Washday in South Side Chicago
Ilargi: For those who still have a hard time understanding why stimulus and rescue plans can by definition never salvage what they are allegedly written up for, Dan W.'s take on Vermont should switch on a few bulbs and ring a small orchestra of bells. Obama may have come out of a meeting with a group of CEO's this morning declaring that he is "confident of an economic turnaround", but that only means that he either doesn't understand the situation or he lies. Belying the ancient notion that time is money, he tells his voters that there is not a moment to spare, but he still can spare them $1 trillion, give or take a few dimes, of their own money. There is a lot of attention for the potential danger of not spending that trillion, while not a word is uttered with regards to the danger of spending it on programs that all involved agree are nothing but expensive experiments.
Dan tells us he thinks the age of growth is over, and the age of sustainability has begun. That too, like all the grandiose spending sprees, is but wishful thinking. Apart from the question whether people are capable of leading sustainable lives, and even without trying to define what that really means, we can confidently state that if there will ever be an age of sustainability, it's a long way away. To me it looks like just another belief system, worshipped by people who prefer to ignore the complete set of skills that evolution has equipped them with, and instead focus on only those that suit their ideas and ideals. If people are capable of living sustainably, what ever it may mean, why have they failed to do so in the past million years? Isn't it so that believing in a notion as evasive as this is no different from believing that debt can be wiped out by spending? Just asking.
Dan W.:
Today in The Valley News, Vermont Senator Bernie Sanders is reported to have stated that Vermont stands to get one billion dollars over two years from the 1.2 Trillion Dollar Obama stimulus package (Stim + TARP 2). For the sake of argument let's say this is true. Then what?
Vermont is comprised of about 250 towns and cities. As some of these towns are teeny weeny, for the sake of this discussion we will round the number of towns down to 200. In these 200 communities there exist about 300 elementary, middle and high schools, give or take. Generally speaking, most of Vermont's towns and cities derive roughly 70% of their budgeted funds from property taxes. And generally speaking, these monies go directly toward supporting schools, public safety, public works departments, etc. According to The Vermont League of Cities and Towns, a list of some 650 million dollars in public work's projects for fiscal year 2009 had just last week been submitted to the Vermont Congressional delegation in Washington D.C. None of this proposed spending would go to public schools. Finally, The State of Vermont is projecting an increase in the state's fiscal deficit of some 23%, from $49 Million in 2008 to a projected $64 million in 2009.
This is obviously a most cursory overview. However, looking at the basic math should be instructive. Remember, property values are falling and will continue to fall as the subprime (and Alt-A, and Prime!) mortgage debacle continues to unfold, unemployment in both the public and private sector is rising and should continue for some time as the tourism sector collapses and as deflationary forces pick up steam, most cities and towns are already in the red and as such use a portion of their annual budget to service that debt, and public schools are not targeted to receive federal stimulus funds.
OK, so let's say that Vermont receives $500 million in stimulus monies from the Federal Government on March 1st, just a few days before Town Meeting Day. And let's say that the state is able to immediately make those funds available to Vermont's cities and towns. What happens: 200 towns and cities request on average $500,000 for fiscal year 2009. Vermont, as you may not know, is the most rural state in the nation. It's biggest city, Burlington, only has a population of about 40,000. So $500,000/community on average, while conservative, is fair. Total = $100 Million. The state holds the balance. The state uses $100 million to capitalize local and regional banks that apply for assistance (Don't forget: The toxic assets are everywhere, not simply in the vaults of the biggest institutions. Securitized instruments were, for years, the bread and butter for banks looking to invest in supposedly AAA rated securities. Easy money, substantial profits. Now that these MBS and CDO's have lost virtually ALL value, every bank is on the hook to one extent or another.) $50 million is immediately used to service soon-to-be delinquent state debt and to provide additional liquidity to the state's unemployment and health care funds. So that covers $250 million so far. What happens to the balance of $250 million?
Initially cities and towns receiving funds will "sock away" anywhere from 20-50% of these monies to offset possible net decreases in tax revenues for FY 2009 (Two reasons here: (a) As property values plummet, taxes on such property will have to be brought in line, and (b) General tax revenues will decrease because unemployed people do not pay.) And of course when I say "sock away", I do not mean invest, because there is nowhere to put the money where it can accrue any interest. As such, these monies do not, in fact, increase monetary velocity. Towns and cities will also use anywhere from 0-20% of these funds to service soon-to-be delinquent debt on already started or completed construction and infrastructural projects. Many cities and towns will quickly apply for further disbursement to help subsidize bond issues from previous projects, to pay for emergency funds for weather-related emergencies, to clean up ground-level, "Superfund" projects that the federal government has abandoned, to further subsidize local health care, to provide assistance for heating oil and other utilities, and to fund foreclosure prevention initiatives. And lest I seem naive, of course I am being absurdly optimistic as I discuss fund disbursement. I have read the bill that proposes the $850 billion spending package, and while the federal government tries to spell out conditions and rules for how the monies are to be used, redtape at the state and local level will make fund disbursement a logistical nightmare. Expect many-a-day in court as towns seek to sue the state for favoritism and mismanagement of the funds.
This economic crisis did not begin yesterday. It of course began years ago. The damage, to a great extent, has been done. But we're just beginning to feel the fallout. (Again, simple math: If an individual obtains 20 credit cards and maxes them out on extravagant trips and purchases he doesn't begin to experience the pain from the fallout from his debt-spree for a few months.) As such, few if any of the federal stimulus monies will go toward delaying current layoffs because any funds that a town or city of the state receives will be needed to mitigate long-standing financial woes: to stave off the creditors or to catch up on old bills or to save for the next really rainy day. Unemployment will still increase. As property values continue to tank, increases in property taxation will become impossible to justify. Many communities throughout Vermont will reject any budget at town meeting that does not account for rising unemployment, falling property values, and depleted retirement investments. And those towns that do pass what now appear to be reasonable budgets will quickly find that these extra funds are necessary just to fulfill promises that they could not honor otherwise.
And we wake up next December and a few jobs have been saved, and few if any NEW jobs have been created. Towns and cities have used the funds (a) to pay for projects that they have already started and for which they already owe substantial sums, (b) to decrease the amount of ever-expanding debt that they have to service, (c) to plan for the inevitable rise in unexpected costs such as Special Education in schools, extra snow-removal, lawyers fees for negotiations with school unions, etc., (d) to capitalize ongoing projects that do not increase existing employment levels, and (e) to offset losses from years of speculative investing. And remember, in this conversation I didn't even comment upon the problems facing communities as they try to fund public education in a regime of falling tax revenues and growing public need for special assistance.
We have lost our way. We have lost sight of a most fundamental truth: "...Give a man an apple, he eats for a day. Teach a man to cultivate, he eats for a lifetime..." The Obama stimulus plan is a bad idea for all kinds of reasons. And assuming it goes forward and Vermont does get its 1$ billion, the only change that people will experience is the false sense of security created by Senator's Leahy and Sanders as they tout the significance of this plan and of these monies, and portend the beginning of recovery for their great state. The truth for Vermonters will be a bigger federal deficit that has to be paid down through an expanding tax-burden, the virtual disappearance of individual retirement resources, double-digit unemployment, and an ever-increasing sense of disillusionment from the citizens of The Green Mountain State. And let's be clear! I'm a Lefty!! I love Bernie! And I know that he thinks that spending these monies will help get our economy back on track. And I'm sure he and others like him don't like the idea of deficit spending, but they see no other alternative.
And that's where I disagree. We are not spending $850 billion to save people, we are spending $850 billion to save a system. But that system is fraudulent, and saving that system is wrong. We need to help people struggle through difficult times, and then we need to reinvent ourselves. Spending to save the system does nothing to create a new, sustainable, viable system.
So then, what's the alternative? I believe that the federal government and the states should stop trying to save the banks and other financial institutions, should stop providing trillions in taxpayer dollars to institutions that are already bankrupt and who do not in any way serve the public interest, and should instead use any federal monies to subsidize social support programs during this economic depression. I think that the federal government should admit that the perpetuation of a system of globalization based upon usury is neither moral nor in the public's best interest. In its place the federal government should provide support and training and funding for projects that recognize the following realities: (1) That the age of growth is over. We have entered the age of sustainability. (2) That saving the system of 'money-as-debt' only serves to further incarcerate the people, not liberate them. (3) That the banks and other institutions who have used deception and duplicity and Ponzi schemes to make billions in profits should be held to account.
The bottom line is this: spending money to save a system that has crashed because it is in debt is false. Like with a flooded lawnmower engine, throwing more gas into the tank isn't going to help the cause. Vermont's $1 Billion will not fundamentally change the lives and futures of the citizens of the state for the better. It will only, at best, temporize the pain for a brief time. But the system that keeps us in debt-servitude, and that compels us to "consume" when in fact the survival of our planet demands that we learn how to "sustain", persists.
Government 'hyper-activism' risks making crisis worse
The world may now face an even more severe crisis than the decade-long slump suffered by Japan, according to a top panel of experts in Davos. Gathering in a mood of black pessimism at the World Economic Forum, the annointed seers gave warning that good money was being thrown after bad across the globe in a misguided reflex of hyper-activism by governments that do not understand what they are doing. "My fear is that hurried monetary and fiscal stimulus will come to naught," said Trevor Manuel, South Africa's finance minister. "There is a lemming-like approach. Everybody wants to get to the precipice first without any idea what the money is going to buy. Fiscal stimulus is very fashionable but I can't for the life of me understand what $10bn poured into `Detroit-3" is going to do for the real economy," he said.
Stephen Roach, head of Morgan Stanley Asia, said the blitz of stimulus in the US will not stop the powerful process of "deleveraging" as frightened consumers scramble to pay off their debts. "We can't delude ourselves that this is going to jump start the US economy," he said. Mr Roach said the world faces acute dangers in 2009 as every part of the international system goes into a synchronized recession for the first time since World War Two. "The decoupling dream has been shattered. The Chinese economy most likely contracted in final quarter of 2008 and most likely in this quarter too. China has hit a wall," he said. China's sudden downturn is cascading through the whole of the Pacific region where economies are heavily geared to exports to China's manufacturing workshops. Taiwan's exports to China fell 55pc last month; Korea's fell 35pc.
Mr Roach said there is a mounting risk of a protectionist backlash as political leaders turn their backs on the free trade and global capital flows. The US Congress has already debated – though not yet passed – 45 pieces of "China bashing" legislation. The incoming Treasury Secretary Tim Geithner accused Beijing of manipulating the yuan to gain export share before he was even sworn into office. "This is the wrong time for the US Treasury Secretary to turn belligerent on the Chinese currency," he said. "A country that is contracting doesn't take kindly to its major trading partners saying you have to increase the value of its currency. What they are being told to do is tantamount to economic suicide," Mr Roach said. Heizo Takenaka, director of global security at Keio university, said the global crisis is some respects worse than anything faced by Japan during its lost `Lost Decade'. "We faced a banking crisis but this is a money market crisis as well."
He said that the bank recapitalisations in the US and Europe are just a "symbol" that will disappoint those who imagine that it will prove to be a panacea. "It is not enough. In 1999 we injected a huge amount into the commercial banks and the crisis went on for another four years," he said. "In the first stage, politicians are very reactive but later there is a risk that they become over-active. That was our experience. This fiscal stimulus can't continue for two or three years," he said. Japan ultimately overcame its crisis by finding a way to dispose of non-performing loans in the banking system. The West may have to do the same.
"The key is a pricing mechanism for toxic assets: only then can counter-parties asses their risk," said Mr Roach. He blamed the Bush administration and Congress for wasting time by diverting the original $700bn rescue plan (TARP), using it in a scattershot fashion for a plethora of other purposes. 'We have to face up to the fact that the recovery, when it comes, later this year or early next year, is going to be anaemic,' he told Reuters. 'The concept of a vigorous 'V'-shaped recovery is for business cycles of the past but not for this post-bubble, post-crisis business cycle. It is going to be a long slog in 2010, and 2011,' he said
Global crisis ‘could cost 50 million jobs’
Global unemployment and poverty are set for a "dramatic increase" in the coming year as the world economic crisis deepens, according to a new report. Projections by the International Labour Organization, a UN agency, on global employment trends predict that on a worst-case scenario, recorded unemployment could rise by more than 50m from baseline 2007 levels to 230m or 7.1 per cent of the world’s labour force by the end of 2009. In the same scenario the number of people in "working poverty", earning less than $2 a day, could rise to 1.4bn or 45 per cent of all workers, from 1.2bn in 2007.
This would leave as many people below the poverty line as there were in 1997, wiping out all the gains over the past decade and marking "a return to a situation in which more than half of the global labour force would be unemployed or counted as working poor." Juan Somavia, ILO director-general, said its message was "realistic, not alarmist". "We are now facing a global jobs crisis…Progress in poverty reduction is unravelling and middle classes worldwide are weakening. The political and security implications are daunting." The ILO projections are based on an estimate of 2.2 per cent global economic growth for 2009 issued by the International Monetary Fund in November. The IMF is due to release revised more pessimistic forecasts later on Wednesday but ILO economists said this would not alter their middling to worst-case scenarios for a rise in unemployment of 30m to 50m.
Published in a week that saw job-loss announcements totalling more than 80,000, the ILO report says the crisis has affected most sectors of the economy and resulted in an unusually sharp increase in layoffs. ILO economists attribute this partly to the depth and scope of the global economic downturn. However, another reason is the much higher proportion of people in temporary and other "non-standard" jobs, who have little or no protection against redundancy, than was the case in previous recessions in industrialised countries. Mr Somavia called on the Group of 20 leaders meeting in London at the beginning of April to agree priority measures to promote investment, jobs and improved social protection. He said governments should be putting in place a "basic socio-economic floor" of income support, access to health services and so on that would cushion the impact of the crisis for ordinary workers and their families.
U.S., European Bank Stocks Surge on Obama’s Plan for 'Bad Bank'
U.S. and European bank stocks surged on speculation the Obama administration may set up a so-called bad bank to absorb toxic assets, and Wells Fargo & Co. said it won’t need additional government aid. Wells Fargo rose 12 percent, Citigroup Inc. jumped 21 percent, Deutsche Bank AG climbed 22 percent and Lloyds Banking Group gained 46 percent. The Federal Deposit Insurance Corp. may manage the bad bank, buying distressed assets that are clogging balance sheets, two people familiar with the situation said. "A catalyst for banks everywhere is the expected announcement out of the U.S.," said Simon Willis of NCB Stockbrokers Ltd in London. "We are seeing a rebound after a sharp selloff in banks last week."
Banks in Europe and the U.S. have slumped this month on speculation that they will write down more assets and need new injections of capital. San Francisco-based Wells Fargo said it will maintain its dividend and won’t need more aid even after posting its first quarterly loss since 2001. Congress is expected today to approve Obama’s proposed economic stimulus package, aimed at kickstarting lending. European stocks were helped by a newsletter that said Deutsche Bank had a "sensational" start to 2009. Germany’s biggest lender may earn almost 1 billion euros ($1.3 billion) in pretax profit in January, Der Platow Brief reported today. The shares rose to 22.41 euros at 3:20 p.m. in Frankfurt. Wells Fargo jumped $2.42 to $18.61 at 8:40 a.m., and Citigroup climbed to $4.14 in New York. London-based Lloyds rose the most in at least two decades to 94.4 pence after Citigroup Inc. analysts led by Tom Rayner in London raised it to "buy" from "hold." The possibility of nationalization "is more than adequately discounted in the current valuation," he said in a note today.
Lloyds Banking, formed by Lloyds TSB Group Plc’s takeover of HBOS Plc this month, is seeking to avoid an increase in the government’s 43 percent stake. Lloyds’ shares have declined 24 percent this year. "The immediate worry of nationalization and recapitalization are slowing is beginning to ebb away," said Michael Trippitt, a London-based analyst at Oriel Securities Ltd. who has a "buy," rating on Lloyds. "Lloyds has been dramatically undervalued for some time," and the revenue benefits and cost savings "from the HBOS deal are still understated," he said. Barclays climbed to 108.5 pence at 2:30 p.m. in London, bringing this week’s gain’s to 76 percent. The company lost almost half its value last week as investors speculated that the London- based company would need to raise money from the U.K. government or be nationalized. Barclays said Jan. 26 that it has 17 billion pounds of surplus capital and can use profit to offset about 8 billion of writedowns in 2008. BNP Paribas climbed 16 percent to 28.99 in Paris after Fortis said they were renegotiating the bailout of what was Belgium’s biggest financial-services company. Fortis was up 13 percent to 1.60 euros at 2:21 p.m. on Euronext Brussels. The 56-company Dow Jones Europe Stoxx Banks Index advanced 9.8 percent.
FDIC May Run 'Bad Bank' in Plan to Purge Toxic Assets
The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said. U.S. stocks gained, extending a global rally, on optimism the bad-bank plan will help shore up the economy. The Standard & Poor’s 500 Stock Index rose 1.9 percent to 861.63 as of 9:54 a.m. in New York. Bank of America Corp., down 54 percent this year before today, rose 87 cents, or 13 percent, to $7.37. Citigroup Inc., which had fallen 47 percent this year, climbed 18 percent. FDIC Chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks’ balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama’s team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.
"It doesn’t make sense to give the authority to anybody else but the FDIC," said John Douglas, a former general counsel at the agency who now is a partner in Atlanta at the law firm Paul, Hastings, Janofsky & Walker. "That’s what the FDIC does, it takes bad assets out of banks and manages and sells them." The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators and some management teams could be ousted as the government seeks to provide a shield to taxpayers. Bank seizures are "going to happen," Senator Bob Corker, a Tennessee Republican, said in an interview after a meeting between Obama and Republican lawmakers in Washington yesterday. "I know it. They know it. The banks know it."
