Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
The Urgency of Bringing Down Unemployment
by: Felix Salmon December 03, 2010
The unemployment rate has long been called Obama’s Katrina, but at this point it’s clear that it’s much worse than that: Its political toll is surely worse for the president than a bungled hurricane response could ever be. Its human toll too, probably. And while it’s never a good idea to read too much into a single datapoint, the fact that unemployment rose, unexpectedly, to 9.8% in November is undeniably bad news.
Catherine Rampell has a great piece in today’s New York Times about the long-term unemployed, complete with a new parsing of data from the Labor Department:
People out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.
She also reprints a familiar and damning chart: The average duration of unemployment is now significantly longer than the 26-week maximum duration of unemployment benefits.
Rampell does a good job of explaining what the sensible policy responses might be for a government looking to bring these numbers down. The list of possibilities includes tax breaks for hiring the unemployed; direct employment of the unemployed, as in the New Deal; and programs devoted to retraining and apprenticeship. Notably absent from the list is the idea of getting the Federal Reserve to buy long-dated Treasury bonds, which seems to be the only thing the government is actually doing.
Indeed, the elected branches of government are making things worse rather than better. Two million of the long-term unemployed lost their federal emergency unemployment aid on Tuesday, and Republicans in Congress are much more interested in a $700 billion scheme to extend tax cuts for people earning more than $250,000 a year than they are in providing some kind of social safety net for people who have been out of work for more than six months.
Rampell ends her piece with a resonant point:
“After a while, a lot of European countries just got used to having 8 or 9 percent unemployment, where they just said, ‘Hey, that’s about good enough,’ ” said Gary Burtless, a senior fellow at the Brookings Institution. “If the unemployment rates here stay high but remain relatively stable, people may not worry so much that that’ll be their fate this month or next year. And all these unemployed people will fall from the front of their mind, and that’s it for them.”
European countries, of course, don’t cut off benefits after six months, just when the unemployed need them most. But Burtless’s point is well taken. Right now, the unemployment rate is rising and therefore news, which means that people are at least paying attention to it. If it just bogs down, over the long term, somewhere north of 8%, then at that point the policy debate loses all urgency, and unemployment gets added to the long-term fiscal outlook as something which really ought to be addressed but never is.
Disclosure: No positions
http://seekingalpha.com/article/239950-the-urgency-of-bringing-down-unemployment?source=email_the_macro_view
Home Prices Are Plunging: Let's Discuss the Deficit Instead
by: Dean Baker December 02, 2010
The media almost completely overlooked the housing bubble on the way up. In the years 2002-2007 there were probably 1000 stories written about the deficit for every story that raised any questions about house prices being inflated.
Of course the bubble did eventually burst, giving us the worst economic disaster in 70 years. But hey. no one ever said that an economics reporter could learn anything. Tuesday's Case-Shiller data showed that house prices in its 20-City index fell 0.7 percent in September. This would be an 8.5 percent annual rate of decline, which would imply the loss of more than $1 trillion in housing wealth over the course of the year.
The data for the bottom third of the housing market looked even worse. Prices for homes in this segment of the market had a 2.6 percent one-month decline in both Seattle and Boston. They fell by 3.4 percent in Phoenix and 3.7 percent in Portland. Prices for homes in the bottom tier fell by 3.9 percent in both Tampa and Chicago. They fell by 7.0 percent in Atlanta and 7.4 percent in Minneapolis.
The sharp decline in house prices in the bottom tier since the expiration of the first-time buyers tax credit means that the loss of home equity for many recent buyers will have exceeded the value of the credit. In such cases the credit effectively went to the seller, or in the case of underwater mortgages, to the bank that held the mortgage.
For one more interesting data point, the Census Bureau released data on new home sales prices for October last Wednesday. This release reflects much more up-to-date data since it is based on contract prices. The Case-Shiller index is a 3-month average that is based on closings, which typically occur 6-8 weeks after a contract is signed. The report showed that the price of a median home fell 13.6 percent in October hitting its lowest nominal level in 7 years.
These data on falling house prices were largely invisible in business and economic news reporting Tuesday. Instead, the focus was the budget deficit and the deficit commission reports. After all, if we don't do anything and the deficits follow their projected course, we will have a really high budget deficit in 2025.
What does it take to get economic/business reporters to pay attention the economy?
http://seekingalpha.com/article/239641-home-prices-are-plunging-let-s-discuss-the-deficit-instead?source=email_the_macro_view
(Unemployment Expires) News From Around The Country
http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=unemployment+expires
Maybe they might start being more careful on loans?
Even holding the paper and making money off the loan instead of tradin the paper?
What a concept.
Foreign Oil Dependency: The Root Cause of America's Economic Pain
by: Michael Fitzsimmons November 28, 2010
Despite all the grumbling by American economists about the Chinese keeping a lid on the value of the Renminbi (yuan), it is not the primary source of economic pain in America today. For this reason, Ben Bernanke's "QE2" policy (i.e. printing money) will not be successful because it does not attack the root cause of U.S. economic weakness. What is the root cause of American economic pain, and how can I make such a confident statement?
The U.S. Commerce Department reported September 2010's trade deficit to be $44 billion dollars. During that month, crude oil averaged around $75/barrel and the U.S. imported about 12,000,000 barrels/day. This means the September 2010 monthly bill for oil imports was roughly $27 billion dollars.
The point is this: out of a $44 billion dollar monthly trade deficit, $27 billion of that was for one commodity alone. Unfortunately for the U.S., it happens to be the most strategic commodity of all: OIL. Put another way, imported oil made up 62% of the U.S. monthly trade deficit. This is not an aberration - it goes on month after month, year after year. And as the price of oil goes up, so too does this problem. It is quite simply draining away the wealth of America. We are burning it up in our cars and trucks.
click to enlarge
OIL PRICES
So while I have spent the last 5 years trying to convince Americans and American policymakers that natural gas transportation was the solution to the problem, I realize now the real problem is that the American Congress, as well as its economists and financial media, are in complete denial about the imported oil crisis. Everyone knows the first step to solving a problem is to understand the problem. And this is why the Federal Reserve and American economists will fail in their attempts to revitalize the U.S. economy. They simply refuse to own up to the blatantly obvious fact that the American economy is built on a very badly constructed foundation: it is at the mercy of foreign oil to power it.
Further, the problem is going to get much worse before it gets better. I am a firm believer that worldwide oil production will not keep pace with worldwide oil demand given a functioning worldwide economy. What we will see in the future is not very hard to predict:
- the American economy will begin to strengthen and gather steam
- oil prices will rise as oil demand increases with the strengthening economy
- the American economy will peter out as high gasoline prices pummel the consumer
- inflation, higher unemployment, higher fiscal and trade debts will follow
- the currency will, over the long haul, continue to weaken
In other words, the American economy is now completely dependent on the price of the most strategic commodity of all (oil) and the fact that it must import 65% of its consumption.
Meantime, a solution is also staring us in the face - natural gas transportation.
NATURAL GAS PRICES
A quick glance at the two charts above reveals a very powerful economy reality. The price of oil today is now 2.5x what it was in 2003. The price of natural gas is about the same. As I have said many times before - the abundance of natural gas in the world along with the realities of worldwide oil supply/demand fundamentals has completed shattered the historical oil to natural gas ratio. This ratio is now completely meaningless as the price of oil will continue to march higher, while the price of natural gas will remain relatively stable, and if not stable, will certainly rise much slower than the price of oil. Since 1995, the ratio of oil to natural gas has averaged around 9. Today, with oil in the mid-$80's and natural gas around $4, the ratio is over 20.
With America's abundant natural gas shale reserves, as well as conventional gas from Alaska and the GOM, this news should be a most welcome economic development. Add to this the mature and extensive American natural gas pipeline system, and you have an economic advantage that no other country in the world is blessed with. Even Chinese energy policymakers have said they would immediately switch to natural gas transportation if they had the natural gas pipeline system of the U.S. However, instead of it being our #1 economic advantage, the refusal of the U.S. Congress, economists, and mainstream financial media to acknowledge and publicize the imported oil crisis keeps the natural gas story a much neglected secret. If it were not for Boone Pickens, the majority of Americans would not even be aware of the foreign oil crisis and natural gas transportation. Nothing gives more proof that American energy policy is in crisis. As I have said before, Energy Secretary Chu should be fired for being agnostic about natural gas transportation, and President Obama should be an one-termer since he has also refused to embrace America's most abundant, clean, and cheap fuel. What is wrong with these men and did they not take oaths of office? Sigh.
The U.S. could very easily adopt natural gas transportation and reduce foreign oil imports by 5,000,000 barrels/day within 5 years. This would save the country not only $400,000,000 a day (assuming oil is at $80, but I assure you oil will be higher than that in 5 years), but it would also enable Americans to refuel their vehicles (at home) with natural gas at less than half the price of gasoline derived from foreign oil ($1.20 GGE natural gas today compared to $2.75/gallon gasoline). However, the economic gains would be much greater than these numbers due to the multiplier effect of keeping/saving this money in the U.S. and having it ripple through the consumer sector. In addition, hundreds of thousands of well paying jobs would be created in the energy, automotive, and industrial sectors as a result of reindustrializing the United States around its abundant natural gas resources. Such a reindustrialization effort would pay dividends to all Americans for decades into the future and usher in an age of economic prosperity few today can even imagine.
I suppose it is not to be. The oil companies own Congress and they are protecting their gasoline profit margins with everything they've got. One has to wonder if the American CEOs of Conoco (COP), Exxon Mobil (XOM), and Chevron (CVX) ever feel guilty and lose sleep over their efforts to keep natural gas transportation out of the reach of their fellow Americans? It's as if they somehow believe there will not be a market for oil in the future were the U.S. to adopt natural gas transportation. I have a message to these CEOs: there will ALWAYS be a market for oil. With India and China buying gasoline powered vehicles as fast as they can, believe me, you are safe. So, why not leverage your huge investments in Burlington Resources and Origin (OGFGF.PK) (are you listening Jim Mulva?) and your huge investments in XTO and Qatar (are you listening Rex Tillerson?) and embrace and support natural gas transportation for America? After all, it is not only the right thing to do economically and environmentally and from a national security perspective, it is the right thing to do patriotically and also for the long-term financial health of your companies.
