided by the federal government. However, many of its provisions will expire this year… and the feds would have a tough time affording its marked level of support much longer anyway.
According to Reuters:
“Total state government revenue dropped 30.8 percent from 2008 to $1.1 trillion in 2009, the latest year for which data is available and the last year before the decennial census was completed.
“Much of the decline was caused by drops in social insurance trust revenue, which are funds providing money for programs such as unemployment compensation and public employees’ retirement, the Census said. Total taxes collected in 2009 fell 8.5 percent from the previous year to $715.1 billion. The Census said it was the first year-on-year decline in tax revenue since 2002.
“As revenues fell in 2009, states continued to spend. Billions of dollars from the federal stimulus plan passed early in the year buoyed budgets and prevented some cuts to education and public welfare programs. Within weeks of taking office in 2009, President Barack Obama worked with the U.S. Congress to pass an $814 billion economic stimulus plan of tax and spending measures that included the largest transfer of federal funds to states in U.S. history.”
Over the course of 2009, the states took in almost $480 billion in federal grant transfers, a massive subsidy that’s unsustainable in the long run. Further, as the article indicates, the stimulus was primarily used for welfare payments, especially unemployment, which has been an increasing rather than decreasing cost center. So, despite ongoing budgetary shortfalls, state expenses will keep rising.
Looking ahead, the unemployment picture is not likely to improve a bit, and states, already short on revenue, have only a much poorer Uncle Sam to count on during these lean times. With no other easy or politically palatable options on the table, Bernanke and the Fed are likely to continue burning the midnight oil and working the presses. You can read more details in coverage from Reuters on how US state revenue fell in 2009 while spending didn’t.
Best,
Rocky Vega,
The Daily Reckoning
Read more: US State Revenue Down a Third While Spending Increased http://dailyreckoning.com/us-state-revenue-down-a-third-while-spending-increased/#ixzz1APVqbX00
US Economic Decline a Believable Scenario
By Bill Bonner
01/06/11 Baltimore, Maryland – Did we give you all our Predictions-Plus? You know, the things you OUGHT to believe, even if they are not guaranteed, sure-fire, absolutely, 100% in-the-bag.
Here’s another one:
The US Empire Has Peaked Out.
We don’t know if it is true or not. And in the last two centuries it was a mistake to bet against America.
But this is the 21st century. Things have changed.
Where is the world’s fastest train?
Where is the world’s tallest building?
Where is GDP growing fastest?
Where are most cars being made…and sold?
Who graduates the most engineers? Who pours the most cement? Who produces the most steel?
The fact is, if the word has an “est” on the end of it, it is probably not referring to the USA. Unless it is talking about debt. Of which, the US has the MOSTEST in the world.
What a change this is from a few years ago. Remember when the US was on top of the world…trying to get other nations to straighten up? Now, it’s America who is slouching…while the rest of the world wags its finger.
Here’s The Telegraph:
“We’re not going to allow our American friends to melt the dollar,” said Mr. Mantega, [Brazil’s finance minister] who views the US government’s move to pump $600bn (£387bn) into its economy as an unfair attempt to help exports.
“There are infinite measures that we can take. One of them is to manage the entry of speculative capital in the short-term.”
His comments came after Chile’s central bank announced a plan to buy $12bn (£7.7bn) of US dollars on international markets on Monday in an attempt to stem its own currency appreciation.
The Chilean peso has gained by more than 17pc cent against the US dollar since June, fuelled by increases in the price of copper, which is Chile’s biggest export.
It was Mr. Mantega who coined the term “currency war” last year as he voiced concerns that Brazilian exports were being damaged. In October he tripled the tax on foreign investments in some bonds to six per cent, a measure he said had since been “effective”.
Now, it’s the “banana republics” that are doing the responsible thing. They’re trying to protect themselves.
It’s the US Fed that has gone bananas – trying to print its way out of a debt deflation.
The emerging economies are growing fast – like the US in the 19th and early 20th centuries. In a few years, if this continues, they’ll overtake America as the biggest economies on the planet. Then, a few years later, they’ll have the most lethal military forces too.