Laura Tyson, an adviser to Obama during his campaign, said banks need to be recapitalized "with different management" so they start lending again. "You find some new sophisticated management unlike the failed management of the past," Tyson, a University of California, Berkeley, professor, said at the World Economic Forum conference in Davos, Switzerland today. Still, nationalization of a swath of the banking industry is unlikely. House Financial Services Chairman Barney Frank said yesterday "the government should not take over all the banks." Bair said earlier this month she would be "very surprised if that happened." Obama is under increasing pressure to drastically revamp the $700 billion Troubled Asset Relief Program for the ailing industry. While setting up a bank to buy underwater assets is emerging as a favored approach, it could drive up the cost of the rescue in excess of $1 trillion. Frank told reporters that he would be open to expanding the size of the bailout if the Obama administration "can demonstrate the need for it."
Senate Banking Committee Chairman Christopher Dodd said yesterday he wants to hear more about the bad-bank idea when he meets in coming days with newly installed Treasury Secretary Timothy Geithner. Geithner, who was sworn in earlier this week, has pledged to unveil a "comprehensive plan" for responding to the crisis that will aid financial companies as well as small businesses, cities unable to borrow money and families facing home foreclosure. The new administration is also pressing Congress to pass an $825 billion economic stimulus, which could complicate any effort to get additional bailout funds from lawmakers. Obama will today meet with chief executive officers at the White House on the stimulus. The White House declined to release the names of the CEOs. A key question for the bad bank would be how to value the toxic assets it would buy. Geithner, in a Jan. 21 hearing before the Senate Finance Committee, outlined three possible alternatives: look at how the market is pricing similar assets; use computer model-based estimates from independent firms; and seek the judgment of bank supervisors. "They all have limitations," he said. "I think you need to look at a mix of those types of measures."
Federal Reserve Chairman Ben S. Bernanke suggested on Sept. 23, when then Treasury Secretary Henry Paulson was initially considering buying bad assets, that the government should purchase them at values above the near fire-sale prices prevailing in the market. Bair has said that cash from the TARP may help capitalize the bad bank and that commercial lenders may kick in some money of their own. One possibility that’s been discussed is issuing firms some kind of stock in the new organization as partial payment for their impaired assets. FDIC spokesman Andrew Gray declined to comment. In any new rescue efforts, the Treasury is likely to continue to require banks to hand over ownership stakes to the government as a condition of receiving aid. Programs so far have sought preferred shares and warrants, which can be converted into common stock and cashed out on the government’s request. Bernanke, who has endorsed the idea of a bad bank, is discussing fresh strategies for combating the financial crisis with his central bank colleagues this week. The Fed’s Open Market Committee today will release a statement about 2:15 p.m. in Washington.
The Fed has participated in Treasury-led initiatives that insured toxic assets remaining on the balance sheets of Citigroup and Bank of America, and analysts said such measures could be used to complement the bad bank. The government will likely use its ownership of toxic assets to rework soured mortgages and prevent foreclosures. The FDIC is already modifying troubled mortgages held by IndyMac Federal Bank FSB, the successor to the failed lender managed by the agency since July. Bair, a longtime advocate of foreclosure relief, said the initiative was meant to serve as a model for the mortgage industry.The Fed also said in a policy paper released yesterday by the House Financial Services Committee that it will ease terms on residential mortgages acquired in the rescues of Bear Stearns Cos. and insurer American International Group Inc.
Stimulus Bill Near $900 Billion
The U.S. economic stimulus package neared $900 billion in the Senate, as President Barack Obama wooed Republicans ahead of an expected House vote Wednesday. The rare trip by a president to Capitol Hill revealed the urgency in Congress and the White House over a cure for the souring economy. More than 70,000 layoffs were announced this week and fresh data showed unemployment last month rose in all states. The day was marked by Democratic deal-making. The Obama administration indicated it would agree to a $69 billion Senate proposal to shield tens of millions of middle-income Americans from the so-called alternative minimum tax, a priority of Iowa Sen. Charles Grassley, the top-ranking Republican on the Senate Finance Committee. The panel later folded the change into the Senate bill. White House officials also spread the word that Mr. Obama was willing to drop a proposed expansion of contraceptive coverage under Medicaid that has become a symbol for Republican critics. Late Tuesday, Democratic leaders agreed to drop that provision, as well as another measure providing support for refurbishing the capital's National Mall, ahead of the final vote on the House floor Wednesday. Both measures had been lampooned by Republicans.
The magnitude of the spending bill, and its urgency, drew a swarm of lobbyists seeking money and tax breaks. The concrete and asphalt industries battled over how the government should spend billions proposed for road and bridge repairs, while dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices. Unions backed infrastructure spending. States sought budget bailouts. "When you've got 800-plus billion dollars to spend, you'll have an equal number of opinions on how it should be spent," said Chris Galen, spokesman for the National Milk Producers Federation, the dairy industry's main lobbying group. The economic stimulus package proposed by Democratic House leaders totals $825 billion and includes three broad pieces: a $365.6 billion spending measure for such brick-and-mortar projects as highways and bridges; a $180 billion measure to boost jobless benefits and Medicaid, among other things; and a $275 billion tax-relief package, which includes a plan to give a $500 payroll tax holiday to all workers, a proposal from Mr. Obama's presidential campaign.
The Democrats controlling the House have the votes to pass a stimulus bill. In the Senate, Democrats need only the support of a few Republicans to collect the 60 votes needed for passage. But Mr. Obama wants broad support, and to win over some of the Republicans seeking less spending and more tax cuts. "I would love to not have to spend this money," Mr. Obama said, according to individuals familiar with the president's meetings with Republicans. Mr. Obama defended the plan, they said, but suggested he'd be open to new ideas to help small businesses, and that changes could come after the House vote. "We're not going to get 100% agreement, and we might not even get 50% agreement," Mr. Obama told reporters after he left the Senate Republican lunch. "But I do think that people appreciate me walking them through my thought processes on this." The sight of this much federal cash and tax favors has prompted a rough-and-tumble competition. Billions of dollars in proposed road and bridge repairs, for example, have pitted the concrete and asphalt industries against one another.
Concrete lobbyists want more money for such long-term projects as interstate highways, bridges and waterworks -- projects that, not coincidentally, use more concrete. The asphalt industry prefers repaving and road repair that use more asphalt. "When you have a road or highway that needs to be fixed quickly, asphalt is the way to go," says Margaret Cervarich, a vice president at the National Asphalt Pavement Association. Craig Silvertooth, the president of the Center for Environmental Innovation in Roofing, said he's concerned that lawmakers have failed to include tax incentives for energy-efficient roofs using solar panels. But the geothermal heat pump industry -- represented by lobbyists for one company, Oklahoma-based ClimateMaster Inc. -- said it won equal footing with solar and wind companies through a 30% homeowner tax credit in the House bill for installation of a geothermal heat pump. Lobbyists for U.S. footwear makers and retailers want lawmakers to wall off their drive to scrap import taxes on cheap shoes from a competing push to lower tariffs on all imported clothing and textiles.
The shoe lobby sent a letter to congressional leaders Tuesday asking for a stimulus provision abolishing the import tax on synthetic, fabric and canvas shoes. The American Apparel & Footwear Association, the Footwear Distributors and Retailers of America and retail footwear companies say the tax can reach 67.5%. Republican Sen. John Ensign of Nevada wants to add similar legislation to the stimulus. But the effort could fail if combined with a separate push by apparel importers to lower tariffs on all foreign textile and apparel products. The apparel measure faces stiff opposition from lawmakers and U.S.-based textile plants. Business interests also are working to promote tax proposals included in the Senate version of the stimulus plan but not, so far, in the House version. Both the House and Senate packages include tax incentives to encourage capital investments by businesses, expand support for development of renewable energy sources, and help businesses use current losses to claim tax refunds against profitable years in which they paid taxes.
The Senate tax package, which was approved by the Finance Committee late Tuesday on a 14-9 vote, also created a limited tax benefit to encourage corporations to restructure debt. High-tech companies struck out with the House when they sought tax credits for spending on bringing broadband infrastructure to rural and so-called underserved areas. But the firms struck pay dirt Tuesday in the Senate Finance Committee, winning a 10% tax credit for investments in current-generation broadband technology, and a 20% tax credit for investments in "next-generation" broadband, not only in rural and underserved areas but any residential area. Once the House and Senate pass their versions of the stimulus package, negotiators from each branch will hammer out a final version of the bill. The compromise bill would require a second vote in the House and Senate before reaching the president's desk.
The nonpartisan Congressional Budget Office said government borrowing prompted by enactment of the plan would add another $347 billion, pushing the estimated cost of the stimulus plan to more than $1 trillion, including interest. Office of Management and Budget Director Peter Orszag sent a letter Tuesday to House Appropriations Chairman David Obey (D-Wis.) saying Mr. Obama was "committed to paying for any of the temporary tax cuts included in the recovery plan that he would like to make permanent," and supported a return to "pay-as-you-go" budget rules for nonemergency spending.
Stimulus: To Spend or Not to Spend?
Economists are engaged in a fiscal feud over Obama's spending plan and how much of a boost it will give the recession-wracked economy. As the House of Representatives prepares for a Jan. 28 vote on the $825 billion Obama fiscal stimulus bill, politicians want to know: How much does boosting government spending or cutting taxes help the private sector? Can massive fiscal stimulus, as Obama is calling for, create jobs and increase economic output? You might think these simple questions would have clear answers. Remember, macroeconomists have been studying the U.S. economy for decades. After all this time, we should have some general agreement on the size of the "multiplier"—that is, whether an extra dollar of government spending leads to gross domestic product, or GDP, going up by more than one dollar, or less than one dollar.
To put it another way, it's essential to know whether the Obama economic package will stimulate the private sector or actually drain resources away from the rest of the economy. In their analysis, the top Obama Administration economists, Christina Romer and Jared Bernstein, used a multiplier of roughly 1.6 for government purchases and about 1 for tax cuts. These figures suggest, for example, that a $100 billion increase in government purchases would lead to GDP going up by $160 billion. Out of that $160 billion, $100 billion would be the direct result of the original stimulus and $60 billion would be the increase in private-sector economic activity. A tax cut of $100 billion, by these numbers, would generate a $100 billion increase in GDP. But among top economists, there is hardly consensus about the size of these multipliers, or even agreement about the right range. Instead, we are getting the equivalent of a full-scale intellectual war, with Nobel prize winners and leading economists actively attacking each other in public.
On one side are a very long list of pro-stimulus economists, such as Nobel winner Paul Krugman of Princeton University, who believe government spending can have a positive impact in today's extremely weak economy. On the other side is a shorter but eminent list of economists who are skeptical about the benefits of stimulus, including Nobel winner Gary Becker of the University of Chicago and top macroeconomist Robert Barro of Harvard. "What's been disturbing," Krugman recently wrote in his blog, "is the parade of first-rate economists making totally nonserious arguments against fiscal expansion." In turn, Tyler Cowen, a conservative economist at George Mason University, wrote on his widely read blog Marginal Revolution that "pro-stimulus proponents… are not putting up comparable empirical evidence of their own for the efficacy of fiscal policy and there is a reason for that, namely that the evidence isn't really there."
It's important to understand that the vehemence of this debate reflects the resumption of an intellectual conflict that dates to the Great Depression and the famous economist John Maynard Keynes. The question then was whether the New Deal helped shorten or soften the Depression, as Keynes argued, or whether government intervention actually hurt the economy. Surprisingly, the evidence is ambiguous. The New Deal was passed in 1933, and the size of the fiscal stimulus peaked in 1934. However, the economy did not conclusively recover until 1939, when military spending started to ramp up before World War II. This ambiguity has haunted macroeconomics ever since, because it became impossible to settle the question of whether fiscal stimulus was the right thing to do or not. Anti-stimulus economists could point to the 1930s and argue that government action really didn't work, because the Depression lasted for years after the New Deal was passed. But economists who believed in fiscal stimulus as appropriate medicine for deep recessions—many of whom identified themselves as Keynesians—argued that the New Deal simply wasn't big enough.
Milton Friedman effectively brokered a truce between the warring sides in the 1960s. He argued that the Great Depression was created by mistakes in monetary policy by the Federal Reserve. He was sufficiently persuasive that most economists adopted this perspective. Over time, most economic textbooks stressed monetary policy as the main line of defense against economic downturns, while fiscal policy was downplayed. Who cares about fighting over fiscal stimulus when good monetary policy could prevent any recurrence of the Depression? But the truce is over. Over the past year the economy has continued to deteriorate even as the Fed has cut interest rates to near zero. With monetary policy having failed, fiscal stimulus is one of the few economic tools left. That has raised the stakes of the debate. Both sides have plenty of theoretical firepower. The pro-stimulus camp has three main reasons why the multiplier might be large—i.e., significantly greater than 1:
- First, they say the credit crunch make it difficult for households and businesses to borrow, leaving a hole that must e filled by the government.
- Second, rigidities in the economy make it hard for businesses and workers to shift quickly from contracting sectors such as home construction to expanding areas such as health care, making it necessary for government to provide support for demand.
- Finally, government intervention can boost business and consumer confidence, improve their expectations about the future, and stop a recession from turning into a death spiral.
On the other hand, the anti-stimulus economists also have reasons why fiscal stimulus might not be effective—i.e., why it may have a multiplier of less than 1:
- First, they point to "crowding out"—the idea that government spending may actually draw resources away from the private sector, even when unemployment is high.
- Second, taking on a lot of debt now may weigh down the economy in the future.
- Third, anti-stimulus economists are worried about wasteful spending.
In the end, this near-depression is likely to be a transformative event for macroeconomics. We are going to have a mammoth fiscal stimulus package this year—and in all likelihood, more in the near future. And when we see what happens, we may finally settle some of the disputes that have bedeviled economics for 80 years. And who knows—we may get the next Keynes as well.
Obama Leaves 'Sober' Meeting With CEOs Confident of an Economic Turnaround
President Barack Obama said he is confident that the economy can be reinvigorated, starting with the passage of a stimulus package, after meeting with the chief executive officers of some of the nation’s biggest companies. "It was a sober meeting because these companies, and the workers they employ, are going through times more trying than any that we’ve seen in a long, long while," Obama said at the White House today. Still, he said, "we left our meeting confident that we can turn our economy around."
Obama is trying to push a stimulus package worth more than $800 billion through Congress to spur an economy that lost 2.6 million jobs last year. U.S. companies announced earlier this week they are cutting at least 77,000 jobs because of withering sales, including 20,000 at Caterpillar Inc. Before making his remarks, Obama met with business executives including Eric Schmidt of Google Inc., Ronald Williams of health insurer Aetna Inc. and Sam Palmisano of International Business Machines Corp. The two events are part of Obama’s campaign to build support for his proposals to pull the U.S. out of recession. The House of Representatives is set to vote on stimulus legislation later today. Palmisano and Honeywell International Inc. Chairman David M. Cote introduced Obama and praised the president’s plans to spend government dollars on energy and technology.
"Economically, clearly, the situation is dire," Cote said. "No company is immune." Honeywell, a Morris Township, New Jersey-based company that makes products from cockpit controls to air-conditioning equipment, is seeing demand dry up, Cote said. "There’s incredible fear about what’s going to happen next," he said. Both Cote and Palmisano said they had confidence in Obama, and Palmisano said the corporate leaders he has spoken to throughout the country are backing his plan. "There’s a unanimous commitment to support the president," said Palmisano, whose Armonk, New York-based company is the world’s top provider of computer services. "We all agree we need to reignite growth." Cote also joked as he introduced Obama, "Thank God you are not a timid man."
The new president, a Democrat, traveled to Capitol Hill yesterday to lobby Republicans and address their concerns about the spending and tax cuts in the package as crafted by House Democrats. Today, he addressed some of those concerns. "I know that there are some who are skeptical about the size and scale of this recovery plan," Obama said. He promised to put controls in place on the spending provisions that would make his administration more accountable to Americans. "All we can do, those of us here in Washington, is to help create a favorable climate in which workers can prosper, businesses can thrive, and our economy can grow," Obama said. "And that is exactly what the recovery plan I’ve proposed is intended to do."
Stock markets in the U.S., Europe and Asia rose in a global rally on news of U.S. plans for a so-called bad bank to absorb toxic investments. The Standard & Poor’s 500 Index yesterday marked its first three-day advance of the year. Among those who were at the White House to listen to the president’s remarks was Richard Parsons, the former Time Warner Inc. chief executive, who was named by Citigroup Inc. to head its board of directors. He wasn’t among the executives Obama met with this morning. Today’s CEO meeting included David Barger from JetBlue Airways Corp., Gregory Brown from mobile phone maker Motorola Inc., Debra Lee from the entertainment company BET Holdings Inc., Anne Mulcahy from Xerox Corp, Antonio Perez from photography equipment maker Eastman Kodak Co., Wendell Weeks from the telecommunications components manufacturer Corning Inc. and John Bryson, the former CEO of energy provider Edison International.
In addition, Steve Appleton from Micron Technology Inc., the U.S. maker of computer-memory chips, and Michael Splinter from Applied Materials Inc., maker of solar-panel product equipment, attended the meeting. Both of their companies would gain from the stimulus package. Splinter said short-term refundability of federal solar investment tax credits and new tax incentives to locate solar manufacturing facilities in the U.S. would enlarge the country’s renewable-technology manufacturing base. Obama’s drive to reduce dependence on foreign oil "by harnessing the power of the sun can be realized through solar technology and products that we are innovating and manufacturing here in this country," Splinter said in a statement. "This could create thousands of new jobs and ultimately change the global energy equation." Many of the executives who met with Obama today have cut jobs at their own companies. Perez undertook an overhaul at Rochester, New York-based Eastman Kodak that eliminated 28,000 jobs by the time it ended in 2007, and may have further shakeups. Schaumburg, Illinois-based Motorola cut 4,000 jobs this month. Corning, based in Corning, New York, said yesterday it will eliminate 3,500 positions after fourth-quarter profit dropped 65 percent.
Double Bubble. Double Trouble.