Now some will say, hey Fitz, China relies on foreign oil as well.
Ah, but the difference is this: China can pay for it. Not only is China's trade balance healthy enough to pay for their foreign oil bill, they have enough left over to buy American debt (that is, pay for the U.S.' foreign oil imports...) and also to scour the world buying up oil reserves. And this is the biggest issue going forward for American oil companies: they must try to finance oil reserve acquisition on their own and they are competing against state backed Chinese oil companies. Add to that the oil reserves that are simply off limits to American oil companies and what do you have left for them? Answer: natural gas. It's abundant the world over, it's cheap, and it's clean.
But alas, Ben Bernanke, Congress, and the oil executives don't see it this way. So we are left with "QE2".
Fitzsimmons' 1st Law of Economics:
"QE2 (i.e. printing money) => lower U.S. dollar => higher oil prices => more economic pain for America"
Simple, right?
So, what are investors or people of high net worth doing? One - they are buying gold and silver. I actually don't think this is to "make money", I think high net worth investors are surveying the landscape today and thinking, man, U.S. policymakers simply do not know what they are doing. I need to preserve my wealth and would I rather have paper dollars or gold and silver bullion? No brainer. This is not Obama specific, it actually started during Bush's first term. Let's look at a gold chart:
So, gold was around $300/oz when George Bush came into office and was over $900 when he left. That is 3x in 8 years. As my readers know, this is not only because George Bush doubled the U.S. debt in 8 short years (and that's not counting the two oil wars that were "off budget") , but because of the huge spike in oil prices during Bush's regime.
Fitzsimmons' 2nd Law of Economics:
"Oil is Now, and will Remain, the World's Reserve Currency of Choice"
You see, the price of gold cannot be blamed on the falling dollar alone. The dollar has not fallen nearly as much as gold has risen. This is because the so-called "world's reserve currency of choice" is actually the opposite: there is no choice (at least today). So, money flocks to the U.S. dollar during times of crisis as the recent financial crisis, the Euro-crisis, and the Korean peninsula crisis have proven. However, this too will change as many countries are tired of bone-headed U.S. energy, economic, and foreign policy and are unanimously recommending a move away from the U.S. dollar. The U.S. strategy appears to be to keep the world in a constant state of chaos so that such a move is not possible, or at least will surely not go smoothly. U.S. policymakers may be in denial about the oil crisis (actually, they are well aware of it, they are just paid to keep their mouths shut), but they definitely know that the U.S. would not be able to pay for its foreign oil imports were the dollar not the reserve currency of choice (that is, if they were not able to sell the paper issued by the U.S. Treasury Department).
So what are investors to do? As I have said ad-nauseum: buy gold and silver bullion and oil company stock.
Ironically, as much as I love to harass Jim Mulva of COP for not embracing natural gas transportation in order to leverage the company's huge investments in that arena, COP remains one of my favorite investments in the oil patch. COP produces over 1.7 million BOE/day. At $80/barrel - you do the math. In addition, the chemical business is twice as profitable as last year and downstream refining and marketing is up 3x. The company sold a stake in LukOil (LUKOY.PK) for $6.4 billion and has another 50 million shares up for sale. The company is generating close to $1 billion in profits every month and has said it will target more profits toward stock dividends and share buybacks. The dividend today is 3.6%. The company is an excellent value at today's $60/share. Five years from now, when oil is over $150/barrel, investors will look back and say man, I wish I owned some COP.
They will also say, the Fitzman was right - Americans should have transitioned over to natural gas transportation.
http://seekingalpha.com/article/238920-foreign-oil-dependency-the-root-cause-of-america-s-economic-pain?source=email_the_macro_view
Investing in Fear Is Big Business
by Brendan Conway
Monday, November 29, 2010
Call it a bull market in fear.
The popularity of the VIX index, which has become a widely watched barometer of investor fear since the financial crisis, is generating a host of spinoffs, copycats and derivatives. It is adding up to big business for VIX's owner, the Chicago Board Options Exchange, as well as partners and competitors that have developed products pegged to, or inspired by, the VIX.
VIX clones have sprung up in Australia, Canada and India. There are now VIX-like measures in the crude-oil and gold markets. Soon, there will be a VIX each for corn and soybeans. The popularity of the index has fueled growth in futures and options just to bet on the VIX itself.
Formally known as the CBOE Market Volatility Index, the VIX tracks the prices investors pay for options to protect themselves against swings in the Standard & Poor's 500-stock index. An increase in those prices suggests an increase in investor anxiety. It is also used as a short-term predictor of investor behavior.
"There's not a bubble in volatility—investors can expect more of that—but there's certainly one in products to trade it," said Michael McCarty, managing partner of Austin, Texas-based Differential Research. Mr. McCarty and others in the industry predict that not all the new offerings will survive. Interest in fear gauges seems likely to wane once markets settle, they say.
The CBOE is the main beneficiary of the boom as it collects licensing and transaction fees on most VIX-related products. The CBOE and its partners are tight-lipped about the terms of the deals, but Ticonderoga Securities analyst Chris Allen estimates the VIX is now worth at least $300 million to the exchange. That is about one-eighth the company's entire market capitalization.
"The VIX is one of the fastest-growing products in the history of the business," CBOE Chairman William Brodsky said in an interview.
The VIX has become such big business that the CBOE expanded the pit that houses trading in VIX products at a time when volume in the industry has been largely flat. The pit was built to be deliberately roomy so it could accommodate an expected explosion in VIX-related trading. The pit has plenty of empty posts, contrasting with the crowded nearby pit for trading S&P 500 options.
Trading volume in VIX options alone rose 42% in the third quarter from a year earlier, according to the CBOE. VIX options worth more than a notional $120 billion have traded on the exchange this year, according to CBOE figures.
Every time one of these options on the VIX trades, the CBOE collects a fee, making it the most promising money maker for the exchange. The fees added up to $6.4 million in the third quarter, which if replicated again, could see the exchange reap at least $25 million this year.
Other firms and exchanges are also seeking to capitalize on the VIX's popularity.
Over at CME Group Inc. (NASDAQ: CME - News), a whole separate group of traders is trading futures on the VIX. Investment banks such as Citigroup Inc. (NYSE: C - News), Barclays PLC (NYSE: BCS - News) and Credit Suisse Group are using the VIX to create complex new exchange-traded notes tied to the index. The Nasdaq OMX Group (NASDAQ: NDAQ - News) recently launched competing "Alpha Indexes."
Some worry that the broad array of products and growth in trading of VIX options and futures could attract investors who don't fully understand the risks. The options can swing wildly in price as sentiment shifts, and investors could easily be caught off guard.
Even having a barometer of fear can make it easier for that fear to spread. That was brought into stark relief during the financial crisis through the ABX indexes, rough measures of mortgage-backed debt prices, and credit-default swaps, which reflect sentiment on individual borrowers. Both have been demonized as products that only compound investor nervousness.
"Derivatives themselves are a good product, but using them without being educated on how they work will eventually lead to big trouble," said Joe Kinahan, TD Ameritrade chief derivatives strategist. For example, he said, VIX options have an inverse relationship to the market, something that has tripped up unsuspecting investors.
For example, investors who had bet against stock-market volatility in April after a strong run in the stock market would have lost money in the May 6 "flash crash," which saw the VIX spike. But less volatile environments can also cause traders to lose money. For instance, investors who bet on a rocky fall for stocks by buying VIX "call" options saw their investments' value mostly bleed away, especially after the midterm elections and the Federal Reserve's quantitative-easing news.
Headaches for the CBOE have also been created by unwelcome copycats.
Last year, California investment firm AlphaShares LLC launched the AlphaShares Chinese Volatility Index, or "CHIX." It tracks gyrations in the Chinese market but isn't licensed by the CBOE.
CHIX has caused a spat between the CBOE and AlphaShares, with CBOE asking AlphaShares to tone down its references to the VIX. CBOE declined to comment. AlphaShares, of Walnut Creek, Calif., describes the China index as a "tribute" to the VIX.
The VIX was born when the CBOE commissioned Robert Whaley, then a professor at Duke University, to design a market-volatility index. He presented the math equation that would become the VIX in a 1993 academic paper. VIX futures became tradable in 2004, followed by VIX options in 2006, enabling investors to bet on the direction of the VIX.
For his part, Prof. Whaley says he wondered what took the market so long to see the benefits of being able to hedge against, or bet on, volatility in the stock market.
"Their current trading volume figures say they now understand," said Prof. Whaley, who is now at Vanderbilt University's Owen Graduate School of Management.
It wasn't until the financial crisis that the VIX broke into the mainstream. The index has a tendency to shoot up dramatically when market sentiment sours, one reason it grabbed so much attention as markets began imploding.
Within a few weeks in late 2008, the VIX shot up from the 20s to a peak of about 96 in October. Its reading is now just above 20, close to the historical average.
—Geoffrey Rogow contributed to this article.
Write to Brendan Conway at brendan.conway@dowjones.com
http://finance.yahoo.com/banking-budgeting/article/111430/investing-in-fear-is-big-business?mod=bb-budgeting&sec=topStories&pos=6&asset=&ccode=
Oil rises above $84 on EU rescue deal for Ireland
Oil rises above $84 in Europe after EU bails out Ireland, markets await US jobs report
Pablo Gorondi, Associated Press, On Monday November 29, 2010, 6:51 am EST
Oil prices rose above $84 a barrel Monday as investors were encouraged by a European Union bailout plan for Ireland and awaited key U.S. economic data.
By early afternoon in Europe, benchmark oil for January delivery was up 58 cents to $84.34 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract rose as high as $85.03. On Friday, it fell 10 cents to settle at $83.76.
The EU agreed Sunday to give Ireland euro67.5 billion ($89.4 billion) in loans and outlined new rules for future emergencies in an effort to restore faith in the euro.
"The EU rescue package for the Republic of Ireland ... is helping risk appetite to rise and boosting investor demand for commodities," said a report from analysts at Commerzbank in Frankfurt.
Still, with worries remaining about the financial crisis affecting other EU countries like Portugal or Spain and continuing tensions between North and South Korea, investors could soon turn more cautious.
"We do not believe the latest price gains are sustainable. Another price slump in the direction of $80 is more likely than another rise in the direction of $90," Commerzbank said.