Maybe it won’t happen. We don’t know. We can’t tell you what tomorrow’s newspapers will say, let alone those 10 or 20 years in the future.
But this is not an ordinary prediction. This is a “Prediction Plus.” You ought to believe it, even if it turns out not to be true.
Why?
Because there’s a downside to every upside…
Because every empire eventually declines…
Because the US is a high-cost, high tax, high debt economy, competing against cheaper economies less burdened by debts and taxes…
Because the US is full of zombies, people who produce nothing, while emerging markets are relatively zombie-free…
Because the US has enjoyed two centuries of success; failure is bound to await somewhere…
Because the US is broke…with a $200 trillion funding gap…
Because US labor claims to be “skilled”…but what kind of a skill is a degree in “communications” or “sociology”?
And because US assets are already fully priced – as if the US could expect to be the world’s hegemonic power forever.
Because…because…because…
Most importantly, investors still buy US bonds and the US dollar in a crisis. When the real crisis comes, they’ll wish they had bought something else.
Bill Bonner
for The Daily Reckoning
Read more: US Economic Decline a Believable Scenario http://dailyreckoning.com/us-economic-decline-a-believable-scenario/#ixzz1APUAGXKX
In The Future You May Not Be Able To Provide The Basics For Your Family Even If Everyone In Your Family Has A Job
Today, millions of American families are extremely stressed out because they are working as hard as they can and yet they find at the end of the month they still haven't been able to pay all of the bills. Unfortunately, things are only going to get rougher in the years ahead. The U.S. government has reached a terminal phase of the debt spiral that it is trapped in, and the only way to keep the system going is to print more money, borrow more money and spend more money. But won't this cause horrible inflation eventually? Of course it will. That is why so many people around the world have so loudly denounced "quantitative easing 2". The Federal Reserve is just creating hundreds of billions of dollars out of thin air and is chucking all of this money into the system in a desperate attempt to get it moving again. This is also why the Tea Party movement is so angry about the record amounts of government debt that are being piled up. When the U.S. government goes into more debt, it creates more dollars. As the Federal Reserve and the U.S. government flood the system with new dollars, it means that there are now more dollars chasing roughly the same number of goods and services, and that is a recipe for inflation.
Fortunately (or unfortunately, however you want to look at it), most of this new money is trapped in the financial markets right now. The first people that get their hands on all of this new money are banks, financial institutions and the folks down on Wall Street and right now they are hoarding much of it and much of it is going to pump up the stock market.
That is one reason why we saw such a tremendous bubble in commodities in 2010. It is also a key reason why we have seen such a stock market "recovery".
But eventually all of this new money is going to get into the hands of average U.S. consumers and it is going to start pushing the price of everything up.
Ronald Reagan once said that inflation is "as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man." Ron Paul has called inflation a "hidden tax" on all of us, and that is exactly what it is. All of the paper money that we are storing in the banks is losing a little bit of value every single day. Over long periods of time, this loss of value becomes absolutely massive. For example, did you know that the U.S. dollar has lost over 95 percent of its purchasing power since the Federal Reserve was created in 1913?
Unfortunately, as the Federal Reserve and the U.S. government continue to flood the system with new dollars in a desperate attempt to stimulate the economy, inflation is only going to get worse and worse and worse.
So enjoy the relatively tame inflation that we are enjoying for now. The official U.S. government inflation rate has been hovering around 1 percent or so, but everyone knows that the official inflation rate is an absolute joke. The government pulls different categories in and out of the inflation rate almost at will in an attempt to keep the numbers low.
One recent study that analyzed price movement of 86 products in Wal-Mart stores found that the "real" rate of inflation was approximately twice the "official" rate reported by the U.S. government.
Others are convinced that the official rate of inflation is even higher than that. For example, John Williams of ShadowStats.com has closely studied inflation in the U.S. and he believes that it is currently hovering somewhere around 5 percent.
However, John Williams does not believe that inflation is going to stay at 5 percent for much longer. He recently released a "Hyperinflation Special Report" for 2010 that everyone needs to read. Personally, I do not agree with all of his conclusions and I do not believe that things are going to happen quite as quickly as he is projecting, but his overall analysis is sound.