Last August, we wrote about the double bubble in the housing market: a more traditional bubble, then over-inflated by a massive asset bubble that drove prices up and up and up. The bigger the bubble, the bigger the pop. In that post we wrote,In every modern recession, the fall in housing prices follows the economy slowing down. What we have yet to see is the falling economy's effect on housing prices. So if you think prices have already dropped, and might even be reaching a bottom, we think it's the other way around: prices are about to start dropping.And so here we are. Yesterday's news of a mind-boggling 50,000+ jobs lost in a single day brings us now to the start of this second bubble popping. Because for all of economic talk about housing markets and prices and fancy new mortgages that were created, at its economic base, housing prices are just about the simplest thing in the world. When people make more money, or more people move into a market, housing prices slowly go up. When people make less money, or people move out of a market, housing prices slowly go down. The housing bubble popped, leading to recession, and the recession is now going to lead to a further decline in housing prices. Where will that lead?
The problem at the root of the housing asset bubble is that over the last few decades -- since Reagan and the Republican free-market supply-side, trickle-down policies took over -- Americans have not been earning more, they've just been able to buy more thanks to a litany of mortgage and other debt-raising products that compensate for the lack of earnings. People used to be required to put 20% down before they could buy a house. How many people do you know, honestly, that have 20% to put down on a house now? How many do you know that actually have 20% equity accrued in the house they already own? We're betting not many.
That 20% down payment requirement kept housing prices in check. But that became a 15% requirement, then 10%, then 5% then a negative 10% requirement, where you could actually get a mortgage for 110% of the value of your house. Well, they helped inflate the bubble. On top of that, loan standards used to require that people spend no more than 25-28% of their income on housing expenses. This also kept prices in check. This was also set aside, and "liar loans" further inflated the bubble. Now that all has to be undone. Last August, real estate experts were claiming that 2009 was to be the bottom of the market, and housing prices were going to head back up. Just like they claimed that 2008 was going to be the bottom and that 2007 was when the market would turn. Sadly, the chances of real estate prices turning back up, in real dollar terms, has vanished for the next decade at least. There are two coherent facts behind this.
First, the size of the bubble means that someone who bought a house for $500,000 in 2005 is already 20-25% down in the price of the house. Factor in inflation, and it's closer to 35 - 40% down right now, four years later. Of the millions of Americans who will lose their jobs this year, many will be unable to cover their mortgages. And foreclosures, short sales, sales right before the short sales, these will continue to increase, driving prices down even further. This all means there is little demand for high-priced houses.
Second, the bubble caused a building boom, and along with all the foreclosures there is now a huge supply of houses and condos waiting to be sold. And only then will the "shadow" market of people waiting on the sidelines for a better market in which to sell their houses kick in. Only after all of these factors are cleared will market conditions even start to return to normal. By 2010, perhaps 2011, perhaps we will see signs of a bottom of the real estate market, with prices having returned to their historical norms at a level that many suggest is 30-35% below where they are today. For many, this will be personal financially troubling, even disastrous. From an economic point of view, it is the fundamental principal of supply, demand, and income proving to be true again, and a return to economic reality.
What can be done about it? The root cause of this and many other problems in our economy is the stagnation of incomes that began when Reagan was elected. Republican policies brought a massive concentration of wealth at the top with a select few reaping all of the benefits of our economic system. But this double-bubble collapsing-economy problem is costing their wealth as well. Trickle-down doesn't, and when the rest of us are tapped out by misguided policies like these it spells disaster for everyone.
Portfolio Limit for Freddie, Fannie to Ease
Fannie Mae and Freddie Mac will be allowed to increase their mortgage holdings to a maximum of $850 billion through the end of the year before their regulator requires them to eventually reduce their portfolios to $250 billion, under an interim final rule published Tuesday by their regulator. The new requirements, issued by the Federal Housing Finance Agency, are in line with the agreements between the agency and the Treasury Department announced in September when the federal government took control of the two firms.
Beginning Dec. 31, 2010, the government-sponsored enterprises will have to reduce their mortgage portfolios from the $850 billion level by at least 10% annually until the assets reach $250 billion, the FHFA said. The rule is subject to a 120-day comment period. Separately, the agency issued rules setting classifications for the levels of capital held by the 12 regional Federal Home Loan Banks. The rules define at what levels the banks would be deemed to be "undercapitalized," "significantly undercapitalized" or "critically undercapitalized."
Fannie Mae Foreclosure Sale at 50 Cents on $1 Shows Price Reset
With a sharp nod, Robert Parkin bids $500,000 at the auction of a brick colonial house in Upper Marlboro, Maryland, that the builder once valued at $1.1 million. Seconds later, a competitor counters at $510,000, and Parkin must decide whether to raise his limit on the unfinished, 4,878- square-foot property with a stop-work order taped to the window. This auction, 19 miles (30.6 kilometers) southeast of Washington, is one of hundreds a day carried out on front lawns and in hotel ballrooms nationwide by liquidators such as Williams & Williams Marketing Services Inc. of Tulsa, Oklahoma. With 2.3 million residences in foreclosure, the sales are pushing down prices to early 2004 levels in the hunt for new buyers.
"If you’re looking for expediency to get people back in homes, un-board neighborhoods, clean up the rats, this is it," says Pamela McKissick, 62, the president of closely held Williams & Williams. Banks, brokerages and government-sponsored mortgage finance companies such as Fannie Mae hire the company to sell houses one at a time or to liquidate entire portfolios. Auctions are resetting real estate values at the neighborhood level, while President Barack Obama tries to find a way to limit foreclosures and revitalize the worst housing market since the Great Depression. Bargain hunters such as Parkin, a 50- year-old aerospace engineer who is shopping for a personal residence, and mom-and-pop investors on the prowl for rental properties, aren’t waiting for federal aid.
They are buying foreclosed properties for as little as 10 cents on the dollar. Lenders seized 9,787 houses a day in December, or almost seven a minute. Even after the 26 percent drop in residential prices since June 2007, there are enough unsold homes to last 9.3 months at the current sales rate. Housing values may decline a further 15.5 percent this year, based on December 2009 contracts tied to the RPX residential real estate index. The RPX, developed by New York-based Radar Logic Inc., measures the average price per square foot of residential sales in 25 U.S. markets. After median house prices fell 15 percent in November, the most on record, home sales rebounded 6.5 percent last month, the National Association of Realtors said Jan. 26. Distressed sales accounted for almost half the total.
The California Association of Realtors said yesterday that the price of a single-family house in the state plunged 41.5 percent last year. The Commerce Department may report tomorrow that new-home sales fell 2.5 percent last month, based on a Bloomberg survey of 69 economists. Auctions are the best way to determine the true value of real estate, says Dean Williams, 47, the owner of the auction house that bears his name. Sales through agents promote the owners’ asking prices, while lenders emphasize the affordability of monthly payments, he says, during an interview in Tulsa, surrounded by shelves of books including "Intellectual Freedom Fighter" and "Radicals for Capitalism." His lip is scarred from a bar-room brawl 28 years ago. "We’re creating values beyond just short-term profit," he says. "Those values, we feel, are efficiency, transparency, competition, stewardship."
During the last real estate recession in the early 1990s, brought on by the collapse of the savings and loan industry, a temporary federal agency, the Resolution Trust Corp., served as a central clearing house to dispose of foreclosed houses, offices and stores. No such authority exists now, leaving private buyers and sellers to work out their own deals. Forced sales reduce previously recorded property values and erode the $391 billion in local governments’ property tax rolls. Auctions exacerbate the crisis, says Ira Rheingold, executive director of the National Association of Consumer Advocates, a nonprofit attorneys group in Washington. "They are just furthering the depressed market, because what they are doing is selling properties really, really cheap," Rheingold says. "I don’t know that it does anything for the market except make some greedy speculators rich."
Lawrence Summers, Obama’s director of the National Economic Council, pledged in a Jan. 15 letter to congressional leaders that the administration will commit $50 billion to $100 billion to try to keep people in their homes. While government assistance may slow the record pace of foreclosures, it won’t stop them. "I’m anticipating that we’re going to see a frightening increase in foreclosure activity in the first part of the year," says Rick Sharga, a senior vice president at the RealtyTrac real estate data service in Irvine, California. "Everybody underestimated just how severe this would be." Williams & Williams says it aims to triple its peak sales to 10,000 houses a month this year. In 2008, the company says it generated $1.1 billion in revenue on 13,872 auctions. About 14 percent of the transactions are won by bidders on the Internet, and the Williams & Williams switchboard receives 30,000 calls a month, the company says. Its commissions average 6 percent. Auctioneers themselves can earn as much as $1 million a year.
Williams, who bought the business from his father, Tommy, in 2003, bankrolled the December introduction of an affiliated broadcast venture, the Auction Network, in 87 million households and on the Internet. Auction Network sells everything from antiques to condominiums and is developing a niche marketing the personal effects of celebrities such as Ozzy Osbourne, the late comedian Bob Hope and silent film actors Mary Pickford and Douglas Fairbanks Jr. While a team of Williams & Williams auctioneers was moving through Maryland and Virginia on Dec. 16, a competitor, Irvine, California-based Real Estate Disposition Corp., was wrapping up an eight-day, 18-city tour at which it sold 2,842 homes for $210 million, according to Chairman Robert Friedman. Friedman and Chief Executive Officer Jeffrey Frieden, both 47, met as teenagers when they were working at a swap meet. They started privately owned REDC in 1990 to help dispose of properties left by the S&L bust. They auctioned distressed real estate for seven years before mothballing the practice. Two years ago, they started again.
In November, the Trident IV private equity fund managed by Charles Davis, chief executive officer of Stone Point Capital LLC in Greenwich, Connecticut, bought a 50 percent stake in the California auction house. Terms weren’t disclosed. By packing hundreds of bidders into ballrooms at dozens of auctions a day, REDC says it sold an industry-record 32,799 housing units for $3.4 billion last year. Bank auctions, foreclosures and loan restructurings have eliminated "about 60 percent of the bad subprime loans" that triggered the industry’s collapse, Friedman says in an interview. The rest will be worked out this year, he says. Now, a new wave of foreclosures is capsizing borrowers with better credit in higher-cost houses who "got caught up in the subprime frenzy and maybe overshot the mark," Friedman says. "I envision that wave to last probably another 18 to 24 months." Foreclosures and liquidations accounted for 34 percent of the residential market in Los Angeles last year, 30 percent in Phoenix and 27 percent in Washington, according to Radar Logic.
"Money is made, unfortunately, by the M&Ms of life: Mistakes and misfortunes of others," says Monte Lowderman, 41, a Williams & Williams auctioneer from Macomb, Illinois. The Upper Marlboro property was the third of 14 that Lowderman’s three-man crew sold for $2.4 million that day. They traveled in a rented Toyota sport-utility vehicle on a six-day swing from Virginia to Massachusetts. The house once belonged to Jeffrey Whitner, a 43-year-old independent contractor who ran out of time and money to complete the job. He planned to use it to showcase his building abilities, he says. Whitner discovered the empty hilltop lot by driving around the neighborhood in February 2004. He paid $86,000 to buy it from an 80-year-old widow, public records show. The builder obtained a $651,300 interest-only construction loan from SunTrust Mortgage Inc., a unit of Atlanta-based SunTrust Banks Inc., property records show. That gave him enough to complete 95 percent of the construction, he says. Whitner says he obtained a $1.1 million appraisal on the project and in September 2007 was closing in on new funding to finish. Then the real estate market collapsed, and his bank credit line vanished, he says.
Between starting and losing the project, Whitner fell a year behind on child support for his 12-year-old son, owing as much as $3,600, and ran up $11,034 on an unpaid credit card and personal loan, according to a Prince George’s County, Maryland, judgment. "Maybe I put too much pride in the home and wanted to make it perfect for the owners," Whitner says. SunTrust foreclosed on Oct. 26, 2007, court records show. Ten days later, Whitner defaulted on the mortgage for the $228,000 condominium where he lived in Bowie, Maryland. "I got really depressed," he says. Lowderman, who is about to auction the Upper Marlboro house, spits chewing tobacco into a paper cup. "What we’re seeing today, in my lifetime, it’s happened once already," he says. His father, Jack, worked with Tommy Williams in an Illinois farm-and-livestock auction firm until the 1980s agricultural crisis doomed the partnership. Tommy Williams resettled in Tulsa, where his sales exploits are family legend. He says he once auctioned a burning building.
When son Dean graduated from Georgetown University law school in Washington in 1989, he began flipping properties for profit, buying houses and having his father auction them. Williams & Williams was born. Dean Williams says he honed his economic views reading the Libertarian author Ayn Rand, and named his 8-year-old son for the self-made businessman Hank Rearden in Rand’s 1957 novel "Atlas Shrugged." "Our focus," says Williams, "is much longer than prices going up or down, even in a crisis of this magnitude." At an unheated, unlit townhouse in Capital Heights, Maryland, Lowderman’s auction team has already disposed of a residence that stood empty for eight months. The sale took seven minutes and elicited a winning bid of $139,000. That was less than half the $305,000 it sold for in December 2006 and 9 percent below the price a previous owner paid in 2003. The winning bidder in this and all auction sales must make an immediate 5 percent down payment and arrange financing within a month. The transaction is subject to the seller’s approval.
If Fannie Mae, the seller of the Capital Heights property, accepts the offer, it will record a loss equal to half the loan’s balance, according to public records. The Washington-based government mortgage finance company, which hired Williams & Williams, has absorbed a $56 billion beating on mortgage-related losses, Bloomberg data show. The mistakes pushed it into conservatorship last year. Fannie Mae couldn’t be reached for comment yesterday. The original lender, HSBC Mortgage Corp., a unit of HSBC Holdings Plc, has recorded $33.1 billion in subprime losses. "There’s people who’ve lost a bunch of money," says Juston Stelzer, 29, who works with Lowderman as a "ring man," recognizing each bid at auction by belting out "Hey!" and "Yes!" "But cash is king right now. And there’s going to be some people get filthy, filthy wealthy," he says. It’s decision time for Parkin, standing on an unfinished floor in the unheated front room of the Upper Marlboro house. As he peers into the muddy, unplanted yard, the winter sun frames him in a spotlight.
Parkin says he’s stepped into $1 million tract houses that don’t feel as hospitable as this one, with its granite counters, stone fireplace and floor-to-ceiling windows. "Maybe it’s the analogy of closing the door of a Lexus and closing the door of a Ford," he says. Mechele Silva, 39, a physician who lives nearby, says she used to peek in the windows to glimpse the builder’s progress. "It was so much nicer than the old houses that we lived in," says Louise Pearson, 84, another neighbor. While the first minute at auction raised the offering price more than fivefold, the next 60 seconds tick by without a bid. "I had never done an auction in my life," Parkin says. "I didn’t want to get myself in a position I couldn’t handle. Then he offers $520,000 and reclaims the lead. The competitor’s face falls. The auction ends. Lowderman asks for applause. "When I won, I had this rush: What did I do?" Parkin said later. "It was this blend of excitement. And terror."
Britain's recession will be deepest, IMF warns
Britain's recession will be deeper than any other major country this year, the International Monetary Fund warned today as the banking crisis continues to send shudders through the rest of the economy. British gross domestic product will contract 2.8pc this year, a sharper and more painful decline than the IMF now forecasts for America, the Eurozone or Japan. The new forecast compares with a prediction of a 1.3pc decline made in November.
The new forecast deals a blow to Prime Minister Gordon Brown who has insisted that the UK is no more exposed to the sweeping global downturn than other economies. Critics have argued that the intensity of the decade-long housing boom, a failure of regulation and the size of losses accumulated by UK banks have left Britain deeper in the mire. The IMF expects the US economy - where the sub-prime crisis began - to contract 1.6pc; Japan to shrink 2.6pc and the Eurozone to decline 2pc. Overall, the IMF expects the global economy to expand 0.5pc - its weakest showing since the Second World War.
Economists at the IMF also estimated that bank losses may reach $2.2 trillion, almost twice the $1.4 trillion the organisation predicted in October. The report warned today that: "unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth." The news comes a couple of days after official figures showed that the UK is enduring its worst downturn since at least 1980.Gordon Brown and Chancellor Alistair Darling's bank bail-out is already projected to take national debt to 8pc of gross domestic product, and today the Institute Fiscal Studies warned that national debt levels are unlikely to return to the pre-crisis levels for more than 20 years.
IMF Sees $2.2 Trillion in Losses Slowing World Growth
The global economy will slow close to a halt this year as more than $2 trillion of bad assets from the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said. Bank losses worldwide from toxic U.S.-originated assets may reach $2.2 trillion, the IMF said in a report released today, more than the $1.4 trillion that the fund predicted in October. World growth will be 0.5 percent this year, the weakest postwar pace, the fund said in a separate report. The reports signal that writedowns and losses at banks totaling $1.1 trillion so far are only half of what’s to come and that contractions may deepen. Losses on that scale would leave banks needing at least $500 billion in fresh capital to restore confidence in their balance sheets, the IMF said.
"Unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth," the IMF said. The IMF’s latest forecast revises its estimate of world growth down from 2.2 percent in November. U.S. gross domestic product will contract 1.6 percent, Japan’s will shrink 2.6 percent and the euro area will decline 2 percent in 2009, the IMF said. The fund in November foresaw a 0.7 percent U.S. contraction, with declines of 0.2 percent in Japan and 0.5 percent in the euro zone. Leading the Group of Seven nations in contraction this year will be the U.K. economy, which the IMF predicted would slide 2.8 percent, compared with the fund’s forecast in November for a 1.3 percent drop.
Global growth this year will come to a "virtual standstill," said Olivier Blanchard, the IMF’s chief economist, in a press conference in Washington. "We need stronger policy on the financial front." In the U.S., President Barack Obama is negotiating with Congress on a plan worth $825 billion that includes tax cuts and spending projects to pull the world’s largest economy out of a 13-month recession. The Federal Reserve meets today in Washington to decide how to use emergency credit programs, rather than interest rates, to arrest the financial crisis. The European Central Bank has cut its benchmark interest rate by more than half since early October to 2 percent, matching a record low. Governments are also beginning to ease fiscal policy as the 16-nation euro-region suffers its worst recession since the single currency began trading a decade ago.