Traders will be closely watching Friday's U.S. unemployment numbers for signs more Americans are going back to work as the economy slowly recovers from last year's recession.
"The important November employment report could prove pivotal in determining the course of the oil trade across December," Ritterbusch and Associates said in a report.
Crude advanced despite a strengthening dollar, which makes oil more expensive for investors holding other currencies.
The euro fell to $1.3187 on Monday from $1.3237 late Friday in New York, while the British pound slumped to $1.5575 from $1.5602 .
In other Nymex trading in December contracts, heating oil rose 1.94 cents to $2.3356 a gallon and gasoline added 1.69 cents at $2.2272 a gallon. Natural gas gained 3.7 cents to $4.436 per 1,000 cubic feet.
In London, Brent crude advanced 45 cents to $86.03 a barrel on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore contributed to this report.
http://finance.yahoo.com/news/Oil-rises-above-84-on-EU-apf-2852864106.html?x=0&sec=topStories&pos=3&asset=&ccode=
All good stuff but you can already hear the progressives cries of the "attack" on the poor.
The entitlement mentality is hard to break. They are much more likely to cut social security to those who paid for it than cut the menu of benefits that are now given, with social security money, to those who never paid a dime or minimal amounts.
IT is who we are (not all but a solid majority) now.
Until the belief that it is ok to take from others (at gun point) is broken the decline continues.
-- and for the "humanitarians" out there no one is talking about not helping the needy...but no intellectually honest person can state that the current welfare state has not "progressed" way beyond helping the truely needy. always keep in mind that want and need are not the same thing. --
We'll see if it sticks.
I hope it does because maybe it could happen here.
Same thing with schools- first things cut is busing and pay-to-play sports...
How the U.S. Once Prospered by Debasing Its Currency -- And Could Again
---
The problem is that the last time we debased our currency (as if it has not been an on-going action ever since) we were a net producer economy. Now the US economy is a hollowed out shell and a debtor nation.
---
How the U.S. Once Prospered by Debasing Its Currency -- And Could Again
by: Modeled Behavior November 26, 2010
U.S. Rep. Paul Ryan (R-WI), the incoming chairman of the House Budget Committee, has declared: "Name me a nation in history that has prospered by devaluing its currency."
How about the United States?
See that turning point in 1933? There is a lot of dispute about what caused it, but some people with a long interest in monetary policy have argued that it was Executive Order 6102, drafted as follows:
It was announced to the public as follows:
Those of us who think recessions are caused by the hoarding of money would expect this type of thing to have extreme effects. Hard money folks would suspect that this would result in a debasement of the currency. Indeed, unlike the modern metaphorical use of the word "debasement," this was literal debasement. The base of the currency was confiscated at gunpoint, melted down and reissued in a less valuable form.
The transferability of dollars into gold shifted from $20 an ounce to $35 an ounce. This was, again, a literal debasement done by threat of imprisonment. I wish I had ready access to pictures of private safety deposit boxes being torn open and the gold taken out. Nonetheless, there are numerous reports of this happening.
Not exactly a free market move, and vastly more extreme than anything I can contemplate tolerating. However, what was the economic effect?
From April to July of 1933, industrial production in the United States surged 57 percent. The following chart illustrates year-over-year growth in industrial production, from the year before debasement until the year after:
We move immediately from shrinking to surging industrial production, with year-over-year growth rates reaching 60% in July of 1933.
I don't want to pick a fight with my more liberal friends, but I would argue that it was this move that made it seem as if President Franklin Roosevelt had magical economic powers -- and gave cover to what were, on the whole, probably ineffectual (at best) industrial policies.
However, even if there are those who are afraid that a more smooth and free-market debasement will likewise paper over what they regard as the poor policies of the Obama administration, I ask you to take another look at that chart above: 60% growth from 30% collapse just a year earlier. You really want to throw that away because you're worried that it might possibly help in a fight over a health care policy less extensive than the one that is "crippling" the budget of our wacky neighbors to the North?
There are a lot of issues here, but if what you're concerned about is piling up government debt, then growth is your friend -- and debasement is the way to get there.
http://seekingalpha.com/article/238814-how-the-u-s-once-prospered-by-debasing-its-currency-and-could-again?source=email_the_macro_view
Bottom line is that we cannot afford the government we have right now.
It is the definition of unsustainable...
http://www.cagw.org/
Right now the government is wasting the money.
Giving them more will not solve the problem.
Let's have a 30% across the board tax increase on everyone- including the 40+% who pay no income taxes.
However, we would couple that with a 30% across the board decrease in all spending- every single program with no sacred cows.
Defense, SS, medicare, medicaide- cut it all.
Also, a 5 year freeze on increases in government spending with increases tied to inflation after that.
Never happen because the government will never give up that power of the purse.
Spain could be forced to seek a bail-out within months, warns Barclays
The weight of bank debt needing refinancing next year could threaten Spain's solvency and force it to become the next European country to seek a bail-out, according to a report from the investment banking arm of Barclays.
The situation facing Spain is in some respects similar to that which led to the implosion of the Irish banking system Photo: Reuters
By Harry Wilson 8:30AM GMT 27 Nov 2010
Comments
After Ireland was finally forced this week to ask for financial help from the European Union and International Monetary Fund, Barclays analysts now say it is possible that a similar fate could await Spain.
In the first four months of 2011, the Spanish government and the country's banks must raise about €70bn (£59.2bn) in the bond market, which Barclays said would be a "big test for investor appetite", adding that it was concerned with the "execution risk".
"Our view is that the challenges facing Spain remain substantial – with the likelihood of a positive outcome poor until at least the sovereign and the banks have successfully navigated their way over the funding hump facing them both in Spring 2011," said the analysts.
Related Articles
•Spain could be forced to seek bail-out 'within months'
27 Nov 2010
•Europe's debt problem has gone from bad to worse
27 Nov 2010
•Spain on defensive as Portugal adopts austerity budget
26 Nov 2010
•EU rescue costs start to threaten Germany itself
26 Nov 2010
•Europe denies need to double rescue fund
25 Nov 2010
•German haircut demands fuel crisis
25 Nov 2010
The situation facing Spain is in some respects similar to that which led to the implosion of the Irish banking system, with international investors reluctant to buy the country's bonds as fears remain over the risks contained within the financial system.
While the Irish government repeatedly insisted it was fully-funded for the next year, the funding position of the Irish banks made the bail-out inevitable as they faced redemptions of €25bn in government-guaranteed debt they had issued.
"The funding crisis for the Irish sovereign was in fact a funding crisis for the Irish banks, triggered by a massive bank issuance calendar and renewed concerns over asset quality,
"Simply put, the Irish sovereign has been dismembered by its banking system," said Barclays.
Portugal and Italy each face similar issues. However, neither country faces the same huge refinancing schedule that Spain does, with bond redemptions more evenly spread out over the course of next year.
The Spanish government has set up an €99bn fund to help its banks, however only €12bn of this is pre-funded and €11bn has already been drawn down, meaning the country will have to borrow more from the bond market to fund the rest.
Spanish pensions funds could be leaned on to buy some of the bonds, but not enough to cover the entire amount the government will need to raise.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8163705/Spain-could-be-forced-to-seek-a-bail-out-within-months-warns-Barclays.html
bbotcs: I agree.
That's what we've already been doing for decades...eom
Next Debt Crisis May Start in Washington: Bair
Published: Friday, 26 Nov 2010 | 6:25 AM ET
The US needs to take urgent action to cut its debt in order to prevent the next financial crisis, which may start in Washington, Sheila Bair, chair of the Federal Deposits Insurance Corp. (FDIC) wrote in an editorial in the Washington Post.
AP
FDIC Chairman Sheila Bair says the US needs austerity plan.
-----------------------------------------------------------------
The federal debt has doubled over the past seven years, to almost $14 trillion, and the growth is a result of both the financial crisis and the government's "unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit," Bair wrote.
Retiring baby boomers will impact government spending heavily and this year, combined spending on Social Security, Medicare and Medicaid are expected to make up 45 percent of primary federal spending, compared with 27 percent in 1975, she explained.
"Defense spending is similarly unsustainable, and our tax code is riddled with special-interest provisions that have little to do with our broader economic prosperity," Bair wrote. "Overly generous tax subsidies for housing and health care have contributed to rising costs and misallocation of resources."
If no action is taken, US federal debt held by the public could rise from 62 percent of gross domestic product this year to 185 percent in 2035, she warned.
"Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations," Bair said.
"With more than 70 percent of US Treasury obligations held by private investors scheduled to mature in the next five years, an erosion of investor confidence would lead to sharp increases in government and private borrowing costs," she added.
There needs to be "a bipartisan national commitment" for an austerity package of both spending cuts and tax increases over many years in order to solve the problem, according to Bair.
"Most of the needed changes will be unpopular, and they are likely to affect every interest group in some way," she said.
http://www.cnbc.com/id/40378597
OT: Neither group currently stand for freedom...eom
Bernanke Speech Marks Striking Shift in US Policy
By Richard Duncan
11/23/10 Singapore, Singapore – Fed Chairman Bernanke’s speech on Friday was his most important since his “helicopter money” speech of November 2002. In it he conceded the Dollar Standard is flawed. He said, “As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances.”
With that statement, the Fed revealed it has been won over by the logic expressed in my book, The Dollar Crisis (John Wiley & Sons, updated 2005). The first two lines of that book state: “The principal flaw in the post-Bretton Woods international monetary system is its inability to prevent large-scale trade imbalances. The theme of The Dollar Crisis is that those imbalances have destabilized the global economy by creating a worldwide credit bubble.”
Never before has a senior US policymaker admitted that the Dollar Standard is flawed. Former Fed Chairman Greenspan wrote in his autobiography that the trade deficit was far down the list of things the United States needed to worry about. With this speech, the Fed abandoned that position.
By acknowledging this flaw in the Dollar Standard and by focusing on its destabilizing consequences, Bernanke is alerting the world to the most important shift in US trade policy in more than a generation. The inference is clear: Now the flaw has been declared, something will have to be done about it.
The world has been put on notice that the United States will take steps to correct this defect and the destabilizing trade imbalances it permits. If the flaw cannot be corrected through international coordination, then unilateral actions by the United States should be anticipated. These actions would likely include trade tariffs. Tariffs would have a devastating impact on the countries pursuing an export-led growth strategy, particularly China.