The truth is that our financial system has now reached a terminal phase. Just look at the chart below. Really look at it. How can any financial system survive debt that is rising this fast? The printing and borrowing of money continues to spiral out of control with no end in sight. It is hard to imagine any scenario in which we can even achieve a "soft landing". One way or another, this exploding debt is going to take us down.....
So are the politicians sorry that they have saddled us with all of this debt?
Well, just the other day Nancy Pelosi was directly asked this question and the following was her response....
"No, we have no regrets."
In fact there are quite a few politicians running around in Washington D.C. that are still convinced "that deficits don't matter" and that all this debt will never catch up with us.
Well, hold on to your hats, because this is going to be the decade when all of this debt really does start to catch up with us.
One of the ways that we are going to feel the pain is through inflation.
In the months and years ahead, wages will remain relatively stable and government entitlement payments will not increase much while prices for the basic things that American families need go through the roof.
Already we are starting to see some troubling signs of inflation. In 2010, the price of almost every major agricultural commodity you can name shot up dramatically. We are starting to see these price increases filter into the supermarket. Some companies are trying to hide these price increases by shrinking package sizes.
Have you noticed this yet? Have any of the packages that you buy regularly seemed to shrink in recent months?
Sadly, it looks like food prices are headed even higher. According to a recent report by Reuters, world food prices hit an all-time record high in December....
World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.
So what are you and your family going to do if a worldwide food shortage pushes food prices up significantly?
Another place where American families are really going to start feeling the pain is at the gas pump.
Do you remember back in October when I warned you that 100 dollar oil is coming?
Well, the price of Brent crude reached 95 dollars a barrel for the first time in almost two years on Monday.
Unfortunately, there are many who now believe that the price of oil is going to go a lot higher than that.
John Hofmeister, the former president of Shell Oil, believes that American consumers will likely be paying 5 dollars for a gallon of gas by the time 2012 rolls around.
So is your employer going to be paying you much more to keep up with rising gas prices?
Of course not.
And you know what?
When the price of oil rises, it affects the price of almost everything else in the stores, because nearly everything has to be transported in one way or another.
So why is the price of oil going up so much? Well, of course there are speculators and of course the price of oil is highly manipulated, but one of the big reasons why oil is going up is because the U.S. dollar is losing value.
The cost of other basics is going up as well. Have your health insurance premiums gone up lately? All over the country, horrific health insurance premium increases are being reported.
Quite a few of the readers of this column have stated that they simply cannot afford health insurance anymore and so they are now doing without it. There are millions of Americans that refuse to go to a hospital because there is no way they can pay for health insurance and there is no way they can pay the ridiculous fees charged by our hospitals today.
Sadly, in the months and years to come millions more working American families will be pushed into poverty-like conditions by rising inflation.
Already we are seeing huge numbers of American families that are working as hard as they can not being able to afford the basics.
A year-end survey conducted by Pew Research found the following....
*51% of Americans say that it is difficult to afford health care.
*48% of Americans say that it is difficult to pay their home heating and electric bills.
*29% of Americans say that it is difficult to afford food.
Those numbers should be quite sobering for us all - especially considering the fact that jobs are becoming very difficult to get.
According to the same Pew Research study, a staggering 46 percent of all Americans say that someone in their household has been without a job and looking for work at some point during the past year.
It can be really depressing to search for a decent job month after month after month when there doesn't seem to be any out there.
The truth is that there are 7 million less middle class jobs in America today than there were just a decade ago.
So if even one person if your family has a decent job you should consider yourself to be very fortunate.
But sadly even families where everyone is working are going to continue to be stretched further and further financially as rapidly increasing inflation steals our purchasing power a little bit more every single day.