Advanced and developing countries need to be "even more supportive" of demand than they already have been, with lower interest rates and fiscal stimulus, the lender said. The fund urged "timely" passage of fiscal aid, saying "any delays will likely worsen growth prospects." The Obama administration and federal regulators are considering setting up a "bad bank" that would absorb illiquid assets from otherwise healthy financial firms. The IMF said "the restructuring process might involve the use of a publicly owned ‘bad bank’ to remove distressed assets from the balance sheets of institutions." Governments should "move expeditiously toward recapitalization" and disposal of bad debt, the IMF said. The fund said that banks needed at least $500 billion of new cash "just to prevent their capital position from deteriorating further."
Hedge funds may have halved in size in the last three months of 2008, the fund said, dragged down by a combination of asset-price declines and investors withdrawing their money. Such a decline was "a particular concern for those markets in which hedge funds provided a significant proportion of market trading liquidity," the IMF said. "Downside risks continue to dominate, as the scale and scope of the current financial crisis have taken the global economy into uncharted waters," the report said. "A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged."
China’s economy will likely expand 6.7 percent this year, the IMF said, reducing its estimate for the world’s fastest- growing major economy from 8.5 percent in November. Russia will contract 0.7 percent this year, compared with a 3.5 percent expansion the IMF predicted in November, today’s report showed. The IMF report said inflation in advanced economies may fall to a record low of 0.3 percent this year, from a prediction in November of 3.6 percent. The average price of oil may be $50 a barrel this year, the IMF said, less than the $68 a barrel forecast it made three months ago. Companies around the world are cutting workers by the thousands, raising the risk of even weaker consumer spending. Walldorf, Germany-based SAP AG, the world’s biggest maker of business-management software, said today it will slash more than 3,000 jobs this year. Earlier this week Caterpillar Inc., Sprint Nextel Corp., Home Depot Inc. and ING Groep NV led companies announcing at least 74,000 job cuts as sales withered amid the global economic recession.
Gloom Deepens Among Executives, Economists at Davos
Gloom is deepening among business leaders and economists, casting a pall over this year’s World Economic Forum in Davos, Switzerland. "We cannot underestimate the challenges the global economy faces," Stephen Roach, Morgan Stanley Asia’s chairman, said today, predicting the world economy may contract in 2009 for the first time since World War II. Concerns over the economic outlook are virulent as executives from JPMorgan Chase & Co.’s Jamie Dimon to Stephen Green of HSBC Holdings Plc join more than 2,500 counterparts, academics and policy makers in the ski resort for five days of soul-searching and deal-making.
Just one in five of 1,124 chief executives in 50 nations said they were very confident about prospects for revenue growth in 2009, down from half last year, and more than a quarter said they were pessimistic, a survey by PricewaterhouseCoopers LLP showed. The sentiment was the worst since the accounting and consulting firm began tracking the CEO outlook in 2003. The world economy is hurtling deeper into recession as banks add to more than a $1 trillion in writedowns and governments tighten their grip over the financial system. "The outlook is pretty grim," said Howard Davies, director of the London School of Economics and a former Bank of England policy maker who is in Davos. "Things are not good and business surveys are coming out showing they’re getting even worse."
What began as a financial meltdown 17 months ago has morphed into an economic calamity unseen since the Great Depression. In the past year, Lehman Brothers Holdings Inc. and Bear Stearns Cos. have collapsed and officials around the world have committed trillions to prevent more from toppling. The Standard & Poor’s 500 Index is still falling after its worst year since 1937 as the U.S., Japan and Europe sink into their first simultaneous recession since World War II. World Bank Chief Economist Justin Lin said today the world was in a "protracted recession" and that injecting capital into banks won’t revive it. "We need to have coordinated fiscal stimulus that’s large enough," he said.
Roach said that it was "delusional" to expect the U.S. fiscal stimulus plan crafted by President Barack Obama to "jump start" the economy. He also criticized Obama’s Treasury secretary, Timothy Geithner, for calling on China to let its currency strengthen. "I’ve never seen an economy in recession voluntarily raise their currency," Roach said. "It’s economic suicide, it’s horrible advice." The executives polled by PricewaterhouseCoopers survey don’t see a turnaround soon. Only about a third were very confident about growth in the next three years, down from 42 percent last year. Almost seven in 10 said their companies will be affected by the credit crisis, and 70 percent of those said they will delay planned investments as a result.
Just 13 percent of U.S. executives said they were "very confident" about revenue growth in the next 12 months, compared with 36 percent last year, while 15 percent in Western Europe expressed the same sentiment, down from 44 percent. Among developed economies, French executives were the most skittish, with just 5 percent calling themselves very optimistic. Business leaders in emerging markets were more confident. Seven in 10 Indian executives expressed optimism about their company’s growth, as did about three in 10 of those in Brazil, Russia and China. One further bright spot: Only about a quarter of the business chiefs said they plan to cut payrolls in the coming year, while 35 percent said they intended to maintain staffing levels. That would be welcome news to workers as unemployment accelerates around the world with Home Depot Inc., Caterpillar Inc. and ING Groep NV among those axing positions this week.
Fed throwing kitchen sink at recession
As it meets to discuss policy action, the Federal Reserve is trying to convince the market that it is tough enough to combat this recession, economists said. The Fed used to have an easy way to flex its muscles: Its short-term interest rate target was so powerful in setting market rates that it became an axiom on Wall Street not to fight the Fed. But with this primary weapon effectively at zero, the Fed has a tougher job after its two-day meeting ends later Wednesday. "They've got to communicate in a vastly different way then they had in the past," said Joel Naroff, president of Naroff Economic Advisers in suburban Philadelphia.
The biggest task for the central bank is to demonstrate that it's pulling out all the stops and that it can make a difference. "The Fed's job is going to be to convince markets and the broader public that they can still support the economy ... even with the funds rate at zero," said Al Broaddus, the former president of the Richmond Fed, in a television interview. The Fed first tried to signal its get-tough attitude in a statement released after its last meeting in December. Economists don't believe the central bank will alter the language very much in the new policy statement, expected Wednesday at 2:15 pm Eastern time.
The statement will likely reflect that the economy has weakened since the last meeting and will probably repeat the December statement that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." If possible, the Fed's target rate should be deep in negative territory to spur growth, according to a popular formula of calculating the proper level of rates, economists said. Indeed, the formula, known as the Taylor Rule, calls for the rate to be set at negative 4%. "While the [Federal Open Market Committee] cannot pull that off, what it can do is keep short rates at rock-bottom levels for a very long period of time," said former Fed governor Laurence Meyer in a research note.
Similarly, the Fed has no choice but to continue to directly intervene in credit markets, experts said. Federal Reserve Board Chairman Ben Bernanke has called this new policy "credit easing" and said it is needed to keep markets functioning. Marvin Goodfriend, a professor of economics at Carnegie Mellon, said even if credit markets were operating normally, the Fed would still have to increase money supply. "Even if the credit channels were fully repaired, the Fed would have to expand its balance sheet to act against the downturn," Goodfriend said. Analysts said it is a hard call as to whether the Fed will announce new actions. The consensus is leaning against new programs at this meeting, but several may be in the pipeline.
The Fed already has several programs underway -- to buy mortgage-backed securities and commercial paper and to support banks and investment firms. It is about to start another program to buy AAA-rated securities tied to consumer loans. The Fed is likely to say that it will continue to do what it is doing, perhaps adding exclamation points to all that it has put in motion, said Tony Crescenzi, chief bond market strategist with Miller, Tabak & Co. in New York. If new programs are on tap, at the top of the list might buying long-term securities. The December statement said the central banks was "evaluating" the potential benefits of buying long-term Treasurys.
Most analysts don't expect an announcement on Treasury debt purchases Wednesday. They point to the already low level of yields. But other analysts say yields are low because of the Fed's signal that it will enter the market. As always, the Fed will want to protect its flexibility to move as circumstances dictate, economists said. Any more nuanced statements from the Fed will not come until Feb. 18, when the Fed releases a summary of the minutes of this two-day meeting. "They'll use the minutes to send detailed messages," Naroff said.
Meredith Whitney gathers the power
I was with 25 powerful women and one man last evening. We agreed: The worst is yet to come, but if something good comes out of these crises, it might be because we’re all questioning our higher calling. The setting was the Manhattan home of Meredith Whitney, the Oppenheimer bank-industry analyst whose early calls on Citigroup and Bank of America, among other teetering giants, earned her a Fortune cover story last August and the 35th spot on our 2008 Most Powerful Women list. The guy in the room—the evening’s guest speaker—was Michael Lewis, the best-selling author of Liar’s Poker, Moneyball, and The Blind Side. Lucky guy. Well, he seemed to think so. Especially as the group conversation shifted from one theme—business is awful, uncertainty is overwhelming, and "I’ve never felt so powerless as I do now," as one woman put it early in the evening—to another theme: So what are we going to do about it?
And as we leaned in that direction, the group—including attendees of Fortune’s annual Most Powerful Women Summit and others from the top levels of media, law, and banking—talked about stepping up civically or philanthropically to help resolve the mess we’re in. Katie Hood, who is CEO of the Michael J. Fox Foundation, said she’s been fielding lots of calls from friends in financial services. They typically say something like this: "I don’t think my job is coming back. What can you tell me about the not-for-profit sector?" She’s a good one to ask since she once was a credit analyst at Goldman Sachs. Nancy Peretsman, the Allen & Co. investment banker who has advised Google and News Corp. on major acquisitions, told us about the surge in popularity of Teach for America, where she’s on the board of directors. TFA’s applications for the 2009 class of incoming teachers are up 48%—on top of a 36% increase last year. The terrible job market is fueling much of TFA’s growth. Besides that, though, young people are looking for careers where they can make more of a difference than in the corporate world.
The guy in the room, Lewis, talked about women and power (smartly), but he struck a chord particularly by noting about President Obama: "He’s tapping into people’s desire for altruistic behavior." And what better time for a President to do this than the worst period since the Great Depression? "History doesn’t repeat. There is no relevant precedent for this," Lewis said about the downturn, observing that today the collapses are larger, the falls are steeper, and isn’t everything happening so much faster than it used to? Whitney, in a chair next to Lewis in her living room high above Manhattan, agreed that we haven’t seen the worst of the downturn. Whitney, whose single focus once was making the right stock calls, is now thinking a lot about using her power more broadly. "Creative construction is far harder and more challenging than creative destruction," she said last night, referring obviously to the fact that her prescient analysis helped bring down the banking sector. This afternoon she happens to be in Washington D.C. meeting with a very powerful federal official. She’ll pump this official for information, no doubt, but more importantly, she wants to ask: How can I help? You have power and influence. Besides surviving, what are you doing with it today?
Why dealing with the huge debt overhang is so hard
How much debt is too much? Nobody knows. But the governments of highly indebted high-income economies – such as the US and UK – think they know the answer: more than today. They want even more credit to flow to their struggling private sectors. Is that an attainable ambition and, if so, how might it be achieved? Let us start with some facts. The ratio of US public and private debt to gross domestic product reached 358 per cent in the third quarter of 2008. This was much the highest in US history (see charts). The previous peak of 300 per cent was reached in 1933, during the Great Depression. Nearly all of this debt is private. That reached an all-time high of 294 per cent of GDP in 2007, a rise of 105 percentage points over the previous decade. The same thing happened to the UK, on a yet more impressive scale. This has been a gigantic debt and credit expansion.
Particularly remarkable is the composition of the increased debt. In the early 1930s, most US private debt was owed by non-financial companies: so balance-sheet deflation occurred in companies, as was also the case in Japan in the 1990s. This time, however, the big increase in debt was in the financial and household sectors. Over the past three decades the debt of the US financial sector grew six times faster than nominal GDP. The consequent increases in its scale and leverage explain why, at the peak, the financial sector allegedly generated 40 per cent of US corporate profits. Something decidedly unhealthy was going on: instead of being a servant, finance had become the economy’s master. In a superb brief account of today’s calamity, Lord Turner, chairman of the UK’s Financial Services Authority, refers explicitly to "illusory profits"*. Moreover, household debt – much of it associated with housing – also rose rapidly: from 66 per cent of US GDP in 1997 to 100 per cent in 2007. A slightly bigger jump in household indebtedness can be seen in the UK.
What do such rises in indebtedness portend? The answer might be: nothing. After all, over the world, debt nets to zero. In principle, the ability to transfer purchasing power from lenders to borrowers is highly desirable: as a British advertising campaign once claimed, credit "takes the waiting out of wanting". Yet people can also make big mistakes, particularly if they confuse bubbles with permanently high prices. The financial sector is particularly prone to such blunders. As Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard comment: "Systemic banking crises are typically preceded by asset price bubbles, large capital inflows and credit booms, in rich and poor countries alike"**. Once such asset bubbles burst, it becomes hard to find borrowers and lenders who are either willing or creditworthy. The over-indebted start paying down their debts, instead, as now. Desired savings also soar. Realised savings may not rise, however: incomes may collapse, instead. This is what John Maynard Keynes called "the paradox of thrift". The result will be a slump caused by balance sheet collapse rather than attempts to control high inflation.
What then might be done? Some recommend a "liquidation". A chain of bankruptcy would indeed eliminate a debt overhang, as happened in the 1930s. But, with much of the economy enmeshed in bankruptcy and the financial sector imploding, a depression would result. To choose that option must be insane. Less unappealing is organised mass bankruptcy. Proposals for an organised debt-for-equity swap in failed or enfeebled financial institutions fall into this category. So, too, does allowing courts to modify mortgage contracts. Executed efficiently and expeditiously, such ideas are attractive. Costs would fall on shareholders and creditors, not taxpayers, and so sustain the principle of private responsibility.An opposite approach is to sustain existing levels of debt, by slashing its cost to borrowers and trying to grow out of it over many years. This is what current monetary policies seek to achieve. It is a good idea, however unpleasant to creditors. But this would not generate much additional borrowing or fresh spending; it would not stop the indebted from trying to lower their debt; and it would not restore the financial sector to health.
Yet another approach is to replace private debt with public debt. That is what recapitalisation of banks now means. Over time, private-sector debt should fall, while public-sector debt, explicit and implicit, rises. Socialising debt increases the chances of growing out of it. That has happened before, notably in the case of UK public debt over the course of the 19th century. Finally, there is inflation. If central banks and governments are aggressive enough, they can generate inflation, which will lower the debt burden. But they will imperil – if not terminate – the experiment with unbacked fiat (or man-made) money that started in 1971.
So which is the best approach? At the overall level, it must largely be to grow out of the debt overhang, with socialisation of a part of it an essential element. Relapse into inflation would be a huge policy failure. A plan is also needed to deal with the plight of many households and with the overextended and undercapitalised financial sector. The financial sector, as a whole, cannot deleverage by selling assets. It would be helpful if claims of global financial institutions could be netted out, instead, though that would require international co-operation. The Obama administration must also soon launch a recapitalisation of US banking, but not by buying the "toxic assets" at above-market prices. A debt-equity swap would be preferable.
If that is politically impossible or too destabilising, publicly financed recapitalisation is inevitable. Just do not dare to call it nationalisation. Whatever is done, one compelling truth cannot be evaded. It is going to be very hard to generate substantial net borrowing by households and non-financial corporations in the high-income countries with high internal debt. It is unimaginable that they will return to levels of private-sector borrowing, spending and increases in debt that characterised these countries for so long. Countries with large current account surpluses have long demanded an end to the profligate borrowing and spending of the customers upon whom they depended. They should have been careful what they wished for: they have now got it. Enjoy!
End of the age of excess
Fred Goodwin. Adam Applegarth. John Thain. However many people lose their incomes because of the banking crisis, some people did very nicely in the run-up to it. Before his ousting last October from Royal Bank of Scotland, Mr Goodwin pocketed £15m in just four years. On leaving the wreckage of Northern Rock, Mr Applegarth scooped a pay-off of £760,000 and a pension pot of £2.5m. As for Merrill Lynch boss Mr Thain, he blithely splashed out $1.2m mid-crunch to redecorate his office. The bank may have been haemorrhaging both staff and money, but that was no reason not to spend $35,000 on a commode.
These are egregious examples of excess - but as we report today there are plenty more, with 10 Wall Street bankers taking home $1.7bn over the nine years leading up to the credit crunch. Given the gigantic crisis the banking industry has landed itself and everyone else in, these sums must be the worst-ever example of rewards for failure. For decades, the justification for these telephone-number salaries was that superstars had to earn super money. Yet the last 18 months have demonstrated conclusively that there was nothing stellar about these people at all. Such returns as they made relied heavily on happy timing and heavy borrowing. It was fashion, and little more. This is quite usual in banking, as Keynes knew: "A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him." Outlandish bonuses amplified and rewarded that herd behaviour.
Finally, ministers and public officials are speaking out against this system. In an interview last weekend, City minister Paul Myners (previously chairman of the Guardian's parent company) attacked finance's masters of the universe as "people who were grossly overrewarded ... Some of that is pretty unpalatable". Within the banking industry too, there is a growing acceptance that yearly bonuses reward staff and executives for behaving myopically, against the interest of long-term shareholders. Some backlash against the excess of the last few years is natural. Besides, banks are not going to have the money to throw around as they did during the bubble years. But if this reaction is to be more than passing, it needs channelling.
Lord Myners stopped short of demanding that undeserving financiers hand back their bonuses to their now cash-strapped employers, and he was probably being pragmatic. But if Labour is to convince a sceptical public of the merits of its banking rescue it has to acknowledge the immense popular anger against the bankers. Regulation has (perhaps inevitably) taken a back seat to crisis management so far, but ministers need to start talking more explicitly about how the new financial system will differ from the old. Pay restraint must be part of that new order. This is unlikely to happen without pressure from outside government. New Labour remains famous for being "intensely relaxed about people getting filthy rich" - one of the most shameful statements made by this government.