The United States last resorted to trade tariffs in 1971 when the Bretton Woods system collapsed. At that time President Nixon imposed a 10% “surcharge” on all imports.
Regards,
Richard Duncan
for The Daily Reckoning
Read more: Bernanke Speech Marks Striking Shift in US Policy http://dailyreckoning.com/bernanke-speech-marks-striking-shift-in-us-policy/#ixzz16AYTe2yM
Doug Kass: Jaw Dropping Prediction For 2011
Published: Monday, 22 Nov 2010 | 6:33 PM ET
The man who called the market bottom back in March ‘09 reveals two market surprises for 2011.
And one's a whopper.
It’s no secret that Kass tends to be a tad bearish, so you won’t be surprised to hear that he’s a little concerned about the market next year – and his predictions reflect that concern.
SURPRISE #1
Kass tells Fast Money to prepare for a rough ride in the financials [XLF 14.64 -0.2145 (-1.44%) ] .
”I think most notably the SEC comes down in a frontal assault on mutual fund expenses by restricting or eliminating 12b1 fees,” he says.
This prediction isn’t the whopper - in fact it's not terribly dramatic at all. SEC Chair Mary L. Schapiro has already said she favors making changes in this area.
However Kass isn't shy about telling us which asset managers he thinks will get hit the hardest. He’s bearish T Row Price [TROW 58.54 -0.44 (-0.75%) ] , and Franklin Resources [BEN 115.85 -0.37 (-0.32%) ] which he predicts could be "some of the worst performing stocks in 2011.”
(In case you're wondering, 12b1 fees allow funds to charge investors with marketing costs. The mutual fund industry collected about $9.5 billion through 12b-1 fees last year.)
SURPRISE #2
This one's the jaw-dropper.
Kass thinks terrorists send investors scrambling – not with guns or bombs but using the Internet as a weapon. He tells the desk “I believe cyber crime is going to explode exponentially next year as the web is invaded by hackers.”
And he thinks they target the foundation of capitalism.
”I think we see a specific attack on the NYSE,” he says. “The aftermath will have a profound impact and cause a week-long hiatus in trading as well as a slowdown in travel.” Yup, you read that right – a week long hiatus in trading.
How do you prepare for something like that?
”I’d make sure to have a large amount of cash in my portfolio,” he says.
We know that's a rather startling prediction, and in all fairness Kass divides his predictions into 2 categories possible and probable. Although he didn't say, we're guessing this one lies squarely in the possible (but not probable) category and investors should take it with a grain of salt.
However, when Kass speaks we listen - largely because he’s had an uncanny track record for being right.
Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. Also, on July 6, 2010, he said the market had made its lows for the year and so far, that has also proved to be true.
MARKET INTO YEAR END
And in case you’re looking for a little information that's more immediately tradable Kass reminds the desk that although he respects Mr. Market he’s a skeptic of the rally.
”I’m less certain than the consensus that the economy is moving toward profitable and self sustaining growth,” he says. “I mentioned a few weeks ago that I think the market has topped for the year and I continue to see that.”
In fact he revealed that skepticism on Fast Money back on Monday November 8th.
http://www.cnbc.com/id/40300159
Looking Back on the Grasshoppers' Indian Summer
By Gerald Celente
11/19/10 Rhinebeck, New York — It was as though the winter would never arrive. The slumbering summer stock markets of 2010 lept to life. September recorded the best market month since 1939. In early October, with Wall Street jubilating, it cracked the 11,000 ceiling … a mere 3,000 points shy of its October 2007 high.
Nothing, not even the facts, could mute the summer chirping of gleeful grasshoppers on that ceiling-cracking Friday. Not the Wall Street Journal front-page headline, "Dollar's Fall Roils World." Not Bloomberg's headline, "Payroll Drop in U.S. Exceeds Forecasts." Nor the fact that 95,000 jobs were lost in September … and that the jobless rate had topped 9.5 percent for 14 straight months – the longest losing stretch since the 1930s. No news was bad news on that buoyant October 7th market day.
The recession was over. The Business Cycle Dating Committee of the National Bureau of Economic Research, the official arbiter of such matters, officially cited June 2009 as the date the recession had "officially" ended.
"We will not have a double-dip recession at all. I see our businesses coming back almost across the board. I am a huge bull on this country," exulted Grasshopper-in-Chief, Warren Buffett, "America's most beloved investor," according to Forbes magazine, which ranks billionaires for numbers of billions and also for belovedableness.
In full Indian Summer delirium, the "best and brightest" and richest of grasshoppers appeared incapable of believing that winter was on its way, even though the signs were everywhere.
Unemployment kept rising, GDP was slowing, the trade deficit worsening, and despite trillions already squandered on ineffective stimulus programs, the Fed signaled it would keep pumping even more trillions into the economy in the belief that what didn't work before would somehow work later.
The dollar was falling like autumn leaves. Unintended or not, what the Fed's money dumping policies had achieved was to devalue the currency. Couldn't the grasshoppers see the consequences?
Commodities Prices Soar as US Dollar Hits 10-Month Low
The US dollar tumbled to a 10-month low against a basket of currencies yesterday, lifting oil prices and driving up gold to a record high.
The dollar has been weakened by concern in global financial markets that the Federal Reserve will soon embark upon a programme of quantitative easing (QE) – asset purchases – in order to rescue a floundering economic recovery.
Investors, fearing the world's most powerful central bank will soon pump more dollars into the financial system, have fled from the greenback for the safety of gold and crude oil futures. Gold prices rallied to record highs of $1387.10 an ounce yesterday before falling back to around $1375.
Silver, oil and copper also rose in value on the back of dollar weakness. Since commodities are priced in dollars, they are more of a bargain for traders who buy them with foreign currencies. (Herald Scotland, 15 Oct 2010)
The aftermath of a plummeting dollar was as predictable and ineluctable as winter following autumn. The defining element was the price of gold. And it was not only Fed policy that was driving it higher.
"War" had been declared!
"We are experiencing a currency war," said Brazilian Finance Minister Guido Mantega. "Devaluing currencies artificially is a global strategy."
In an effort to juice exports, nations vied with each other to see who could devalue their currencies the most. What an ingenious concept – printing cheap paper!
For exporters, at least it held open the possibility of providing a temporary boost. But for everyone else, it simply meant that it would take more paper to buy what less paper used to buy. That's what you get when you devalue the currency.
The world was flooded with cheap paper. It was very, very easy to understand why gold prices were going higher and why they would continue to go higher still.
Regards,
Gerald Celente
for The Daily Reckoning
Read more: Looking Back on the Grasshoppers' Indian Summer http://dailyreckoning.com/looking-back-on-the-grasshoppers%e2%80%99-indian-summer/#ixzz1641QaihN
Debt Delenda Est
By Bill Bonner
11/19/10 Baltimore, Maryland – The subject is debt; it needs to go away.
Debt was the market's bête noire, this week and last. In Europe, it snatched up the Irish and carried them off. Then it attacked the Portuguese. Everyone knew the periphery states were going broke. Their cost of borrowing soared. Then, when the search parties reached them, the Irish turned them away. Debt has it usefulness, the Irish figured. They held out until Wednesday, apparently negotiating terms of their own rescue.
In America, municipal debt collapsed by nearly 10% over the last two weeks. It became more and more obvious that state and local governments were headed for default too. California might get a bailout…but California, like Ireland, is a sovereign state. It could refuse. Borrowers worried that Californians and the Irish might prefer to default like honest incompetents rather than submit to the rescuers' demands.
Debt is underrated. For one thing, it is more reliable than asset values. The crisis of '07-'09 wiped out about a third of the world's equity and property wealth. And it disappeared 7 million jobs in America alone. But debt survived intact. In terms of the cash flow needed to support it, debt actually grew larger.
Central planners can make a recession appear to go away. With enough hot money, they might warm up asset prices or soothe the swelling unemployment rate. But debt doesn't cooperate. Neither monetary policy nor fiscal policy will make it go away. Debt demands honesty. The debtor has to fess up, admitting that he is a fool or a knave. Either he owns up to his mistake and defaults…or he cheats.
"With all due respect, US policy is clueless," said German Finance Minister Wolfgang Schauble. "It's not that the Americans haven't pumped enough liquidity into the market. Now to say let's pump more into the market is not going to solve their problem."
The English speakers conveniently misunderstand the debt problem. The authorities worked hard not to see the debt crisis coming. They made their careers and reputations by not understanding it. Thousands of them work for governments and central banks…if they caught on to the problem now, they'd probably have to resign.
They pretend that the problem is a lack of "liquidity." Or a failure of capitalism. Or that the regulators dropped the ball. It is none of those things. Each of those problems can be "solved." Short liquidity? The feds can add some; as much as you want. Did capitalism lose its way? No problem again, the authorities will apply more central planning. Not enough regulation? Are you kidding; adding regulation is what they do best.
The real problem is debt. In Ireland, for example, investors, householders and bankers all lost their heads in the bubble era. Your editor bought a house in Ireland in 2006. He knew perfectly well it was overpriced. He had walked the streets of Dublin. He had seen storefronts offering property, not just in Dublin…but in Dubrovnik. He had heard people say that "property never goes down."
Now his house is worth about half what he paid for it – if he could find a buyer. There is no reason to expect that house to ever recover – at least in real terms – to the level it was 3 years ago. That wealth has disappeared. Along with it went the banks' collateral and the value of the debt it backed. It is all dead. It is no more. It has ceased to be. It is past tense. But, rather than let the banks' bondholders take the losses they deserved – in rushed the financial authorities with guarantees and more credit. Ireland's deficit rose to a staggering 30% of GDP. Its national debt will rise from 100% of GDP to 120%.
Meanwhile, California is moving closer to bankruptcy – and borrowing more too. The state is $25 billion in the hole, with no plausible plan to get out. The Milken Institute says unfunded pension liabilities will rise to $10,000 per capita by 2013 – the equivalent of an extra $40,000 mortgage for every household. Like Ireland, California cannot pay the debts it has incurred. The federal government will offer a bailout…but with strings attached.