The "good times" are rapidly coming to an end. The greatest debt-fueled party in the history of the world is wrapping up and you should enjoy it while you still can, because the years ahead are just going to be brutal.
http://theeconomiccollapseblog.com/archives/in-the-future-you-may-not-be-able-to-provide-the-basics-for-your-family-even-if-everyone-in-your-family-has-a-job
Corn Rationing Needs to Begin
December 31, 2010
By: Fran Howard
Analysts expect short supplies and heavy use to keep upward pressure on corn prices in 2011. Related Stories
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The corn market is extremely tight heading into the New Year, and analysts expect short supplies and heavy use to keep upward pressure on corn prices in 2011.
"The corn market has one job and one job only—to go high enough to make people stop using the product," says Ryan Turner, risk management consultant for FCStone, Kansas City. "We are past the point of encouraging more supply." Turner predicts 2011 corn futures prices will exceed 2008 highs. "I don’t know if it will happen in January or June, but it will happen," he says.
Soaring corn prices will slice into demand, with corn exports expected to fall first followed by feed usage. Analysts anticipate the cattle industry to begin rationing earlier than other livestock sectors due to poor margins, but rationing in poultry, hog, and dairy will be close behind. "It will be very painful," Turner adds.
USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) put the carryout for the 2010-11 U.S. corn crop at 832 million bushels, less than half the previous year’s carryout of 1.7 billion bushels. USDA pegs the average U.S. farm price for the 2010-11 crop at $4.80 to $5.60/bu. World supplies have also tightened: USDA’s latest estimate for world ending stocks for the 2010-11 crop is 130 million metric tons, a nearly 12 percent drop from the previous year’s 147 million metric tons.
Looking ahead to the 2011-12 crop, Chad Hart, agricultural economist with Iowa State University, calculates the full cost to grow corn in Iowa will be $4.25 to $4.50/bu., but revenues will be more than $5/bu., leaving at least a 50-cent-per-bushel margin. "That’s a really good margin, similar to 2007-08, when the first big push in ethanol occurred," says Hart.
Recent extension of the tax credit for ethanol blenders could mean ethanol plants use more of the current corn crop than the 4.8 billion bushels USDA projects. "Everyone in the ethanol production and marketing chain is seeing positive margins," says Hart. Only runaway corn prices coupled with low gasoline prices could slow ethanol production next year, he adds.
The past eight corn crops have been the largest in U.S. history, so the probability that another large crop will be on tap for 2011-12 is high. Assuming a slightly better than trend yield of 162 bu per acre and 91 million acres planted to corn (roughly 3 million acres more than last year), Jim Hilker, agricultural economist with Michigan State University, calculates a 2011-12 corn crop of 13.6 billion bushels.
With current carryover stocks at 6.2% of total use, Hilker says there is no room for error. "If something goes wrong, corn prices will go a lot higher," he says. If growers plant even more acres to corn and yields are above 162 bu per acre, Hilker says, "prices will dip, but they won’t crash."
Tom Grisafi, president of Indiana Grain Company, Valparaiso, Ind., says corn prices need to move well above $6/bu to shake out end users. Yet it is unclear whether end users—who have become accustomed to extreme volatility—will cut back quickly.
"Corn has never traded this high so consistently at this time of year," Grisafi says. The upside price potential for 2011 corn prices is nearly unlimited in his view. "It’s the price that bankrupts the meat and ethanol industries," Grisafi says.
http://www.agweb.com/article/corn_rationing_needs_to_begin/
Ben Bernanke Loses More Money In One Day Than All Of LTCM Ever Did... Doubled
Submitted by Tyler Durden on 01/05/2011 16:28 -0500
Agency PaperBen BernankeConvexity
The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.
John Lohman explains:
Chairman Top Tick continues to crash and burn, losing $7.2 billion in Treasury and Agency paper in today’s bloodbath alone. Adding a rough estimate for the MBS holdings would put the session’s losses well over $10 billion. Indeed, a baker’s dozen of John Meriwethers couldn’t destroy this much capital in such a short period of time.
And with all of the usual caveats that accompany a simple modified duration analysis (ignoring convexity, assuming instantaneous parallel shifts, etc.), the table below estimates the Fed’s losses for various upward interest rate shocks. Again, keep in mind this does not include the massive MBS portfolio, which is extending in duration with every uptick in rates.