Yet the centre-left has not taken the lead in proposing reform to banks and bankers' rewards, perhaps out of a lack of knowledge of the industry or a sense of powerlessness at taking it on. That would be to miss this opportunity of reshaping capitalism, and to help narrow inequality. Now is the time to talk about maximum wages or no bonuses at all. The explosion in bankers' pay is after all a very recent one. David Kynaston, the historian of the City, notes that before the big bang of 1986 it was not unknown for staff at big banks to receive hampers for a Christmas bonus. They must, surely, have been rather lavish hampers - but the point remains that there is nothing inevitable about the financial order or its amazing pay structures. Leaving the bankers to design the reforms would be like allowing tigers to design their own cages.
Rising unemployment spares no state in December
Rising unemployment spared no state last month, and 2009 is shaping up as another miserable year for workers from coast to coast. Jobless rates for December hit double digits in Michigan and Rhode Island, while South Carolina and Indiana notched the biggest gains from the previous month, the Labor Department said Tuesday. A common thread among these states has been manufacturing industry layoffs tied to consumers' shrinking appetite for cars, furniture and other goods. With tens of thousands of layoffs announced this week by well-known employers such as Pfizer Inc., Caterpillar Inc. and Home Depot Inc., the unemployment picture is bound to get worse in every region of the country, economists say.
"We won't see a light at the end of the tunnel until 2010," said Anthony Sabino, a professor of law and business at St. John's University. The number of newly laid off Americans filing claims for state unemployment benefits has soared to 589,000, while people continuing to draw claims climbed to 4.6 million, the government said last week. There's been such a crush that resources in New York, California and other states have run dry, forcing them to tap the federal government for money to keep paying unemployment benefits. Aside from manufacturing, jobs in construction, financial services and retailing are vanishing -- casualties of the housing, credit and financial crises.
Clobbered by problems at Detroit's auto companies, Michigan's unemployment rate soared to 10.6 percent in December. Rhode Island's jobless rate hit 10 percent, the highest on records dating back to 1976. Those states -- along with eight others and the District of Columbia -- registered unemployment rates higher than the nationwide average of 7.2 percent, a 16-year high. South Carolina and Indiana posted the biggest bumps in their monthly unemployment rates. Each state logged a 1.1 percentage point rise in unemployment from November to December. In South Carolina, the unemployment rate bolted to 9.5 percent as laid-off textile, clothing and other factory workers found it difficult to find new jobs. "The money I was making, I'd be hard-pressed to find a job paying that," said Gregory Smalls, a 49-year-old Columbia, S.C., resident who lost his more than $50,000-a-year job as a truck body shop manager when his department merged with a dealership's service department.
Indiana's jobless rate soared to 8.2 percent in December as workers were hit by layoffs in manufacturing -- including at engine maker Cummins Inc. -- as well as in construction and retail. Many Indiana counties with high jobless rates are in the northern part of the state, which has been battered by layoffs in the recreational vehicle industry. Hundreds of workers have lost their jobs at RV makers such as Monaco Coach Corp., Keystone RV Co. and Pilgrim International. Gayle Glaser, who owns the Shortstop Inn restaurant in Wakarusa, Ind., said those job losses have hurt her business, too. "We just don't have the traffic here from the plants," she said. "All my customers coming in -- they're all laid off." States that have been spared the worst of the recession's pain tend to benefit from energy and agriculture production, while also having relatively minimal exposure to the housing and manufacturing busts.
Wyoming posted the lowest unemployment rate, 3.4 percent in December. It was followed closely by North Dakota at 3.5 percent and South Dakota at 3.9 percent. In 2008, the country lost 2.6 million jobs, and in 2009 at least 2 million more jobs are forecast to disappear. Minneapolis-based retailer Target Corp. said Tuesday that it will cut an undisclosed number of workers at its headquarters. Elsewhere, specialty glass company Corning Inc. said it would cut 3,500 jobs, or 13 percent of its work force, as demand slumped for glass used in flat-screen televisions and computers. And chemical company Ashland Inc. said it would eliminate 1,300 jobs, freeze wages and adopt a two-week furlough program. Roughly 40,000 layoffs were announced on Monday by a string of companies, including Pfizer, Caterpillar and Home Depot. To stimulate job growth and the broader economy, President Barack Obama and Congress are racing to enact a $825 billion package of tax cuts and increased federal spending, including money for big public works projects. The U.S. has been mired in a recession since December 2007. It is on track to be the longest downturn since World War II.
Warning over collapse in capital flows
The world economy will shrink this year for the first time since the Second World War, warns the gloomiest forecast yet delivered by a major international institutional. The Institute of International Finance, the global organisation of major banks, predicted an almost unprecedented collapse in world economic growth and capital flows. It became the first major global institution to forecast a full-scale global contraction in 2009, predicting that the economy would shrink by 1.1pc. IIF chief economist Philip Suttle said: "This is the worst period since the interwar years. The global growth backdrop is very difficult. We foresee a contraction in 2009 in the global economy of over 1pc." He also expects rich economies to contract by 2.1pc – the worst peacetime output since the 1930s.
Private flows of capital into the emerging world are set nearly to dry up in the next year, the IIF predicted, dropping from $928.6bn in 2007 down to $465.8bn in 2008 and then to $165.3bn the following year. As a result the current account deficits in emerging Europe will more than treble in the coming year, from $30bn in 2008 to $117bn next year. The forecasts shed light on the likelihood that the current financial crisis transmutes into a severe worldwide recession of the kind that has not been seen since the Second World War. Asia is likely to suffer a worse downturn than during the Asian financial crisis, the report indicated. The IIF was meeting ahead of the World Economic Forum in Davos, and Mr Rhodes warned that the growing concern this year was the rise in protectionism.
He said: "There is a tremendous need to keep trade lines open. If you start seeing – with everything else we're talking about – the reduction of trade lines on top of that, then you really have a problem. "I'm hopeful that at the Group of 20 meetings [this March in London] participants will understand that we must keep trade flowing; that it's key to growth going forward. But the risk remains that we will return to beggar-thy-neighbour policies – and the last thing we need is to break the world apart in that way."
Capital flows to developing world at risk of collapse
Capital flows to emerging markets are in danger of collapsing this year as the financial crisis in advanced economies risks choking off the supply of credit to the developing world, an association of large banks warned on Tuesday. The Institute for International Finance forecasts net private sector capital flows to emerging markets will be no more than $165bn (€125bn, £116bn) this year, less than half the $466bn inflow in 2008 and only one fifth of the amount sent in the peak year of 2007. The figures underscore the impact the banking crisis and risk-averse investors are having on emerging market economies, one of the central issues at this year’s World Economic Forum in Davos, which starts on Wednesday.
Bill Rhodes, a senior Citigroup executive who is vice-chairman of the IIF, urged leading economies to co-operate with each other and the private sector to address the problem. "This is a worldwide recession the like of which we have not seen since World War II," he said. "There is no one country or group of countries that can do this on its own. The only way to solve it is co-ordination across the board." Mr Rhodes also called on the International Monetary Fund to intensify its efforts to supply liquidity to emerging markets by extending the duration of the current facility from three months to more than a year. "The IMF’s resources need to be expanded and its approaches modified to provide financing to emerging markets that have been caught in a crisis not of their making."
The shortage of capital is particularly acute for companies that soon need to refinance debt. The IIF estimates emerging market institutions will need to refinance about $20bn a month in the first half of 2009, but that the current supply of credit covers only half that. The IIF’s forecast is a sharp reduction from only four months ago, when it forecasted net capital flows to emerging markets for 2009 of $562bn. The institute also scaled back its figure for 2008 to $466bn from $619bn, illustrating the extent of the global market turmoil last year. The sharpest contraction in the supply of capital is likely to be from commercial banks, which are forecast to make a net withdrawal of $61bn in 2009.
IIF officials said the fall in capital flows was consistent with a worldwide reduction in the leverage maintained by financial institutions and investors, and reduced appetite for the risk often associated with such investments. The figures also underscore the link between emerging markets and rich economies. The projected decline in capital flows is equivalent to about 6 per cent of the combined gross domestic product of these countries. During the Asian financial crisis of the late 1990s, the decline was approximately 3.5 per cent of combined GDP, while during the Latin American debt crisis it was only 1.5 per cent.
Don't forget Africa
The tragedy of this crisis is that the reckless conduct of the West's financial elite has yanked the rug from underneath the feet of the world's poorest countries. All over Africa, governments were just starting to rebuild their economies on a sound free market footing -- and had at last begun to roll back destitution - and then this happens."For Africa it is a risk of decoupling, derailing, and abandonment altogether," said Trevor Manuel, South Africa's finance minister, at a Davos gathering this morning. "Investors are retreating. In the Congo, there are 48 mining projects in various states of abandonment." The commodity boom was a wonderful shot in the arm for half of Africa. It has ended with a bang. Commodity prices have of course collapsed.
The credit spigot has been turned off almost entirely. Justin Yifu Lin, chief development economist at the World Bank, said capital flows into emerging economies had totalled almost $1 trillion last year. "This is all going to be reversed and Africa is going to suffer very seriously", he said. It is not just Africa, of course. Ferit Sahenk, chair of the Turkish group Dogus, joked at the same session this morning that Turkey at last faced a crisis that was not of its own making. Small comfort. "We reformed. We went through all these changes, and now people ask why they are being punished. If this crisis goes on much longer, it is going to lead to political and social unrest around the world," he said. That, precisely, is the danger.
The Fed: Life after zero
The Federal Reserve wraps up its two-day meeting about what to do with interest rates Wednesday afternoon. But that's probably two more days than the central bank needed. With the Fed having already cut its key interest rate to near zero last month, there is little suspense about what the central bank's Federal Open Market Committee will announce. In fact, the Fed said in its statement last month that it would likely keep rates near zero "for some time" due to the weakness in the economy. Still, the rate-setting FOMC, which includes Fed governors and a selection of the presidents from the Fed's twelve district banks, is set to meet eight times this year. And while the Fed probably has more tricks up its sleeve to help the economy, don't expect them to be announced Wednesday.
"I think the Fed always has bullets left, but as a practical matter, the FOMC can disband," quipped Sung Won Sohn, economics professor at Cal State University Channel Islands. "There's not a whole lot they can do right now. " Of course, the Fed has been unusually creative in the past year. It has established several new programs to pump more than $1 trillion into the economy in an effort to help spur the economy and get banks to start lending again. But most of these initiatives were approved by the Fed's Board of Governors, not the FOMC. And it's quite likely that even if the Fed comes up with new programs to try to help get credit flowing again, they also won't need the approval of the FOMC.
With that in mind, the Fed provided some hints last month about what to expect at future FOMC meetings. A senior Fed official told reporters that the FOMC would continue to meet on its regular schedule, and it would provide statement's about the central bank's view of the state of economy. The official said the FOMC would also work in conjunction with the Fed's board of governors on decisions about the Fed's balance sheet, which has ballooned in the past few months due to the various new lending programs. So once the FOMC is ready to start raising rates again, it may want to see the balance shrink in size by having some of these programs wind down. The district presidents on the FOMC are also important because they act as the Fed's eyes and ears to banks and businesses throughout the country. Given the economic crisis, former Fed governor Lyle Gramley, who is now an economist with the Stanford Group, said it's more important than ever to have the FOMC discussing policy changes.
"Until we get clear evidence that the economy is turning around, things are going to stay very hectic at the Fed," he said. Other economists say its clear that Fed Chairman Ben Bernanke wants to keep the Fed's district banks involved in various programs, such as the soon-to-be-implemented plan to back $200 billion in consumer and business loans. It's also important to have the Fed speaking with one voice on the need for action, rather than having Fed presidents roaming the country criticizing actions by the Fed's governors. "The fact that the board can do these things without consulting with the bank presidents doesn't mean they should do it that way," said David Wyss, chief economist for Standard & Poor's. "They want to make sure everyone is reasonably informed, but also that there is a consensus that they're doing it right."
Few expect any new program to be announced Wednesday. Instead, economists will be looking at the language in the Fed's statement for clues the Fed might send about its next policy step. "At some point, it seems that they'll have to offer a clearer view of what comes next," said Tom Schlesinger, executive director of the Financial Markets Center, a think tank that follows the Fed. For example, Wyss said that if the Fed includes a mention of the problem caused by troubled assets now held by banks, it will be taken as a signal that the Fed is close to announcing a so-called "bad bank" program to purchase toxic assets. But Wyss cautions that despite the attention every word and comma in the statement is likely to receive, there probably will be far less concrete information than hoped for by economists and investors. "People will be picking [the statement] apart because they don't have anything else to analyze," said Wyss. "But that doesn't mean they'll learn anything."
Fed launches program seeking to stem foreclosures
After years of pressure from lawmakers on Capitol Hill, the Federal Reserve launched a program Tuesday seeking to stem the tide of foreclosures sweeping the nation. The plan seeks to allow regulators to rewrite mortgages owned by the Fed so that borrowers on the verge of losing their homes can have more relaxed terms if they can demonstrate that they won't re-default on the revised mortgage. Fed Chairman Ben Bernanke, writing in a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., said the policy is intended "to avoid preventable foreclosures on residential mortgage assets."
It was not immediately clear how many mortgages qualify for the program. The Federal Reserve Bank of New York plans to buy $500 billion in mortgage securities by mid-year, according to a plan unveiled in November. So far the bank has bought nearly $53 billion in mortgage securities as of Jan. 21. It is likely, however, that the Fed will apply the policy to assets it owns as collateral for government loans extended to American International Group Inc. and Bear Stearns last year. The Fed provided $30 billion in funding to assist J.P. Morgan Chase & Co. to take over Bear Stearns in March, as part of an effort to stem further erosion of the financial markets.
The measures come against the backdrop of larger moves by regulators to contain damage from the meltdown in the credit markets. Of the $700 billion bank bailout program launched in October, $250 billion has already gone into buying large minority stakes in financial institutions. In addition to the Fed's actions, the Treasury Department plans to spend between $50 billion and $100 billion of the second half of the $700 billion bank bailout bill to modify mortgages for troubled homeowners. In the case of whole mortgages owned by the Fed, the agency will immediately take steps to provide homeowner relief. For debt that is part of mortgage securities, the Fed will encourage the mortgage servicer of the securities to implement a loan modification policy.
The Fed said it would also "assist" the servicer to modify mortgages. With mortgage securities, the Fed will "support" loan modifications that are offered to borrowers who otherwise would default on the loans yet could sustain the modified loan payments. Democratic lawmakers and some Republicans have been pushing for government assistance to help mitigate foreclosures because they believe rising foreclosures are a key contributor to the financial crisis. "I'm delighted to hear the news," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.
"Until you put a tourniquet on the foreclosures problem in this country you're not going to get to the bottom of this financial crisis." He argued that the provision was required as part of an Oct. 3 bank bailout bill. Dodd added that more efforts are necessary. He recommended that government regulators consider additional programs such as a $24.4 billion mortgage foreclosure mitigation proposal introduced by Federal Deposit Insurance Chairwoman Sheila Bair. Bair, who will remain chairwoman of the FDIC, argues that her program could help 1.5 million homeowners avoid foreclosure.
Geithner enlists lobbyist as top aide
Newly installed Treasury Secretary Timothy Geithner issued new rules Tuesday restricting contacts with lobbyists – and then hired one to be his top aide. Mark Patterson, a former advocate for Goldman Sachs, will serve as chief of staff to Geithner as the Treasury Department revamps the Wall Street bailout program that sent an infusion of cash to his former employer. Patterson’s appointment marks the second time in President Barack Obama’s first week in office that the administration has had to explain how it’s complying with its own ethics rules as it hires a bevy of Washington insiders for administration jobs.
Last week, the White House announced the president had waived the ethics rules to clear the way for the nomination of William Lynn, a former Raytheon lobbyist, to be deputy defense secretary. "This is exactly the kind of thing that makes the American public suspicious of politicians. You say one thing and do another," said Melanie Sloan, founder of Citizens for Responsibility and Ethics in Washington. Treasury spokeswoman Stephanie Cutter lauded Patterson’s "long history of public service in the U.S. Senate, both as a staff director of the Senate Finance Committee and policy director for the Senate leader. "He brings significant expertise to the job of chief of staff and has agreed to a far-reaching ethics pledge to remove any hint of a conflict of interest," she added.
According to that pledge, Patterson will be prohibited for the next two years from participating in Treasury decisions related to Goldman Sachs and the specific issues on which he lobbied. Still, Sloan and financial service lobbyists question how Treasury will make those determinations. "Goldman so permeates the markets, how can you separate them out?" Sloan asked. Patterson was a registered lobbyist for Goldman Sachs from 2005 until April of 2008. Lobbying disclosure forms suggest he represented the financial giant on a wide array of issues, including visas, tax credits for cellulosic ethanol and an Indian gaming facility in New York state. His reports also list a July 2007 meeting at Treasury, but sources familiar with the meeting say it was an informational session about Goldman’s business practices organized at the department’s request.
The Treasury lobbying rules issued by Geithner Tuesday would restrict department lobbyist contacts connected to applications for funding from the Troubled Asset Relief Program and those associated with banks receiving government assistance. Geithner also pledged that only banks recommended by top regulators would be eligible for TARP funding and that a detailed description of the review process would be made public. "American taxpayers deserve to know that their money is spent in the most effective way to stabilize the financial system," Geithner said in a statement. "Today’s actions reaffirm our commitment toward that goal."
Boeing Plans to Cut 10,000 Jobs as Demand Slows
Boeing Co. said it plans to cut 10,000 jobs, or about 6 percent of its workforce, after a strike, program delays and a global recession contributed to a fourth- quarter loss. The job reductions, disclosed on a conference call today, include 4,500 that were previously announced in the commercial- plane half of Boeing's business. Earlier the Chicago-based company reported a net loss of $56 million, or 8 cents a share, compared with profit of $1.03 billion, or $1.36, a year earlier.