And soon, the bailers will be in trouble too. According to The Wall Street Journal, a combination of 15 major national governments will have to borrow a total of more than $10 trillion next year, to finance deficits and repay maturing bonds. That's 27% of their total economic output. It also is equal to about twice the entire world's annual savings.
The authorities warn about the risk of "contagion." They sweat to "calm" the markets. But why bother? Debt of this magnitude cannot be repaid. It has gone bad. At least give it a decent burial.
Bill Bonner
for The Daily Reckoning
Read more: Debt Delenda Est http://dailyreckoning.com/debt-delenda-est/#ixzz1640XDlmF
I could not agree more...eom
Regulators close 3 small banks: 2010 total 149
By Corbett B. Daly
WASHINGTON | Fri Nov 19, 2010 8:06pm EST
WASHINGTON (Reuters) - Regulators closed three small banks in the U.S. on Friday, bringing the number of closures this year to 149.
The Federal Deposit Insurance Corp expects bank closures to peak this year following last year's 140 closures. The bulk of this year's closures have been smaller institutions, each with less than a billion dollars in assets.
The FDIC announced the following closures on Friday:
* First Banking Center, Burlington, Wisconsin, which had assets of about $750.7 million. First Michigan Bank, Troy, Michigan to assume the deposits.
* Gulf State Community Bank, Carrabelle, Florida, which had assets of about $112.1 million. Centennial Bank, Conway, Arkansas, a unit of Home BancShares Inc to assume the deposits.
* Allegiance Bank of North America, Bala Cynwyd, Pennsylvania, which had assets of about $106.6 million. VIST Bank of Wyomissing, Pennsylvania to assume the deposits.
On November 23 the FDIC will announce bank earnings for the third quarter of this year, providing a snapshot of the health of the banking industry.
FDIC Chairman Sheila Bair said recently that while the number of failures will exceed the 2009 tally, the total assets of this year's failures will probably be lower.
Washington Mutual, which had $307 billion in assets when it was seized in September 2008, remains the largest bank to fail during the financial crisis.
The FDIC last month lowered its estimate to $52 billion from $60 billion for the cost of bank failures for the five years through 2014.
The agency's Deposit Insurance Fund, financed by banks that pay into the fund, guarantees individual accounts up to $250,000.
The FDIC is in the process of changing the way it collects money from banks, as required by the law passed earlier this year overhauling the way U.S. financial institutions are regulated.
The law requires the FDIC to base the assessments it charges for the fund on a bank's total liabilities rather than on the amount of domestic deposits held by an institution. The result is that some large banks, those that primarily rely on funding other than from deposits, will pay more.
(Reporting by Dave Clarke and Corbett B. Daly in Washington; editing by Tim Dobbyn, Andre Grenon and Carol Bishopric)
http://www.reuters.com/article/idUSTRE6AI5QL20101120
Catastrophically Cutting the Deficit
By Bill Bonner
11/18/10 Baltimore, Maryland – As you know, the White House put together a bi-partisan commission to figure out how to get the deficit down. The group made what sounded like sensible proposals. Cut this…trim that. But even if the proposals were accepted in their entirety – which they won’t be – only about a third of the deficit would be eliminated.
In a nutshell – which is where these things belong – the feds spend about one out of every four GDP dollars in the US. They collect, however, only about one in every five or six dollars worth of GDP. That is a pretty big gap – nearly 10% of total GDP.
If you’re going to cut that kind of a deficit you’re going to need more than a bi-partisan commission. You’re going to need a catastrophe.
Heck, we could cut the budget in half an hour. We’d just get rid of everything that was not part of the original plan – that is, everything that was not necessary for the defense of the country or the maintenance of law and order. We’d have a huge surplus overnight…and lynch mob by daybreak.
Deficits are a big problem. They’re not going away. We’re not going to “grow our way out” of them. Left unchecked, the country will go broke. So you can expect a lot of pantywaist proposals and pussyfooting around on the subject in the years ahead. And then the country will go broke.
The big item is health care. It seems to grow uncontrollably. Americans don’t want to give it up.
We went to the doctor today. We paid $220, in cash. That was the end of it.
“Come back next year,” she said.
Seems controllable enough to us. If we don’t have $220 we won’t go back.
But Americans seem to like going to doctors and hospitals…especially if someone else pays for it.
Bill Bonner
for The Daily Reckoning
Read more: Catastrophically Cutting the Deficit http://dailyreckoning.com/catastrophically-cutting-the-deficit/#ixzz15n7P26Z9
Global Growth? More Like Global Collapse
by: Anupam Kathpalia November 18, 2010
I don’t need to summarize what’s going on in the world of economics as everybody knows the criticism being leveled at QE2, the attacks on Obama for being anti-business, continued European failures, concerns about China, and the ongoing currency war. There are quite a few optimists who believe that QE2 is what the economy needs to boost GDP growth and bring Americans back on track into the workforce, while there are a number of pessimists who strongly believe that the world is doomed. Charles Hugh Smith, a writer covering economics and global finance, explains why he is bearish on a global recovery. I came across Smith’s article “Is the Global Economy Rolling Over?” on Daily Finance and wanted to share a few points. He predicts that the “global economy is rolling over into stagnation or even recession. The evidence is piling up from all corners of the globe.” Here is a summary of his analysis and a good synopsis of the broader problems the world is facing:
Europe:
GDP of the eurozone dropped 0.4% in Q3, down from Q2 growth of 1%. Germany, one of the countries in the center of the currency war, grew only 0.7% vs a rise of 2.3% in Q2.
While Spain and Italy were flat, Greece contracted by 1.1% in Q3.
Greece deficit is now 15.4% of GDP and public debt is 126.8%.
Ireland is evolving into a sovereign debt crisis that is feared to continue to spread throughout Europe, witnessed by rising spreads.
In general, there is fear that the debt crises in Europe could pull the European Union apart.
Asia:
Japan’s deflation woes continue as exports slowed on weak demand in Asia for Japanese goods and a stronger yen.
The central government in China is beginning to tighten lending and raise rates on rising food prices, and bubbles in commodities and housing. Chinese authorities are restricting foreign ownership in real estate and announced price controls on food prices which leaped 10% in a year.
Commodity and stock markets may have already priced in rapid growth in China, which could have a tremendously negative impact given a projection of decelerating growth.
US:
The Fed is facing heavy criticism for deliberating devaluing the dollar, triggering a currency war which could result in bloody battles.
Homeowners in the United States are still underwater on their mortgages and housing prices are declining from oversupply.
Lack of job creation.
Strictly looking at the US, Smith did not mention the detrimental effect of the widening gap between the rich and the poor, leading to the elimination of a middle class. In addition, policy makers are divided on whether or not Obama should let the tax cuts expire. Global growth depends on all entities to be in sync, but with the chaos erupting all over the world, it may take years before the economy stabilizes. Perhaps 2007 was just a perfect world, and we are now living in a new normal.
http://seekingalpha.com/article/237506-global-growth-more-like-global-collapse?source=email_the_macro_view
What if the Market Steals Christmas?
by: One Eyed Guide November 16, 2010
What happens to retail sales if the market tanks 10% or even 20% before Christmas? Pundits are anticipating that the "wealth effect" will give a boost to high end retail sales this Christmas.
Admittedly the actual effect is small with $3 for every new $100 created is estimated to be consumed. With the market cap at around $12,662 billion (based on the Wilshire 5000), a 10% drop would be a $1.2 trillion wealth reduction or a $36 billion reduction in wealth effect spending.
I'm actually more worried about psychological effects from the drop. If the market drops precipitously will lower income workers start worrying more about their job security and spend even less?
There is also the effect of the news that might make the market drop:
PIGS defaulting with Germany coming to the rescue only if bond holders take a haircut.
Empire State manufacturing survey drop might get supported by other surveys.
No rescue for California or Texas from the Federal Government leads to further drop in Muni bond values
Political support gets behind the Deficit Commission recommendations to reduce government payroll and spending, causing massive drops in stocks of companies that have government contracts.
QE2 causes further run up in commodity prices, resulting in something very similar to stagflation.
Of course, this would be offset by the good news:
China and other currency manipulators have excessive growth and inflation and are taking steps to slow their economies down instead of allowing currency to float.
The market might not drop significantly but it is overbought after the 18% runup from the July low so there is a likelihood of a sizable drop before Christmas.
How much can a market drop get before it takes away Christmas? We are already down 4% (S&P500) from the high and on a downward trend. A 6% drop will put the S&P500 below the December 31, 2009 close of 1115.
Disclosure: None for this post
http://seekingalpha.com/article/237153-what-if-the-market-steals-christmas?source=email_the_macro_view
California facing $20 billion budget deficits deep into 2016 – $25 billion budget deficit starring California in the face for the next fiscal year and overly optimistic economic predictions.
Posted by mybudget360 in bailout, budget, california economy, california housing, debt, government, housing
California, the wealthiest state in our nation is facing some Herculean financial troubles yet again. As the elections came to a dramatic close, it was announced that a $6 billion budget deficit emerged from “miscalculations” of potential revenue streams. The current Governor was overly optimistic in many respects including an expectation that the Federal government would somehow throw like a wild pitch billions of dollars onto California’s doorstep. This did not materialize. So a lame duck session of Congress is left to deal with the current fiscal year gap of $6 billion but there is little incentive for the state Congress to act when new state legislatures are sworn in early in December. The new Governor will have no honeymoon period and the 2011-12 fiscal budget is expected to have a $25 billion budget deficit. The challenges California face are magnified by its decade long reliance on the housing industry for jobs and tax revenues. Let us examine the challenges facing California moving forward.
First, the $6 billion deficit is only the precursor to what is coming. California is expected to have $20 billion shortfalls deep into 2016:
Source: Legislative Analyst Office
The problem is one of spending but also of stagnant revenues. Pension costs are ballooning in the state thanks to decades of unchecked growth and Cadillac service for many retirees. When things are good, many deals were cut so you have people retiring at 50 or 55 with incredible pensions. No tiny stock portfolio can compete yet it is now clear that the taxpayer is on the hook for these if nothing is reformed. Given the anger from working and middle class Americans, it is unlikely that many will be happy about people receiving six-figure pensions while they are trying to find work. Just like the nation, you can’t cut taxes and expect to increase services. This kind of magical thinking is what got us into this mess. The Pied Piper must now be paid.