Boeing faces a potential increase in canceled or deferred orders this year as airlines cope with a drop in travel demand and tight credit. It also must carry development costs on the delayed 787 Dreamliner, which is now due to reach the first customer in early 2010, about two years later than planned. Boeing delivered 50 aircraft in the quarter, 70 fewer than planned, hurting revenue by $4.3 billion and setting it further behind rival Airbus SAS, the only larger commercial-plane maker. Full production resumed in December, after workers replaced thousands of bad parts found during the eight-week machinists strike that ended Nov. 2. The walkout stripped $1.8 billion from full-year earnings.
Oil falls 9% as economic data stirs demand concerns
Oil fell 9 percent on Tuesday after bleak economic data from top energy consumer the United States stirred demand concerns. U.S. consumer confidence slipped to a record low in January, a survey showed on Tuesday, as governments around the world offered further help to banks and industries battered by the financial crisis. U.S. home prices, meanwhile, plunged a record 18.2 percent in November from a year earlier as the housing market remained in the throes of a deep recession, Standard & Poor's data showed on Tuesday. U.S. crude settled at $41.58 a barrel, down $4.15, or 9 percent, in the biggest percentage loss since Jan. 7. London Brent crude settled down $3.23 at $43.73 a barrel.
The global economic crisis has weakened crude demand, especially in developed economies, and pushed prices off record peaks over $147 a barrel struck in July. British retailers gave their gloomiest forecast on record for February on Tuesday in the Confederation of British Industry's monthly survey, although data showed January sales were less dismal than expected. "The economy is still a drag on demand," said Tom Bentz, an analyst at BNP Paribas Commodity Futures Inc. Governments strung together lifelines to rescue their battered economies on Tuesday, with the $825 billion U.S. economic stimulus bill advanced another step.
Top U.S. refinery Valero said it is cutting refinery output and capital spending this year due to shrinking demand. U.S. crude inventories rose by 800,000 barrels last week, according to data released by the American Petroleum Institute on Tuesday afternoon after the market closed, against analysts expectations of a 2.9-million-barrel build. The API has begun releasing its weekly inventory report on Tuesday afternoons, a day ahead of the U.S. governments's Energy Information Administration report. Rising inventories and slumping prices prompted producer group OPEC to agree to a series of steep output cuts during the second half of 2008.
Kuwait on Tuesday said it would support a further output cut if needed, echoing comments by some of the other members of the cartel. The Organization of the Petroleum Exporting Countries next meets on March 15 to decide on output policy. Some analysts say current cuts may be insufficient to end the steep drop in prices. "Unless OPEC production cuts in January were substantially greater than what we have assumed, it is still too early to be calling an end to this current bear market," Goldman Sachs said in a research note.
ConocoPhillips reports $31.8 billion loss on charges
ConocoPhillips said Wednesday it lost $31.8 billion in the final three months of 2008 as the third-largest U.S. oil company recorded massive, previously disclosed one-time charges and encountered sharply lower crude prices. Net income for the October-December period amounted to a loss of $21.37 per share, compared with a profit of $4.4 billion, or $2.71 per share, during the same period a year earlier. Revenue fell 18 percent to $44.5 billion from $52.7 billion a year ago. Excluding one-time items, adjusted earnings for the fourth quarter were $1.9 billion, or $1.28 a share, versus $4.1 billion, or $2.55 a share, a year ago. Analysts surveyed by Thomson Reuters had been expecting earnings of $1.22 a share on revenue of $36.3 billion. Those forecasts typically exclude one-time items.
Houston-based ConocoPhillips was the first of the major oil companies to report fourth-quarter earnings. As expected, the results were by far the worst of 2008. "Our financial performance for the quarter reflects the depressed economic conditions and business environment impacting not only our industry, but domestic and global markets as well," chairman and chief executive Jim Mulva said in a statement. In addition to the one-time charges, ConocoPhillips was hit hard by oil's unprecedented plunge after peaking above $147 a barrel in July. When the fourth quarter began Oct. 1, crude was trading at around $100 a barrel. By year's end, the price was down to $44.60, a decline of nearly 60 percent. Also, operating costs haven't fallen as quickly as oil and gas prices, placing another strain on profitability.
The oil and gas industry is trying to adjust to the recession by scaling back spending and eliminating jobs. So far, the cuts haven't been as severe as some other sectors of the U.S. economy, but they've picked up in recent weeks as oil continues to hover around year-end prices. What's different for oil and gas producers, though, is the sharp reversal from favorable market conditions that fueled record profits as recently as last summer. In a sign of how bad tumbling prices have hurt the industry, ConocoPhillips announced two weeks ago it was cutting 4 percent of its overall work force — about 1,300 workers — slashing capital spending by 18 percent and writing down the value of various assets by $34 billion. It itemized the impairments in Wednesday's report, citing the substantial decline in global equity markets, commodity prices and operating margins.
The biggest of the impairment charges was $25.4 billion to writedown the goodwill value of certain exploration and production assets, including those from ConocoPhillips' $35.6 billion purchase of Burlington Resources in 2006. Goodwill is the difference between the purchase price of a company and the book value of its tangible assets, such as equipment and real estate. Accounting rules require companies to take a look at the value of goodwill every year, and adjust for any declines on their financial statements. ConocoPhillips also reduced the value of its equity investment in Russian oil producer Lukoil by $7.3 billion. Other writedowns totaling $1.3 billion included $537 million to lower the book value of two refineries. Shares rose 3.4 percent, or $1.70, to $51.21 in premarket trading.
Do we need a North American currency?
Thomas Jefferson once said: "When you reach the end of your rope, tie a knot in it and hang on." As the global financial system pushes on a string, investors are desperately trying to hold tight. The New World Order is upon us, full of hope, promise and a fair amount of fear. In our recent discussion regarding the direction of our country, we noted the risks of catering to conventional wisdom and the implications for the U.S. dollar. The Minyanville mantra is to provide financial news you need to know before you know you need it. That's a fine line to walk, as foresight often flies in the face of mainstream acceptance.
In 2006, it seemed counterintuitive to forecast a "prolonged socioeconomic malaise entirely more depressing than a recession." For years, the notion of an "invisible hand" was conspiracy theory until we learned that the Working Group on Financial Markets was a central policy tool. And now, as we gaze across our historically significant horizon, we must open our minds to thoughts and ideas that may seem foreign to folks conditioned by the past and stunned by the present. As governments take on more risk -- as they price assets on behalf of the market and transfer debt from private to public -- the common denominator, or release valve, becomes the currency.
If our economic condition is allowed to take medicine in the form of debt destruction, the greenback will appreciate, and asset classes as a whole will deflate. If we continue to inject drugs that mask symptoms rather than address the disease, the likelihood of a seismic readjustment increases in kind. The deflationary forces in the marketplace are pervasive, and the "other side" of our current equation, hyperinflation, may be years away. Given the magnitude, breadth and pace of the global financial epidemic, however, we must explore each side of the twisted ride.
Years ago, the Federal Reserve wrote a "solution paper" regarding the need to combat zero-bound interest rates. The concern was the flight of capital from the U.S. and an option discussed was a two-tiered currency, one for U.S citizens and one for foreigners. Canadian economist Herbert Grubel first introduced a potential manifestation of this concept in 1999. The North American Currency -- called the "Amero" in select circles -- would effectively comingle the Canadian dollar, U.S. dollar and Mexican peso. On its face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to compete better on a global stage.
Experience has taught us, however, that perceived solutions introduced by policy makers and politicians don't always have the desired effect. I've long contended that, much like the Internet prophecy proved true -- but not before the tech crash -- so too would globalization, albeit not without painful-yet-necessary debt destruction. To get through this, we need to go through this. If we're not allowed to go through it, foreigners will seek alternative avenues. Remember, for holders of dollar-denominated assets, seeds of discontent have been sowing under the surface for years, with the greenback off 30% since 2002.
More likely than not, global leaders will watch how our new administration attempts to tackle the financial crisis before taking drastic steps. They understand that co-dependent risk exists as a function of the derivatives that interweave our financial infrastructure. If they could disassociate from our economic ecosystem without inflicting massive damage on themselves, they would have done so long ago. If forward policy attempts to induce more debt rather than allowing savings and obligations to align, we must respect the potential for a system shock. We may need to let a two-tier currency gain traction if the dollar meaningfully debases from current levels.
If this dynamic plays out -- and I've got no insight that it will -- the global balance of powers would fragment into four primary regions: North America, Europe, Asia and the Middle East. In such a scenario, ramifications would manifest through social unrest and geopolitical conflict. This particular path isn't something one would wish for, but the cumulative imbalances that steadily built in our finance-based economy must be resolved one way or another. Therein lies the critical crossroads we together face as our wary world attempts to find its way.
Scary? Yes. Probable? Not so much, at least for the time being. Possible? Certainly, although I'll again offer that it could take years before the pieces of this prickly puzzle fall into place. Effective money management dictates weighing the entire probability spectrum of potential outcomes and factoring them into our decision making process. While the notion of a seismic currency shift may seem obscure, we must respect the possibility long before it becomes front-page news. For if we've learned anything through the last few years, proactive thought provocation is a necessary precursor to effective preparedness.
Debt from economic crisis will remain for decades
British children will be paying off the cost of the current economic crisis well into their thirties, a think tank has forecast. The Government’s debt will not return to pre-crisis levels for more than 20 years, according to the Institute for Fiscal Studies. It calculated that public debt had already risen by £10,000 for every family in the country. The public finances also face a £20 billion hole that must be filled with higher taxes and deeper cuts to public services, the respected think-tank found. David Cameron, the Conservative leader, said the report was proof that Gordon Brown had led Britain into "boom and bust".
In its annual Green Budget, the IFS said that the credit crisis will cost the Treasury £50 billion a year in lost tax receipts and higher benefits spending alone. The Government is planning to raise £38 billion a year from 2015 through spending cuts and tax rises, meaning it will run up a £12billion-a-year shortfall even if everything goes to plan. Robert Chote, the director of the IFS, said: "Even if the economy performed no worse than the Treasury expected last November, this tightening would probably have to remain in place until the early 2030s before debt and debt interest return to pre-crisis levels."
However, he added that the IFS believed tax revenues would not grow as quickly as the Government had forecast, meaning the annual shortfall could swell by a further £20 billion - the equivalent of a 4p rise in the basic rate of income tax. Britain’s debt has already reached £697.5 billion, the equivalent of 47.5 per cent of GDP, which is the biggest proportion since 1978. Meanwhile, "most City and academic forecasters now think that the recession will be deeper and longer than the Treasury thought at Pre-Budget Report time," Mr Chote said, which "would push government debt and borrowing further above the PBR forecasts."
The IFS report suggested that coming Budgets would need to be more like that announced in 1993 by Kenneth Clarke, the then chancellor, who returned to the Conservative front bench earlier this month. The IFS said: "It is worth remembering that the tax increases announced in the Pre-Budget Report were only one-tenth the size of those announced in the 1993 Budgets, the last time a government responded to a similar need for additional fiscal tightening". Referring to the report at Prime Minister’s Questions, Mr Cameron said the country faced "the deepest recession for a generation". He asked: "How deeply [will] the economy have to contract before he finally admits that there is indeed an economic bust?"
Mr Brown said the IFS report had praised the action taken by the Government so far. While admitting Britain faced a "deep recession", he added: "This is a recession which is facing every country and continent in the world. "Everybody except the Conservative party agrees that this is not a unique United Kingdom phenomenon." The IFS report noted: "Labour entered the current crisis with one of the largest structural budget deficits in the industrial world... having done less to reduce debt and – in particular – borrowing than most since 1997." It also found that while the Government is also assuming that it will continue to be able to borrow relatively cheaply, it may find itself in further trouble if the market for Treasury bills dries up and interest rates rise. "There clearly is a danger investors will take fright at the state of the UK public finances," the report said. It added that if the price of servicing debt returned to 1990s levels, yet more tax rises and spending cuts would be needed.
Lloyds fat cats still trying to get at the cream
What planet are these bankers living on? The bankers in this case are those at Lloyds Banking Group, who, we reveal today, have judged that the moment is right to sound out their non-government shareholders about a salary increase for directors. Those City institutions whose views have been sought appear to have delivered a suitably robust response - you cannot be serious, and, if you are, try asking your main shareholder, the taxpayer, and see how far you get.
In all likelihood, City resistance will force the Lloyds directors to rejoin the real world. But it is still pretty extraordinary that Lloyds could get as far as employing PricewaterhouseCoopers to canvass opinion. According to fund managers, it wasn't only a salary increase that was discussed - Lloyds also wanted to talk about an incentive scheme that could pay out millions. Consider that Lloyds will soon be sinking its teeth into its HBOS acquisition and laying off 20,000 staff or thereabouts. Accepting a salary increase (let alone a big incentive package) against a backdrop of redundancies and branch closures would be a failure of leadership.
In the absence of an explanation from Lloyds itself, we must assume that its directors took one look at the potential rewards on offer to Stephen Hester, Royal Bank of Scotland's new chief executive, and decided they'd like some of the same. There is a key difference. Hester was parachuted in to clean up a mess. Lloyds killed its own share price and steered itself onto the rocks of part-nationalisation by buying HBOS, complete with its portfolio of commercial property loans of unknown toxicity. Maybe one day the HBOS deal will deliver the promised long-term benefits. But right now Lloyds directors have zero bargaining power and should wake up to the fact.
"We will not bid at levels we think are unsustainable or undeliverable - there's no point in being a hero for a day and a villain forever more afterwards." So said Richard Bowker, chief executive of National Express, in August 2007 when explaining how his company could afford to pay £1.4bn for an eight-year franchise to run the east coast main line between London and Edinburgh. Fast forward to today and one City analyst, JP Morgan's Damian Brewer, is already suggesting that it may be financially worthwhile for National Express to hand back its rail franchises (if you bin one, you have to bin them all) next year. "We think that if our projections were to materialise, then by 2010 the rail operations would carry a negative net present value, and it might prove to be economically positive (despite reputation damage) to exit UK rail," he says.
Well, OK, you can see the financial sense if the east coast does indeed turn out to lose £33.9m next year as recession bites. But it is rather harder in practice to see how National Express could hand back the keys. It could never again hope to run a railway in Britain. It may also have trouble persuading more local authorities in the US that it is a company that can be relied upon to run school bus services - and that's the stable part of its business. For now, this is a potential problem in 2010, not a pressing problem in 2009. Indeed, the pips may be squeaking more loudly at other rail operators. But if National Express thinks there's a chance that it could eventually have to plead for softer franchise terms, it ought to start preparing the ground. That means making a deep cut in a dividend that currently costs £60m a year. That payment, as Bowker might phrase it, looks unsustainable and undeliverable.
How many blow-ups are we likely to see at highly leveraged private equity-backed companies? Here's a man should know and the news is not good. Tom Attwood is managing director of Intermediate Capital Group (ICG), an investor in most forms of private equity debt. He has counted 54 defaults in Europe in the past six months and thinks the rate of defaults will peak eventually at 10% - as bad as past recessions. He doesn't expect ICG to suffer such extreme pain. He also thinks not all debt trading at 50p-70p in the pound is quite as distressed as it appears - there may be a few gems in the dirt. The cheerier part of his message was ignored by the market, which marked ICG's shares down 28%. But you can't blame investors for taking fright. The horrible truth is that private equity firms were re-engineering successful buy-outs - adding even more debt, in other words - right up until the moment the credit bubble popped. The risk is that 10% turns out to be too conservative.
UK treasury plan isn't working, MPs say
Government action to limit the severity of the recession has failed to work, leaving the Treasury's latest forecasts for growth in tatters, an influential body of MPs has warned. A hard-hitting report published today by the Treasury Select Committee claims that the bank recapitalisation programme announced in October had not boosted lending, and could actually be "hampering" the ability of banks to lend because of the onerous terms of the agreement. Identifying the lack of credit available to consumers and businesses as the single biggest threat to the economy, the report says: "We are concerned that piecemeal measures introduced by the Government may not be adequate in the face of the crisis in lending."
The committee recommends that the Treasury considers a renegotiation of the original contract so that the banks concerned - Royal Bank of Scotland and the now merged Lloyds TSB and HBOS - increase their lending. It says that the need for a second bank bail-out, announced last week, is evidence that the Government gave insufficient weight to the risks facing the UK economy at the time of the Pre-Budget Report. As a result, it says, the Treasury's forecast that the economy will start to grow again in the second half of this year is too optimistic: "The outlook for economic growth remains highly uncertain, but the balance of risks to the Treasury's forecast is on the downside, as illustrated by the two packages which have since been introduced."
Senior policymakers at the Bank of England, as well as economists, have stated that the official forecasts are unrealistic. John McFall, a Labour MP and chairman of the committee said: "The Government must ensure the availability of credit increases quickly, and there is still far more work to be done. Without that increase in availability, the recovery of the economy will be placed in jeopardy." After taking evidence from various witnesses on the Pre-Budget Report, including the Bank of England Governor Mervyn King, the committee concludes the Government's hopes for the temporary reduction to VAT are unrealistic.
By cutting VAT from 17.5pc to 15pc at an estimated cost of £12.4bn to the Government, the Chancellor hoped consumers would start spending again, thereby providing a much-needed boost to the economy. However, the latest evidence published in a CBI survey yesterday suggested that so far it was not having much of an impact. The report will be an embarrassment to the Government, which is facing increasing pressure to prove that drastic action taken since October to revive the shrinking economy was worth the billions in costs to the taxpayer, and the big increase in Government borrowing it would require.
The report warns of the risk of the "self-reinforcing deflationary cycle" facing the UK and says that now interest rates are close to zero, the Treasury should publish any action it is considering, should quantitative easing be required. It also calls for more protection for savers, who are losing out after a series of Bank Rate cuts to an all-time low of 1.5pc. "What sort of message would it send out if we neglect those who have been diligently saving? "It is crucial that amid the raft of other measures to get lending going, they are not punished for such diligence. We hope to see the 2009 Budget provide greater support to savers," said Mr McFall.
Global CEOs Pessimistic for 2009
A global survey taken among leaders of major companies around the globe has found deep pessimism. Just 21 percent believe that revenues will climb in 2009. Relative to their Western European neighbors, though, the Germans are relatively optimistic. In years past, the World Economic Forum in Davos, Switzerland has been blasted for being little more than a week of winter-wonderland fun for the over-privileged. This year, though, it promises to have all the levity of a funeral. According to the 2009 Annual Global CEO Survey conducted by the consulting firm PricewaterhouseCoopers, confidence among the global business elite has plummeted to its lowest level since 2003. The survey found that just 21 percent of CEOs were very confident that their revenue would grow in 2009 -- down from 50 percent in last year's survey.
Numbers for CEOs in Western Europe were even lower, with just 15 percent of company heads anticipating a growth year. "The speed and intensity of the recession has rocked the psyches of CEOs and created a global crisis of confidence," Samuel A. DiPiazza, Jr., who heads up the consulting firm, said in a statement. "CEOs are most concerned about the immediate survival of their companies." Of particular note is the disappearance of optimism among CEOs in developing economies, which are coming off years of strong growth. In China, the number of managers who are "very confident" about improving revenue in 2009 dropped to 29 percent from a 2008 level of 73 percent. In Russia, the same measure dropped to 30 percent from 73 percent and in Mexico, just 13 percent are certain that 2009 will bring an improvement to their balance sheet, down from a whopping 77 percent just 12 months ago.
Ironically, the study found that among CEOs in the developed world, Germans are relatively optimistic. Just 17 percent of German company heads are very confident their revenues will grow this year -- but that is higher than the 13 percent result for the US, 12 percent for the UK and a paltry 5 percent in France. The small glimmer of relative optimism among the Germans follows a Tuesday report that Germany's Ifo Business Climate Index climbed slightly in January, up to 83 points from a December low of 82.7. The tiny up-tick comes following a forecast by Economics Minister Michael Glos last week indicating that the German economy could return to positive -- though miniscule -- quarterly growth later this year.
PricewaterhouseCoopers questioned 1,124 CEOs from 50 countries around the world. The study found that the pessimism comes largely from widespread concerns about the global nature of the current economic downturn and the difficulties on the financial markets -- problems which have lead a number of companies to postpone infrastructure investments due to the difficulty of obtaining credit. Fully 70 percent of those surveyed suggested they would delay planned investments because of high financing costs. The study also asked CEOs about subjects unrelated to the current crisis. It was found, for example, that a hefty 83 percent would like to see their governments provide clarity and consistency when it comes to climate change policies. Only 28 percent feel that such clarity currently exists, with the governments of Italy and France receiving among the lowest marks.
Santander offers to compensate private banking clients in Madoff case
Santander has offered to compensate private banking clients who lost €1.38bn (£1.3bn) in the alleged fraud by US broker Bernard Madoff to try to ward off a class action lawsuit and rebuild its tarnished reputation. Spain's largest bank is the first institution to make such an offer. Investors in its Optimal Strategic fund are thought to be some of the biggest victims and Santander said it had made the move "on the basis of purely commercial reasons" to help "maintain its business relationships with those clients".
Spanish legal firm Cremades & Calvo-Sotelo has teamed up with America's Labaton Sucharow to represent victims. Both filed a class action lawsuit on Monday in a district court in southern Florida. "The putative class seeks a recovery of billions of dollars in damages," the law firms said. Javier Cremades, a partner at Cremades & Calvo-Sotelo, reportedly said last night that the Santander offer "went in the right direction". Santander counts some of Spain's richest people as its private clients, as well as a high number of Latin American investors. The offer will not apply to institutional investors.
It means Santander's private clients will only lose the interest they expected to have accrued through Madoff's funds. They will be able to exchange their investments in Optimal for preference shares in Santander, with an annual coupon of 2%. The move will cost the bank €500m – a figure that will be absorbed in last year's results, which will be announced next Thursday. The Spanish bank previously announced that Optimal had a total exposure of €2.33bn to Madoff's alleged $50bn fraud while Santander itself only lost €17m. Santander shares rose 1.4% this morning.
Reports from Spain have shown that many small Spanish investors put their savings into Madoff Securities via Optimal, including a retired school teacher who put half her savings in the fund, and a street vendor who invested more than $400,000 in lottery winnings in the fund. Victims who lost money investing with Madoff range from financial firms to charities and celebrities around the world. The latest to emerge was Hungarian-born actor Zsa Zsa Gabor, who has lost about $7m. US regulators now believe Madoff may never have made a single trade. He is accused of running a massive pyramid scheme, using cash from new investors to fund payments to earlier clients. He is still on bail in New York and wore a bullet-proof vest on his last court appearance.
Spanish banks suffer from Madoff scandal
Spanish banking giants BBVA SA and Banco Santander SA both said Wednesday that they would need to take provisions to cope with losses related to the Bernard Madoff scandal. BBVA reported a 62% fall in fourth quarter net income, much worse than expected, in part due to the Madoff scandal. The company said it would take a 302 million euro ($401 million) provision for the fourth quarter of 2008 over its Madoff exposure. Meanwhile, Santander said its 2008 net profit slipped 2% to 8.88 billion euros after taking a provision of 500 million euros, or 350 million euros after tax, on a settlement offer to customers who lost money in the Madoff fraud. Announcing the figures earlier than expected, Santander pointed out that the bottom line was 9.4% higher than the 2007 result if capital gains were excluded.
A survey of analysts polled by FactSet was projecting net income of 9.27 billion euros for this year. The company said that all extraordinary gains in the year were offset by write-offs and reinforcement of its balance sheet. Santander on Tuesday moved to head off lawsuits related to Madoff by offering a settlement worth 1.38 billion euros to private clients who lost money through investments in the Optimal Strategic U.S. Equity fund. It's the first bank to offer clients such a deal. Santander also reportedly said it would close seven funds run by its Optimal Investment Services after the Madoff scandal triggered a surge in withdrawal requests. The settlement came a day after U.S. clients of Santander filed a lawsuit against the bank in Florida.
Carlos, Berastain Gonzalez, research analyst with Deutsche Bank who has a buy rating on Santander, said in a research note that the bank probably won't see much effect on its core tier 1 capital -- the ratio of reserves to risk-weighted assets. "All in all, although not great news, the impact is not huge and more importantly, prevents having to face larger (and unknown) compensations derived from different lawsuits and more importantly the potential loss of business." Within commercial global banks, clients of Santander had the most exposure to the Madoff scandal, having lost more than 2.3 billion euros by investing with Madoff via its hedge fund asset management unit, Optimal. As well as announcing its profit early, Santander said it will pay a final dividend of 0.257 euros per share in cash, calming any fears that the payout could come under pressure. Shares of Santander were last up 9.9% in Madrid, benefiting in part from a boost given to global financial shares on Wednesday on back of a report the Obama administration is nearing a plan to buy illiquid or bad assets from banking firms
Meanwhile, news was not so great over at BBVA. Its fourth quarter earnings of 519 million fell well below the average net profit of 912 million euros expected by 10 analysts polled by Dow Jones Newswires. In 2008, net income overall was 5 billion euros, down 18% from 6.126 billion a year ago. Earnings per share fell 2.8% on an annual basis in 2008 to 1.47 euros from 1.5 euros. In addition to provisions for Madoff exposure, the bank also took gross charges of 470 million euros and 390 million euros in the second and fourth quarters for early retirements. Bad loans were also a problem. The company said loan-loss provisions increased 47% during the year to 2.79 billion euros from 1.9 billion euros a year ago, owing to the rise of non-performing assets and because the bank "continues to act with maximum prudence in a very complex economic environment." It said, however, that it still has no need for asset provisions or write-offs related to the crisis in financial markets.
The bank said its earnings were a "considerable achievement" in a year when its competitors have recorded significant falls in revenue and profits. At the presentation of results in Madrid, though, the company said it would cut 10% of its U.S. staff, according to Dow Jones Newswires. BBVA said its core capital base was 17.5 billion euros -- 6.2% of risk-weighted assets, against 5.8% achieved at the end of 2007. Its Tier 1 capital was 7.9% at the end of 2008, versus 7.3% a year ago. Shares were up just over 5% in Madrid. Analysts said they were pleased by the fact the group announced a prudent dividend policy for 2009 with a payout of 30% in cash, and will pay a share rather than cash dividend in the fourth quarter.
As property crimes increase, more neighbors are on patrol
It's not unusual for Jennifer Litkowiec to have problems with her husband's off-the-wall ideas, but this one took the cake. Hispanic gangs had seeped into the couple's quiet corner of the working-class town of Cudahy, Wis., just south of Milwaukee, stealing garage door openers and returning later to score the contents. So what was Jason Litkowiec's plan? Shine a light on the night. "I finally had enough," he says. Against his wife's loud protestations, the young steamfitter joined a dozen other neighborhood men and set up the Rosewood night patrol. Armed with nothing but flashlights and cellphones, the group followed suspicious cars and even set up an impromptu sting when a neighbor left town and forgot to close his garage door. They called in police to arrest the suspects after a brief chase.
High foreclosure rates, a spike in brazen break-ins, and slashed police budgets are causing turmoil in America's transitioning urban communities, auguring what Atlanta anticrime activist Larry Ely calls an "urban war." So far, this is a largely unarmed conflict defined by nighttime jogger patrols with flashing headlamps, unofficial block patrols with cop-like "beats," and neighborhood all-Twitter alarms – short text messages dubbed "BOLO" or "be on the lookout" when something potentially dangerous or illegal happens. A sense of humor helps. Some who take part have signed on to the "World Superhero Registry," an online outfit where a member must be one "who does good deeds or fights crime while in costume." But like other historical flash points, when the public becomes personally involved in crime fighting, vigilantism becomes a threat, experts say, especially if government appears powerless.
"When you go broke, be creative. Outsource criminal justice back to the people," says Peter Scharf, a criminologist at Tulane University in New Orleans. "When you go through a very chaotic period with crime, people are going to become more innovative." Hard numbers on the rise in amateur crime fighters don't exist, but policing experts say the trend is noticeable. At the National Sheriffs Association (NSA), which runs some 26,000 Neighborhood Watch groups, activity has risen to nearly the levels of the winter of 2001, following 9/11. NSA crime prevention specialist Robbie Woodson links the uptick directly to the Congressional decision in 2007 to cut community policing grants by 68 percent, much of which had been aimed at low-level crime in transitional neighborhoods. Ms. Woodson says President Obama's inaugural call for "a new era of responsibility" took direct aim at what she sees as a widening gap – both perceived and real – between criminal activity and the ability of police to control it.
"It's an absolute perfect storm," says Woodson. "[Federal policing grants] were cut before the economic crisis, which is just now playing out on the law enforcement front. And now you have people being laid off, and some of those people are going to start stealing in a variety of different ways." Though violent crimes are down across the nation, property crimes by many accounts are rising. (FBI crime figures for 2008 won't be available until fall.) Transitional neighborhoods around major urban centers are particularly prone to the cause-and-effect between rising crime and community patrols, as national migration figures slow and more and more Americans hunker down. "When we retreat, we feel vulnerable," says Gregg Barak, a criminologist at Eastern Michigan University in Ypsilanti.
What seems to have sparked many groups isn't just low level crime, but high profile incidents and brazen tactics like bashing in front doors to get at large flat-screen TVs. The murder in Atlanta of a bartender by four armed bandits on Jan. 7 resulted in the creation of a group called Atlantans Together Against Crime (ATAC). In the span of two weeks, the group had almost 5,000 members on Facebook. "I'm not sure the total level of crime is changing significantly, and the conveyor belt that produces crime is more or less the same," says Robert Friedmann, a criminologist at Georgia State University. "The problem comes when you have a human story that suddenly has a new twist." Two years ago, Lisa Cater was part of a real estate boomlet in East Atlanta Village, a community about three miles from downtown, as mostly white suburbanites flooded back to the city. But now that movement has largely stopped, many houses are empty, and criminals have become more brazen and open, she says.
"This is the worst I've ever seen it," she says, describing what she calls a "property-driven turf war." With her partner, Maria Midboe, Ms. Cater patrols her street in an imposing black Jeep, often using a high-power spotlight to shine on suspicious characters. "The only way we can make a difference is to take personal responsibility and do something about it," she says. Amateur crime fighters like Cater can be found across the nation. In Plano, Texas, residents created a watch group to look after vacant and abandoned homes. In New Orleans, groups like Silence is Violence are using Twitter alarms and cell phone messages to fight that city's violent crime wave. Clayton County, Ga., is one of a growing number of police departments putting arrest and warrant information online in map form to give residents a sense of who has had previous run-ins with the law. And though Twitter alarms and other tech-savvy warning systems can sometimes ratchet up the perception of crime rates, they're also being used effectively: An Atlanta break-in captured by home cameras and then put up on YouTube helped police catch several suspects last month.
"Just by the nature of crime trends in the metropolitan environment and this financial environment, it's difficult to put the resources on the street that we may have had in the 1980s," says Cudahy Police Chief Tom Poellot. "Police can't do this alone." Citizen awareness is part of the foundation of modern policing, born when 19th century London bobbies used whistles to call in civilian backup. But community fear has in the past turned to violence in a country where vigilantism has sometimes flourished. The Nation magazine recently reported that after hurricane Katrina, vigilantes killed several black men for simply walking through a neighborhood. Several registered sex offenders have also been killed. Citizen patrols became a controversy in New Haven, Conn., in 2007 when the Edgewood Park Defense Patrol included some armed with licensed firearms. "If it's largely white citizen groups trying to protect new turf, you run the risk of creating flash points," says Stan Stojkovic, dean of the Helen Bader School of Social Welfare at the University of Wisconsin, Milwaukee. "But to me, this is a much different kind of situation. There's hope in this kind of thing, as long as it evolves into ... a form of integration."
That's what Lewis Cartee is careful to address with the more gung-ho members of his block patrol group in East Atlanta, known as Safe Atlanta for Everyone (SAFE). He calls the group "a glorified neighborhood watch" where he uses Google maps to chart out "beats" for some 40 residents. He says he stresses what he calls "the power of 'Hey.'" "You've got to go meet people, because the guy down the street you're suspicious of could be a good guy, and you run the risk of putting that guy off," says Mr. Cartee. "No way do you want that patrol being seen as us versus them." Done inclusively, neighborhood patrols can be a powerful deterrent, says Rufus Terrill, an Atlanta mayoral candidate. "Bad guys don't like to be seen doing things," says Mr. Terrill. "They don't want people's eyes on them. They fear that as much as a gun." In Cudahy, it took Litkowiec and his band of civilian crime fighters a mere three weeks to effectively deter the garage robbers in the Rosewood neighborhood. "We basically figured we should be able to outsmart some common thieves," says Litkowiec, who last week was handily elected to the city council on an anti-crime platform.
86 comments:
ilargi we are on the path to sustainability whether we like it or not and I would venture that 90% will like it not at all.
- doppelgänger
The obvious answer: they have not needed to live sustainabily for awhile. History is full of people living this way though!
Doppelgänger,
We seem to me to be on the path to mass destitution, and I can't see how that turns into sustainability any time soon. People who can't afford to heat their homes will cut down the trees, people who can't afford food will eat whatever they can find, and where there isn't enough to go around, many people will fight over what there is, which will destroy much of what is left.
Carrying capacity can be degraded very rapidly when too many desperate people are trying to survive on too little. We have a long way to go to the downside before we can hope to reach the stage where we are no longer actively reducing the capacity of our own life-support systems. Knowing this makes it difficult to sleep at night.
TAE exists to warn people so that they can preserve as much as possible of what they have while there is still time (not much, but some).
There are very few examples of truly sustainable societies in human history. Iceland post-colonisation, pre-20th Century might be one. Fundamentally, human psychology is biologically determined to be competitive, consumption and unsustainable, like any successful* species. Sustainability requires an entire collective society to act contrary to their impulses, and that seems like fantasy to me. Collectively, human beings show a solid history of acting only in their short-term interests. (Individually, your mileage may vary.)
* By successful I mean in the evolutionary sense, or in other words the contextual sense, which never assumes that success will continue. A successful species today may breed and consume itself into oblivion tomorrow.
One of the many MANY tragedies in this whole clusterfudge is that if growth is indeed dead, than so are billions of people. So many developing nations and developing/emerging economies have modeled their growth upon Western models and "agreed" (been coerced) to be "used" by the West for their resources, cheap labor, etc. With the collapse of the global economy---and I would argue with the end of growth as we have come to know it---these folks in these lands are going to suffer unimaginable horrors.
DanW,
We suffer unimaginable horrors all ready. It seems hell is a bottomless pit.
@ Stoneleigh
I agree with yours and Ilargi's analyses. When I stated that the "age of sustainability" has begun, I meant that NOT as a lifestyle choice but as a global imperative: humans will not choose this path. They cannot. The earth, however, will choose it for them---for us.
I fully agree with Ilargi's skepticism regarding "sustainability." The sustainability fetish is just as delusional as the religion of limitless growth.
Building a community of homesteaders offers no solution whatsoever. There simply are no solutions to our predicament. Humans are incapable of seeing their way through this mess.
To paraphrase Ilargi, until we run headfirst into the wall at full speed, we will deny that the wall exists. For the vast majority of us, the end will come rather swiftly, and it won't matter one bit how many sheep you've raised or how much wood you've stockpiled.
2 items for reading:
http://www.gulfnews.com/BUSINESS/Comment_and_Analysis/10276906.html
On the road to recovery
By Nathan Gardels, Global Viewpoint
Published: January 20, 2009, 22:58
http://www.forbes.com/2009/01/27/corruption-financial-crisis-business-corruption09_0127corruption.html
Corruption And The Global Financial Crisis
I harbor few illusions about how long civilization is likely to continue. As Jay Hanson long ago pointed out, we probably have about 30 years before its lights out for pretty much everyone.