Here are some areas that were missed during the initial Governor proposal and their over estimation of revenues:
-Pension and Medical Care Receiver – $780 million
-Employee Compensation – $400 million
-In-Home Supportive Services (IHSS) Program – $300 million
-Lower Property Tax Estimates – $400 million
Now keep in mind the $6 billion shortfall is for the current fiscal year:
This is going to balloon in 2011-12 when expenditures explode by $10 billion. Where is the money going to come from? California had two decades marked with extraordinary bubbles in technology and then real estate. So far no other bubble is knocking. The current unemployment rate in California is 12.4 percent with an underemployment rate upwards of 23 percent. Unlike the Federal Reserve California doesn’t have a printing machine so they will either need to raise taxes or make drastic cuts. It is unfortunate that cronyism in state government is a mirror image of what occurs in Wall Street. They are cutting services and squeezing the middle class by raising tuitions for education for example which is actually a benefit to the future economy. Instead of going after Cadillac retirement plans where the real money is they go after the future job base of the state. Is it any wonder problems are so deep in the state?
The LAO does excellent work but even their projections are optimistic:
The LAO is projecting an unemployment rate of 6.6 percent in 2016. How can they see that far into the future? The current rate is 12.4 percent. What industry is going to add millions of jobs to make up this gap? We have yet to see this materialize. The big housing industry is also expected to grow modestly which I’m not sure is even what will happen:
It is the case that housing prices are largely still in bubbles in many cities across the state. So it is very possible that in the next few years home prices move even lower thus exposing an even bigger gap. Keep in mind the $25 billion deficit assumes these more optimistic scenarios.
California has made too many assumptions like increasing spending to record levels based on a once in a life time housing bubble. That revenue has evaporated into thin air yet the spending keeps trying to act as if we still had the housing bubble revenue. Something has to give. So in the next year, we will see either higher taxes or deeper cuts. Both of these will not be pleasant on the economy so gear up for some serious political battles ahead.
http://www.mybudget360.com/california-facing-20-billion-budget-deficits-deep-into-2016-25-billion-budget-deficit-starring-california-in-the-face/
It Begins: Detroit Neighboring City Of Hamtramck Asks For Permission To File For Bankruptcy
Submitted by Tyler Durden on 11/16/2010 17:23 -0500
From Detroit News:
The city of Hamtramck, desperate for cash, has asked the state for permission to take an unprecedented step: filing for bankruptcy. City Manager Bill Cooper said the city of roughly 20,000 people is staring at a $3 million deficit, fueled by a dispute with Detroit. Unless Hamtramck files for bankruptcy, it won't be able to pay its nearly 100 employees or 153 retirees, he said.
The city sent a letter to the state Department of Treasury last week asking for approval to seek bankruptcy protection. It has not received a reply, Cooper said.
"I'm going to run out of money Jan. 31," Cooper said. Bankruptcy would allow the city wants to stave off creditors and force its unions to consider concessions.
Many Michigan municipalities are under severe financial pressure following a crippling recession that has seen tax revenues plummet. The Detroit Public Schools considered bankruptcy last year but opted against it.
"I'd much rather find another way," Cooper said. "It's not Option 1."
A spokesman for the Department of Treasury said, under state law, a municipality can't file for bankruptcy without first having an emergency financial manager appointed.
Caleb Buhs, a Department of Treasury spokesman, said the department received the letter Monday and officials are studying it. Under a 1990 law, only an emergency financial manager appointed by the state can take a city into bankruptcy, he said. No Michigan municipality has declared bankruptcy before or since the law was passed, he said.
The city of Hamtramck has an annual budget of just under $18 million. A substantial portion of its revenues come from a tax-sharing agreement with Detroit that centers on General Motors' Poletown plant. Detroit has withheld payment for a number of months, arguing that it had overpaid previously. Hamtramck has sued its bigger neighbor, but a court resolution could take months or even longer — not soon enough, Cooper said.
Well, post its IPO, GM should at least make the IPO flippers a little richer. Too bad the city below is not one of them.
http://www.zerohedge.com/article/it-begins-detroit-neighboring-city-hamtramck-asks-permission-file-bankruptcy
October Retail Sales
---
Business as usual Karl nice of you to finally catch on...
Still faster than the MSM...
---
October Retail Sales
by: Karl Denninger November 15, 2010
"Better than expected" is, of course, the mantra.
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $373.1 billion, an increase of 1.2 percent (0.5%) from the previous month, and 7.3 percent (0.7%) above October 2009. Total sales for the August through October 2010 period were up 6.3 percent (0.5%) from the same period a year ago. The August to September 2010 percent change was revised from +0.6 percent (0.5%) to +0.7 percent (0.3%).
Pay attention to that bolded text - it'll be clear why in a minute.
Tout TV is, of course, on the case - despite the graph showing exactly what's actually going on.
Pay attention to that nice white box. Notice how the bar is getting lower? That's retail sales ex-autos, and we now have a three month trend downward.
Then there's the internals. Grocery stores up 1.4% (but there's no inflation in food prices, right? This is people eating more, not people eating the same but paying more?) That, despite food away from home being up materially too. Yes, I know, we're all getting fatter - not paying more for the same thing. Uh huh.
Furniture and electronics were both down pretty good (the latter down 4.6%, the former 3.7%) and equally-interesting was the unadjusted motor vehicle sales - they were actually down, not up.
You heard that right folks - the entire gain was seasonal adjustments - that is, fudges.
The actual sales numbers were down 1.5%.
Huh?
Your Goebbels Government Number Factory at work.
http://seekingalpha.com/article/236883-october-retail-sales?source=email_the_macro_view
Lack of regulation?
The banking industry is one of, if not the most, regulated part of the economy.
We have pretty clear evidence of fraud on the part of the banks but nothing is done.
Yea, sure more government involvement and regulation is sure to work...
Sterilizing Money at the QE Corral
By The Mogambo Guru
11/12/10 Tampa, Florida – There are a lot of intricacies in the Federal Reserve's evil ways, especially as concerns creating $900 billion in the next six months in another round of quantitative easing, and one of them is explained by Daniel R. Amerman of DanielAmerman.com. He says, "There is something else essential for investors and savers to understand about the process which the Federal Reserve has just outlined. The Federal Reserve is not directly purchasing treasury bonds from the US government. Instead, US banks are purchasing the bonds from the US Treasury to fund the deficit, and then selling an equal amount of other bonds (likely at a nice profit) to the Federal Reserve."
If you are a normal person, then you are positively terrified by the prospect of inflation, which means that you are terrified of the Federal Reserve creating so much, so incredibly much, so staggeringly much, so unbelievably much money – which is to be almost $900 billion in the first six months of 2011 – because a lot less monetary insanity than this gigantic clot of extra money caused ruinous inflations in stocks, inflations in bonds, inflation in consumer prices, inflation in housing, inflation in the sheer suffocating size of government and severe, bankrupting macroeconomic distortions and mal-investments.
Obviously, then, I am on to something when I say that "Inflation is the worst thing that can happen, other than the Earth being invaded by creatures from outer space to make us their slaves, forcing us to mine di-lithium crystals on some barren planet in the faint, farthest reaches of the Federation of Planets."
So, besides keeping an eye on the skies for alien invaders from outer space and watching the neighbors to see what nefarious schemes they are plotting against me, I keep tabs on the money supply.
Mr. Amerman, whom I now suspect of being in concert with my wife to cause me to have a heart attack and die on the spot from the sheer horror of it all, writes that "by the end of the Federal Reserve's mortgage security purchase program (the previous `quantitative easing'), about 10% of the approximately $12 trillion in US banking system assets consisted of sterilized money held at the Federal Reserve."
Sterilized money? What's that? It sounds a lot like the end-days of my relationship with Susan, when she suddenly announced that, from now on, if I wanted to kiss her, I had to first sterilize my lips with boiling water. As you can probably guess, things went downhill pretty fast after the first few times! Parenthetically, looking back on it, it was not worth it.
My amorous misadventures aside, the answer is that "while a (desperate) central bank wants to be able to spend money without limits, letting that new money escape into the general money supply can lead to major inflation in a hurry. So with the previous rounds, the Fed and ECB each used their `sterilization' powers to essentially put a corral up around the new money, and keep it from escaping out into the economy."
He goes on that "because the banks can't really spend their `sterilized' money, but must have an ever larger share of their balance sheet assets consist of those economically meaningless excess reserve balances."
He figures that by June of next year this would mean "about 16% of total US bank assets would consist of `sterilized money', i.e. balances at the Federal Reserve that can't be used anywhere else."
I immediately saw this as a chance to get my own economic house in order! At breakfast, I happily told the kids that I was going to quadruple their allowances! This wonderful news made them, as they said, "Happy for the first time in our miserable lives!"
I admit that I positively reveled in smug self-satisfaction as they fell all over themselves apologizing for hating my guts, and apologizing about how they regret calling me a horrible, stingy, miserly, gold-bug, silver-bug, worthless loser of a father who spends every dime on gold, silver and oil stocks so that I can make a lot of money when their prices shoot "to the moon" when the monetary insanity of the Federal Reserve creating so freaking much money, so that the insane Obama administration can deficit-spend almost $2 trillion a year, makes inflation in consumer prices start climbing to hyperinflationary levels.
After I was finished eating and having had enough basking in the fawning adulation, I broke it to them that while I was indeed quadrupling their allowances, being the generous, loving father that I am, I was "sterilizing" the money by making them keep it in my bank account.
Well, their reaction was immediate outrage, as compared to the lack of it demonstrated by the silly "journalists" (in every sneering, disrespectful, pejorative use of the word) of the mainstream media and neo-Keynesian econometric halfwits infesting the majority of the nation's universities at such a monetary monstrosity.
Their loud hostility was not quelled one iota by my gently reminding them that the Federal Reserve was doing this same thing right now, and the Fed's bank account has risen by more than a trillion dollars in one year, and which is apparently okay with the "silly `journalists' (in every sneering, disrespectful, pejorative use of the word) of the mainstream media and neo-Keynesian econometric halfwits infesting the majority of the nation's universities" as mentioned so prominently in the previous paragraph.
Well, what started out as a delightful breakfast with the family soon devolved into a distressing shouting match of sorts, with the kids telling me, "We hate you more now than we ever hated you before!" me yelling at them, "Morons! If you knew the kind of inflationary horror that is going to happen to us because of the Federal Reserve creating so much money, then you would happily give up one of your three generous portions of cold gruel per day to let me buy MORE gold, silver and oil!" and my wife pleading, "Everybody please shut up and calm down!" to no avail.
It was scene of insane pandemonium for awhile, which we can all agree shows the degree of insanity rampant in the world today, as is this sterilized quantitative easing, which Mr. Amerman says is "an insane strategy for a government that is desperately trying to revive the private sector economy, which is one of the reasons I find further sterilization to be unlikely."
With all due respect to Mr. Amerman, I figure that the money was not actually sterilized at all, and although it did not enter the economy as a result of business and consumer loans, it entered into the economy via government deficit-spending.
Which, if either, is worse than the other from an economic standpoint is, of course, a matter for rigorous theoretical analysis, which means that it won't come from me because it sounds like work, and I hate even the word "work,", even if I could do the analysis, which I can't because I haven't a clue how to even start.
But I like making money without working, and I know (thanks to the Austrian Business Cycle Theory and 4,500 years of history) that buying gold, silver and oil will make me a lot of money because of all of this monetary and fiscal insanity.
And all without lifting a finger, which is so deliciously brainless that I say, "Whee! This investing stuff is easy!"
The Mogambo Guru
for The Daily Reckoning
Read more: Sterilizing Money at the QE Corral http://dailyreckoning.com/sterilizing-money-at-the-qe-corral/#ixzz15PGD1RcK
Oil: The Clock Is Ticking
by: Dian L. Chu November 14, 2010
It seems the panic time for both green enthusiasts and peak oil pundits.
According to a new paper by two researchers at the University of California – Davis, it would take 131 years for replacement of gasoline and diesel, given the current pace of research and development; however, world's oil could run dry almost a century before that.
The research was published on Nov. 8 at Environmental Science & Technology, which is based on the theory that market expectations are good predictors reflected in prices of publicly traded securities.
By incorporating market expectations into the model, the authors, Nataliya Malyshkina and Deb Niemeier, indicated that based on their calculation, the peak of oil production could occur between 2010 and 2030, before renewable replacement technologies become viable at around 2140.
The estimates not only delayed the alternative energy timeline, but also pushed up the peak oil deadline. The researchers suggest some previous estimates that pegged year 2040 as the time frame when alternatives would start to replace oil, could be "overly optimistic".
As I pointed out before, despite the excitement and hype surrounding a future of clean energy, a majority of the current technology simply does not make economic sense for regular consumers and lacks the infrastructure for a mass deployment….even with government subsidies, tax breaks, and outright mandates.
In addition, the supply chain of renewable technologies is not as green as people might think. Most alternative technologies rely on rare earths for efficiency. However, the radioactive waste produced by rare earths mining process makes oil sands look like a green energy. This overlooked (or ignored) fact just now received some attention due to the sudden shortage caused by China's embargo and export quotas on rare earths.
Another case in point – In China, the city of Jiuquan in Gansu province needs to build 9.2 gigawatts of new coal-fired generating capacity as backup power of the 12.7 gigawatts wind turbines due to be installed by 2015. More wind farms would need more coal-fired power plants, with little or possibly no carbon reduction.
Capitalism means investment naturally flows to the more profitable proposition....and vice versa. With more data and information becoming available, not much could go unnoticed by the markets, particularly in a relatively new sector such as renewable energy. And this harsh reality is clearly reflected in this new study.
Now, in its latest long term outlook, the International Energy Agency (IEA) predicts that oil demand, prices and dependence on OPEC are all set to continue rising through 2035, and that global oil supplies would be near their peak in 2035 as China, India and other emerging economies keep on trucking.
So the world needs to come to a common understanding that:
1.Alternative energy is not mature enough to completely replace fossil sources any time soon.
2.Energy security means a diversified and balanced portfolio inclusive of every bit of resource, fossil, as well as renewables, just to meet the projected demand.
3.Real "green" energy is easier said than done.
Furthermore, the increased rare earths dependency, and the latest food vs. fuel debate when the food industry slapped a law suit against the EPA over E15 ethanol, underline some of the unintended (we hope), yet nasty consequences that often come with ill-informed and poorly-planned policies. (In the case of E15, the EPA is an easy mark considering one in eight Americans is on food stamps.)
All this requires a balanced and unbiased government policy to guide exploration and development of technologies to unlock the new fossil fuel reserves, expanding the R&Ds of emerging technologies, while effectively practicing and promoting energy efficiency and conservation.
Otherwise, we may literally witness $300 a barrel oil before the electric vehicle could even make one percent market penetration. Unfortunately, there's no easy fix, and the clock is seriously ticking.
Disclosure: No positions
http://seekingalpha.com/article/236635-oil-the-clock-is-ticking?source=email_the_macro_view
Junk Science
By Bill Bonner
11/12/10 London, England – "The most ignorant remarks ever made by a central banker."
"When I started my economics studies at 16," wrote Paul A. Samuelson not long before he died last year at aged 93, "Carlyle was right to call economics a `dismal science.' Thanks to modern science and better economic knowledge, this Malthusian curse has been vanquished. Good modern economics make economics the Hopeful Science. At last!"
Lucky professor Samuelson! Like an aparatchik who joined the shades before 1989, he went to his reward with his delusions intact.
This week, the scientists began to have doubts. Like the pope wondering about the resurrection, or the Mormons questioning the veracity of the angel Moroni, the head of the World Bank, Robert Zoellick, shocked the learned world. It's time to start discussing a gold-backed currency, he said. Maybe the crown of creation of modern economics – its centrally managed money – was not such a good idea after all.
Like Christianity, the dollar only has value as long as people have faith in it. But that is true of almost every trick up the modern economist's sleeve. If people stop believing, the spell is broken and they're worthless.
Two years ago, when the financial world was melting down, we were told that the volcano needed to be appeased. Without immediate injection of funds, the whole system would blow up, they said. Where was the science behind that? The financial system melted down countless times in the past. No central bank came to its aid before the 1930s.
Or how about the corollary article of faith: that the public had to rescue the big banks, a tout prix? It was practically a universal constant – like the Golden mean or Brownian motion. When bankers make profits, it is theirs to keep. When they lose money, the losses are moved onto the public. The US bailed out its banks. Britain, Ireland, and Iceland did the same. But where was the evidence that bank failures were so horrible? During America's Great Depression 9,000 banks failed. And history is full of the wrecks of banks that were "too big to fail."
A hick Congressman from one of the corn states once proposed to round off pi to 3 to make it easier for schoolchildren to remember. He must have been joking. In the world of science, water boils at 212 degrees Fahrenheit, at sea level, whether you believe or not. Pi is always a long string of digits. The mathematicians can sweat and shake all they want; it doesn't change. But modern economists take the joke seriously. They think they can command water to run uphill and reset the Periodic Table with fancier china. That's why they hate gold: they can't control it. And it reminds them that they imposters, no more effective than witchdoctors or marriage counselors.
As of this writing, it takes more than $1,400 to buy a single ounce of gold – a new record. Why? Isn't it obvious? People are losing faith. Last week, the US Federal Reserve said it was creating another $600 billion to buy US Treasury debt. That will mean a total of $2.3 trillion added to America's monetary footings since the Fed began its QE program almost two years ago. This will also mean that Ben Bernanke has added three times as many dollars to America's core money supply as ALL THE TREASURY SECRETARIES AND FED CHAIRMEN WHO CAME BEFORE HIM PUT TOGETHER.
"Easier financial conditions will promote economic growth," wrote Mr. Bernanke, in The Washington Post, "…higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
Where is the proof? Where is the controlled test? Where is the peer review? Such an extravagant assertion ought to be accompanied by extravagant evidence. But there is none at all. Throwing virgins into a volcano would be no less scientific. The virgins appeased the gods; that was the theory. Mr. Bernanke has a voodoo theory too. He says all that new money will make people feel richer…and then they will act richer…and then they will be richer!
John Hussman, also an economist with a loyal following of his own, read Mr. Bernanke's explanation and pronounced judgment: "the most ignorant remarks ever made by a central banker." The latest $600 billion gamble may or may not increase stock market prices, he says. Even if it does, it is unlikely to produce the "wealth effect" that Ben Bernanke is counting on. People spend and borrow when they think they have permanent wealth. World stock markets have suffered two major shocks in the last ten years…with no net gains for investors. An increase in stock prices now – driven by the Fed's printing press – is unlikely to create the kind of expectations that lead people to spend money. Especially when they don't have any.
Which makes us wonder too. If modern economists are scientists, it makes us suspicious of the rest of them. What about the physicists? The molecular biologists? The archeologists? Are they all quacks too?
Bill Bonner
for The Daily Reckoning
Read more: Junk Science http://dailyreckoning.com/junk-science/#ixzz15PGkB8Hl
bbotcs,
I am no fan of big government either but there has to be some solution besides throwing endless money at them.
fuge
Bank of America Is in Deep Trouble, and There May Be Financial Disaster on the Horizon
By Joshua Holland, AlterNet
Posted on November 11, 2010, Printed on November 14, 2010
http://www.alternet.org/story/148817/
Will Bank of America be the first Wall Street giant to once again point a gun to its own head, telling us it'll crash and burn and take down the financial system if we don’t pony up for another massive bailout?
When former Treasury Secretary Hank Paulson was handing out trillions to Wall Street, BofA collected $45 billion from the Troubled Asset Relief Program (TARP) to stabilize its balance sheet. It was spun as a success story -- a rebuke of those who urged the banks be put into receivership -- when the behemoth “paid back” the cash last December. But the bank’s stock price has fallen by more than 40 percent since mid-April, and the value of its outstanding stock is currently at around half of what it should be based on its “book value” -- what the company says its holdings are worth.
“The problem for anyone trying to analyze Bank of America’s $2.3 trillion balance sheet,” wrote Bloomberg columnist Jonathan Weil, “is that it’s largely impenetrable.” Nobody really knows the true values of the assets these companies are holding, which has been the case ever since the collapse. But according to Weil, some of BofA’s financial statements “are so delusional that they invite laughter.”
Weil points to the firm’s accounting of its purchase of Countrywide Financial -- the criminal enterprise at the center of the sub-prime securitization market. Bank of America, Weil notes, hasn’t written off Countrywide’s entire value. “In its latest quarterly report with the SEC,” he wrote, “Bank of America said it had determined the asset wasn’t impaired. It might as well be telling the public not to believe any of the numbers on its financial statements.”
With investors valuing BofA at half the worth that the bank claims, it’s one titan of Wall Street that may be on the brink of collapse. But it’s not alone. “Everybody was doing this, this is not just something that Countrywide and Bank of America were doing," legendary investor Jim Rogers told CNBC. As a result, the banks’ balance sheets are "full of rotten stuff" that “is going to be a huge mess for a long time to come.”
And that “rotten stuff” will continue to be a drag on the brick-and-mortar economy until the mess gets cleaned up. Which, in turn, is a powerful argument for a second dip into the public trough.
When the financial crisis hit, those of us who view the free market as more than a hollow slogan urged the government to take over the ailing giants of Wall Street, wipe out their investors, send their parasitic management teams to the unemployment line and gradually unwind the huge pile of “toxic” assets that they’d amassed before selling them back, leaner and meaner, to the private sector.
It worked in the past -- it was Ronald Reagan’s response to the Savings and Loan crisis of the 1980s. But that was then, and today Reaganite policies are deemed to be “creeping socialism” -- thoroughly unacceptable. We were told the banks were too big to fail, and Bush saw eye-to-eye with Republicans and Blue Dogs in Congress and bailed the banks out without exacting a penalty in exchange for the taxpayers' largesse. They socialized the risk, but the financial industry went right back to its old tricks, paying its execs fat bonuses and playing fast and loose with its accounting.
Much of that toxic paper remains on their books -- somewhere. The assets are still impossible to price and now several Wall Street titans appear to be approaching a tipping point, poised to once again to extort a mountain of cash from our Treasury by claiming to be too big -- and interconnected -- to crash and burn as the principles of the free market would otherwise dictate.
But there’s a difference between then and now. At the time, most of us saw the crash as a result of hubris and greed run amok in an under-regulated financial sector. Now, we know the financial crisis was the result of unchecked criminality -- that fraud was perpetrated, in the words of University of Missouri scholar (and veteran regulator) William Black, “at every step in the home finance food chain.” As Black and economist L. Randall Wray wrote recently:
The appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers' incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false [representations] and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.
That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry -- indeed, it was the desired outcome. This was something the lending side knew, but which few on the borrowing side could have realized.
And since the crash, they’ve committed widespread foreclosure fraud, dutifully whitewashed by the corporate media as nothing more than some “paperwork” problems resulting from a handful of “errors.”
It is anything but. As Yves Smith, author of Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism, wrote in the New York Times, “The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits.”
Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.
Judges are beginning to demand that the banks show their work -- prove they have the right to foreclose -- and in many instances they can’t, having sliced and diced those mortgages up into a thousand securities without bothering to verify the paperwork as most states require by law. This leaves what Smith calls a “cloud of uncertainty” hanging over trillions in mortgage-backed securities -- the largest class of assets in the world -- and preventing a real recovery of the housing market. In turn, that is holding back the economy at large; according to the International Monetary Fund, it’s the drag of the housing mess that’s causing the high and sustained levels of unemployment we see today.
Big financial firms have also been cooking their books in order to obscure how shaky their balance sheets really are because honest accounting would likely bring an end to those big bonuses that drive “the Street.” Yet a day of reckoning may be fast approaching.
If the worst-case scenario should come to pass, with the banks hit by thousands of lawsuits, unable to foreclose on properties in default and with investors running for the hills, expect to hear calls for TARP II. It’d be a very heavy political lift, but given Congress’s fealty to Wall Street it could plausibly be passed.
There are alternatives. As in 2008, the federal government could put failing financial institutions into receivership. But some experts are saying that if we want to get off the roller coaster of an economy moving from one financial bubble to the next, a bolder approach is necessary: permanent nationalization of banks that can’t survive without public dollars.
“Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures,” wrote Nobel prize-winning economist Joseph Stiglitz last year. “The question facing us is, to what extent do we participate in the upside return?” Stiglitz argued that the government should take “over those banks that cannot assemble enough capital through private sources to survive without government assistance.”
To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk-taking. Ownership cannot be a one-sided bet.
Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.
Leo Panitch, a professor of comparative political economy at Canada’s York University, wrote that "the prospect of turning banking into a public utility might be seen as laying the groundwork for the democratization of the economy.”
Ellen Brown, author of Web of Debt, points to the success of the nation’s only government-owned bank, the Bank of North Dakota. “Last year,” she wrote, “North Dakota had the largest budget surplus it had ever had…and it was the only state that was actually adding jobs when others were losing them.”
North Dakota has an abundance of natural resources, including oil, but as Brown notes, other states that enjoy similar riches were deep in the red. “The sole truly distinguishing feature of North Dakota seems to be that it has managed to avoid the Wall Street credit freeze by owning and operating its own bank.” She adds that the bank serves the community, making “low-interest loans to students, farmers and businesses; underwrit[ing] municipal bonds; and serv[ing] as the state’s 'Mini Fed,' providing liquidity and clearing checks for more than 100 banks around the state.”
Several states have considered proposals to emulate North Dakota, but such a bold move would obviously be all but impossible in Washington. But it shouldn’t be off the table. Banks provide an “intermediary good” to the economy, creating no real value. But Big Finance’s speculation economy has caused great and real pain for the rest of us. As Joe Stiglitz put it, there’s no reason in the world the incentives of the banks shouldn’t be better aligned with the interests of the country and its citizens.
Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy (and Everything else the Right Doesn't Want You to Know About Taxes, Jobs and Corporate America). Drop him an email or follow him on Twitter.
© 2010 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/148817/
Must be time for a correction.
Of course, long term it's still a good bet as bailing wire, duct tape and super glue can only hold up the dollar so long.
Albert Pike and Three World Wars
Albert Pike received a vision, which he described in a letter that he wrote to Mazzini, dated August 15, 1871. This letter graphically outlined plans for three world wars that were seen as necessary to bring about the One World Order, and we can marvel at how accurately it has predicted events that have already taken place.
Pike's Letter to Mazzini
It is a commonly believed fallacy that for a short time, the Pike letter to Mazzini was on display in the British Museum Library in London, and it was copied by William Guy Carr, former Intelligence Officer in the Royal Canadian Navy. The British Library has confirmed in writing to me that such a document has never been in their possession. Furthermore, in Carr's book, Satan, Prince of this World, Carr includes the following footnote:
"The Keeper of Manuscripts recently informed the author that this letter is NOT catalogued in the British Museum Library. It seems strange that a man of Cardinal Rodriguez's knowledge should have said that it WAS in 1925".
It appears that Carr learned about this letter from Cardinal Caro y Rodriguez of Santiago, Chile, who wrote The Mystery of Freemasonry Unveiled.
To date, no conclusive proof exists to show that this letter was ever written. Nevertheless, the letter is widely quoted and the topic of much discussion.
Following are apparently extracts of the letter, showing how Three World Wars have been planned for many generations.
"The First World War must be brought about in order to permit the Illuminati to overthrow the power of the Czars in Russia and of making that country a fortress of atheistic Communism. The divergences caused by the "agentur" (agents) of the Illuminati between the British and Germanic Empires will be used to foment this war. At the end of the war, Communism will be built and used in order to destroy the other governments and in order to weaken the religions." 2
Students of history will recognize that the political alliances of England on one side and Germany on the other, forged between 1871 and 1898 by Otto von Bismarck, co-conspirator of Albert Pike, were instrumental in bringing about the First World War.
"The Second World War must be fomented by taking advantage of the differences between the Fascists and the political Zionists. This war must be brought about so that Nazism is destroyed and that the political Zionism be strong enough to institute a sovereign state of Israel in Palestine. During the Second World War, International Communism must become strong enough in order to balance Christendom, which would be then restrained and held in check until the time when we would need it for the final social cataclysm." 3
After this Second World War, Communism was made strong enough to begin taking over weaker governments. In 1945, at the Potsdam Conference between Truman, Churchill, and Stalin, a large portion of Europe was simply handed over to Russia, and on the other side of the world, the aftermath of the war with Japan helped to sweep the tide of Communism into China.
(Readers who argue that the terms Nazism and Zionism were not known in 1871 should remember that the Illuminati invented both these movements. In addition, Communism as an ideology, and as a coined phrase, originates in France during the Revolution. In 1785, Restif coined the phrase four years before revolution broke out. Restif and Babeuf, in turn, were influenced by Rousseau - as was the most famous conspirator of them all, Adam Weishaupt.)
"The Third World War must be fomented by taking advantage of the differences caused by the "agentur" of the "Illuminati" between the political Zionists and the leaders of Islamic World. The war must be conducted in such a way that Islam (the Moslem Arabic World) and political Zionism (the State of Israel) mutually destroy each other. Meanwhile the other nations, once more divided on this issue will be constrained to fight to the point of complete physical, moral, spiritual and economical exhaustion…We shall unleash the Nihilists and the atheists, and we shall provoke a formidable social cataclysm which in all its horror will show clearly to the nations the effect of absolute atheism, origin of savagery and of the most bloody turmoil. Then everywhere, the citizens, obliged to defend themselves against the world minority of revolutionaries, will exterminate those destroyers of civilization, and the multitude, disillusioned with Christianity, whose deistic spirits will from that moment be without compass or direction, anxious for an ideal, but without knowing where to render its adoration, will receive the true light through the universal manifestation of the pure doctrine of Lucifer, brought finally out in the public view. This manifestation will result from the general reactionary movement which will follow the destruction of Christianity and atheism, both conquered and exterminated at the same time." 4
Since the terrorist attacks of Sept 11, 2001, world events, and in particular in the Middle East, show a growing unrest and instability between Modern Zionism and the Arabic World. This is completely in line with the call for a Third World War to be fought between the two, and their allies on both sides. This Third World War is still to come, and recent events show us that it is not far off.
http://www.threeworldwars.com/albert-pike2.htm
---
All BS to me since I do not think our future is set...
However, it might not be BS to everyone.
---
kool aide for all...