The fate of humanity was sealed once we harnessed the awesome power unleashed by nuclear fission. You can't put the genie back into the bottle.
I know people don't like to ponder this notion, but wishing it weren't true won't make it go away.
Peak credit and peak oil are simply the sparks that will ignite humanity's last great fire.
When the power structure finally crumbles (and it will) so does humanity, as the intricate command and control structure fragments and the safe storage and use of our nuclear stockpile is breached.
The Machine (the current power structure) isn't going anywhere, at least for a little while.
It all comes down to science folks. That which maintains us will also destroy us (already has destroyed us, most just don't realize it yet).
You see, over the last several generations, the Machine has fashioned an ironclad insurance policy. It was built using the nation's best and brightest. Tens of thousands were employed not simply to build and maintain our nuclear arsenal (we've mentioned that at length).
Those bookworms were also put to work on many many other projects as well. The net result, when the Machine finally splits and fragments, so do you.
Let's take a moment to ponder the Machine's stockpiles of biological weapons. At Fort Detrick, Maryland and on Plum Island off the coast of Long Island, as well as many other undisclosed locations, the Machine maintains living cultures of the nastiest little critters ever to roam the Earth (nastiest, at least from human perspective). Smallpox, Marburg Virus, Ebola, Plague, Cholera, Anthrax, Tularemia, etc (I'll stop here, it's a long list). You name it, we've got it! And lots of it too!
Now, large scale research on the weaponizing of these little fellas apparently stopped back in the early 1970s. Richard Nixon no less was sufficiently terrified of their destructive potential, he apparently put a stop to things (wink, wink, wink). Our scientists were more than satisfied with the destructive potential of these little guys. But, one problem persisted: once unleashed on an enemy, the beasts quickly turned on their masters and destroyed them as well. So, a decision was made in conjunction with the Russians (who, of course, were following our lead) to tone things down a bit, lest something get out of hand.
So here we are folks, the stockpiles persist. They stand at the ready along with our nuclear arsenal. When the Machine's back is finally against the wall, it will naturally reach for the bag of dirty tricks and bring the house down on everyones heads.
None of you have offered one remotely plausible scenario whereby the Machine collapses and the genie stays in the bottle. Why? Because you can't. The insurance policy is rock solid - especially the biological weapons one, because, honey, those suckers are easy and cheap to propagate and thousands of individuals know just how to do it.
The insurance policy will be maintained until it can't, at which time its lights out for everybody.
Rumor:
It's interesting that we have gotten our conceptions of ourselves so entangled with the Darwinian view that we now use the word successful, more than any other word, to describe the kind of life worth aspiring to.
Brendan
We are already suffering unimaginable horrors to the Western mind at least.
Atleast 10 million people according to govt estimates are suffering from famine in Kenya.(Might be exagerated though) Nearby Sudan has seen genocide in Darfur, Somalia has collapsed, Congo (also nearby) is engaged in an internal war that has claimed millions of lives and Uganda has its own internal crisis from time to time.
Kenya is still relatively stable along with Tanzania next door but 50% or more of the population live on less than a dollar a day.
Went to donate food recently at a shelter, there were about a 1000 kids all under the age of 10. Some 7 year old girls were carrying a baby on their back and a 3 year old was holding the girls hand.
These kids were on their own, no parents in sight. They had basically walked from their homes to receive food.
What is encouraging though is that 75% of my people are actually involved in some way in agriculture and there are plenty of self sufficient farmers in the country. The climate is equatorial, hence there is no need for heating or cooling as the seasons change.
What is troubling is that we will have very limited ability to respond to our own overshoot once the global trade systems have broken down but the people here are resilient and used to hardship.
Have grown up knowing water shortages, power outages and economic turmoil, about 40% of kenyans are actually unemployed I believe though many are subsistence farmers and many have never known the wonders of electricity, plumbing,having decent shelter etc, in the future those could be great strengths.
Have a strong community system here and trying to enlarge it as best as I can, but us city folk we will have to adapt quickly and who knows if we will be able to make it? but making the effort here to educate. The capital where I live, Nairobi is not very large and a lot of it is within walking distance and is surrounded by rich, fertile agricultural land so food supply is pretty good in the capital (Not elsewhere in the country though, hence the famine)
I'm feeling all biblical... "The sins of the fathers shall be visited upon the sons".
UK government debt will remain above pre-crisis levels for 20 years, says the independent Institute for Fiscal Studies
http://news.bbc.co.uk/1/hi/business/7853772.stm
Homo sapiens has demonstrated no capacity for sustainable living at all. Those who point to the hunter gatherer period forget that we were such successful hunter gatherers that we hit the first resource crisis, which is what forced our species into adopting agriculture. We went from 4 hour gathering days to 12 hour labor days as farmers. The fossil record is clear that this also resulted in more diseases, smaller stature, less dense bone structure, etc., than their hunter-gatherer counterparts.
So why did we adopt agriculture? Because it allowed us to survive instead of die. In short, our brains had become large enough to outsmart natural selection, at least for a time. But the evolutionary pressures on us had not changed our basic nature - breed! Even the "sustainable" cultures of Polynesia didn't solve the basic population problem. Instead they shoved it off on the sea, which usually consumed the excess humans but occasionally allowed some of them to reach new islands and continue expanding.
Thus we are incapable of sustainable living in any "natural" setting at all. Either we will see a new species emerge, a descendant of homo sapiens that is capable of sustainable living, or we will see homo sapiens simply go extinct as a dead end evolutionary experiment.
I can envision only one single path that would allow homo sapiens to survive and I am pretty sure that path is about 99.99% closed now. That would have been to spread into space in the local solar system. Living in such habitats, we would have been directly forced to handle issues of resource allocation, population, and sustainability.
However, we squandered our huge energy and resource reserves instead on wars, making certain tribal chieftains (politicians) richer, and on "celebrities". 5000 humans living in a self-contained orbiting space station with a capacity of 5000 would have been face-to-face with every issue in front of us today and no way to pretend to dodge those issues. We would have learned to live sustainably or we would have died. Unfortunately this path is now closed and we're going to die anyway, one way or another, as a species. And frankly, given the wreckage of the biosphere, I don't hold out much hope of us evolving into something better either.
Maybe it's time for the jellyfish to have their turn at it.
P.S. Those of you who promote agriculture as any sort of "sustainable" solution are blind to the fact that it's not sustainable at all over any reasonably long time period. Agriculture is the root of what is wrecking the planet today and agriculture is the reason we're likely to go extinct.
quote:
"Instead, we are getting the equivalent of a full-scale intellectual war, with Nobel prize winners and leading economists actively attacking each other in public."
This confirms my worst fear: these f*ckers don't know what they're doing.
Econ. is not a science. It is entrail-reading & "social studies" run amok.
One word:
Permaculture!
[or die]
We may definitely be headed for sustainability. Extinction is the ultimate in sustainability.
Greyzone:
"Those of you who promote agriculture as any sort of "sustainable" solution are blind to the fact that it's not sustainable at all over any reasonably long time period. Agriculture is the root of what is wrecking the planet today and agriculture is the reason we're likely to go extinct."
thank you! I confront this with fellow "organic" farmer types all the time. I farm "organically" strictly out of selfish, survival motives. Most "organic" farmers, in addition to thinking they produce a more "pure" product, are under the illusion -- delusion -- that they're practicing "sustainability."
To the which I say f*ck.
Can anyone recommend a good permaculture book or internet resource for a complete beginner?
The coming spring seems like an opportune time to diversify the ol' portfolio.
Drew, permaculture is a scam.
I read Fukumama's book, or whatever his name is, about the One Straw B.S., and I learned exactly nothing.
You need a gardening manual, not crappy philosophizing.
Start with Eliot Coleman
@rumour
"Fundamentally, human psychology is biologically determined to be competitive"
Why do people cooperate then at all? There is nothing fundamental about it. That's like saying people are fundamentally evil. That's crazy. If you really believe that you would just kill everybody around you - after all, they are competing with you for space and resources.
If humans have always been competitive why the hell did we create language? For war?
@greyzone
It is my understanding that humans moved to argriculture mainly due to (documented) environmental strains - namely a change in climate that lasted roughly 1,000 years - this led to the establishment of Ur and the fall into history.
I don't think evolutionary pressures changed our 'basic nature' - we simply had a surplus of food thans to argiculture which allowed the population to grow.
There are some really distasteful misanthropic diatribes on here today. Check yourselves and the content of your own souls. What it is reflecting is dark. Yeah, you might say you're just being realisitic, but remember humans have the capacity for great beauty and profound thought. I certainly don't see much of either on here today in response to this post.
NPR is now doing a l-o-n-g story on instant replays in football.
This, after reading today's TAE intro and headlines.
I want to shoot myself.
Trichter:
"remember humans have the capacity for great beauty and profound thought."
Sure. When they're fat and happy and well-lit.
Just wait till the lights go out and no one has a can-opener.
Stoneleigh said...
"We seem to me to be on the path to mass destitution, and I can't see how that turns into sustainability any time soon. ".
Ah good! Maybe, since there is time, then it might be an idea, for the Canadians on the site, to speak about all the money Harper and chums are chucking about - in a budget that seems to have been ignored here.
... Improve access to financing for consumers and businesses with support of up to $200 billion, including $50 billion extra for the Insured Mortgage Purchase Program, and a $12-billion secured credit facility to improve access to financing to buy and lease new vehicles."
Since sustainability is not happening soon, I will purchase a car , voom voom, to help keep the party going till we are sustainable.
doppelgänger
-
Drew, start at my friend Sharon Astyk's site. I would suggest you don't follow permaculture too closely.
John Jeavons’ “HOW TO GROW MORE VEGETABLES (AND FRUITS, NUTS, BERRIES, GRAINS, AND OTHER CROPS) Than You Ever Thought Possible On Less Land Than You Can Imagine”
Original French Intensive method.
Orlov has a brilliant article today, from his book. To quote the man,
"Economic collapse has a way of turning economic negatives into positives. It is not necessary for the United States to embrace the tenets of command economy and central planning to match the Soviet lackluster performance in this area. We have our own methods that are working almost as well. I call them “boondoggles.” They are solutions to problems that result in more severe problems than those they attempt to solve.
Just look around and you will see boondoggles sprouting up everywhere, in every field of endeavor: we have military boondoggles like Iraq, financial boondoggles like the doomed retirement system, medical boondoggles like private health insurance and legal boondoggles like the intellectual property system. At some point, creating another boondoggle becomes the preferred course of action: since the outcome can be predicted with complete accuracy,
there is little risk. Proposing a solution that might work runs the risk of it not working.
So why not, as a matter of policy, only propose solutions that are guaranteed to simply create more problems, for which further solutions can then be proposed? At some point, a boondoggle event horizon is reached, like the light event horizon that exists at the surface of a black hole. Beyond that horizon, the only possible course of action is to create more boondoggles.
The combined weight of all these boondoggles is slowly but surely pushing us all down. If it pushes us down far enough, then economic collapse, when it arrives, will be like falling out of a ground-floor window. We just have to help this process along, or at least not interfere with it. So if somebody comes to you and says, “I want to make a boondoggle that runs on hydrogen” — by all means encourage him! It’s not as good as a boondoggle that burns money directly, but it’s a step in the right direction."
The article goes on quite humourously and is very insightful. Orlov has a way of making you laugh and think at the same time.
Trichter,
"Why do people cooperate then at all? There is nothing fundamental about it. That's like saying people are fundamentally evil. "
I don't think that is true, but try this one on for size: Are you not trying to say people are fundamentally good? What is the difference? And the proof?
"[...] If you really believe that you would just kill everybody around you - after all, they are competing with you for space and resources."
People need to cooperate. We are not solitary animals. Killing your potential help is not smart, unless there is a distinct shortage in resources.
[...] "If humans have always been competitive why the hell did we create language? For war?"
To cooperate better in our fight for survival, yes. Why do you think we created language? To sing in the moonlight?
"There are some really distasteful misanthropic diatribes on here today. Check yourselves and the content of your own souls. What it is reflecting is dark. "
Not particularly, though there are confusions regarding the meaning of the term sustainable. How can discussing these things be distasteful?
"Yeah, you might say you're just being realisitic, but remember humans have the capacity for great beauty and profound thought. "
Yes, and nobody has denied that, but that's still not all we have the capacity for, as history shows time and again. And then once more, just to make sure we haven't forgotten.
People are somewhat good in organizing their societies. That's not because they are born full of goodness, but because their survival rates rise when they stick together.
But sure, do tell me: what do you think has caused people to commit cruelties unknown in the rest of the natural world against each other every single day for the past million years?
I put this up on the 8 Dec.
It fits into todays discussion.
There is one solution to all the problems that have been raised that none of those “free” thinkers have spent time evaluation. Here it is. Think about it.
Sustainability
We are within reach of doing DNA research into the recessive genes that we once possed and can even contemplate enhancing their abilities. (within 100 years)
An improved digestive system.
An improved immune system.
Re activation our DNA memory.
Re activating and improving our fur coat.
It would mean that you could drink from a puddle of dirty water and even get nourishment while your fur coat protects you from the heat or the cold. You would not need to build houses etc.
I just raised it as the possible long term solution of the survival of the specie in a world of depleted resources. Just helping evolution/adaptation of the species trying to catch up to an environment that is evolving faster than what the specie can do.
jal
Re sustainability and the challenge it presents to our society please read this interview with Jay Forrester: http://sloanreview.mit.edu/the-magazine/articles/2009/winter/50201/the-loop-you-cant-get-out-of/ It is saddening they put it behind a paywall as this man is one of the sharpest minds around and for sure knows what is going on. He doesn't foresee sustainability as an outcome after we have endured the short-term effects (5-8 years) of the current crisis. Then we have to deal with the real issues of declining resources. 40 years after we acquired the necessary knowledge to understand what is going on in the system we are still on track, the dynamics and limitations are known - denial prevails. His explanation "political correctness". [Jay Forrester initiated System Dynamics and developed the first large scale models which evolved into the "limits to growth study" and the "national model" which explains the inevitability of the current downturn. As an aside I just love that the Fed is an endogenous, not an exogenous variable]
Flirtation with protectionism
The $825 billion stimulus bill introduced in the US House of Representatives includes the following provision:
"None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the US." (Sec. 1110(a)) The bill allows for exceptions if the clause would boost project costs by more than 25% or "would be inconsistent with the public interest." It would take an unusually brave Obama Administration official, however, to seek a waiver on public interest grounds.
Doppelgänger
Ilargi/Stoneleigh
I agree with you about sustainability. It is not going to happen any time soon - it cannot with nearly 7 billion people. It is a hard thing to come to terms with. We will not see real sustainability in our life times. Perhaps our grandchildren will survive to create something approaching it, but there will have to be far fewer people and vastly different lifestyles than our own. That is my hope for them, though.
Since we're on the subject of gardening books, I recommend Seve Solomon's Gardening When it Counts, which is full of good ideas and TESTED methods. (FWIW, he is staunchly opposed to Jeavons' techniques, so it's good to read those two together and make up your mind.) The techniques are valid mainly for growing in the Pacific Northwest, but his approach is empirical and thoughtful and really worth checking out. Here is some info about the man himself.
Also FWIW, if you go to the main page of Solomon's site, you can find some esoteric and out-of-print texts scanned and made available for download.
Greyzone
Your words on agriculture are PURE rubbish! I thought you were smarter than that.
Ilargi said...
Drew, start at my friend Sharon Astyk's site. I would suggest you don't follow permaculture too closely.
???
http://www.metacafe.com/watch/867002/permaculture_101/
3 minutes of your time, Ilargi.
http://www.getwonder.com/2008/12/wealthy-dubai/#more-1589
These are some incredible pictures of construction in Dubai. Especially the last one. Freakin' unbelievable
Jal said:
An improved digestive system.
An improved immune system.
Re activation our DNA memory.
Re activating and improving our fur coat.
Heck, how about adding a set of wings covered with photosynthisizing cells. Perhaps some nice long claws too. We own the genome, I say lets party with it ;-).
Better & better,
Machinist
"Homo sapiens has demonstrated no capacity for sustainable living at all. "
eh. Really don't agree. How about, for example, the Australian Aboriginal cultures, which lived without population explosions for at least 40,000 years? (yes, after wiping out the marsupial megafauna, probably.)
And Egypt- with cities largely unchanged for 2,000 years. Ancient China, pre England, Marx, and Capitalism- culturally stable for 4,000 or so-
And- what about Homo erectus? Fire and hand axes- and almost certainly speech and culture too, doubters notwithstanding. For what- 100,000 years?
Homo, demonstrably adapts to changing conditions. We're just really hitting carrying capacity for Homo on Earth- things will be different. Evolution is messy, indeed; but mostly, things come out the other side.
Greyzone: "Agriculture is the root of what is wrecking the planet today and agriculture is the reason we're likely to go extinct."
Now there, we do agree, absolutely. "modern" agriculture- and good old fashioned plow agriculture- are disasters.
Re permaculture: show me any working permaculture farm, please? That actually feeds even the people living on it? Just one? No? No.
But- if you think those are the only two options for teasing food for humans from the earth- you're silly.
" Whoever is born arrives at death with the flight of time; and the sun leaves not a single thing alive. The sweet and painful alike pass away, and the thoughts we have thought and the words we have spoken. Our generations gone by are like shadows in the sun, or smoke in the wind. Like you, we were men. Like you, happy and sad. And now we are, as you see, lifeless earth under the sun."
Well they don't make em like Michelangelo anymore. A man who chose asceticism in spite of his great wealth. The above sonnet, however, provides a clue why some people live life like there is no tomorrow.
@trichter
Misanthropic diatribes?????
We find ourselves in our current predicament primarily because we are incapable of acknowledging who we really are deep down inside.
Have you ever wondered why television and newspaper photos of the bombings in Iraq or Palestine are always sanitized. They never seem to publish the ones that show the immediate aftermath, the ones with the dismembered remains of women and children. I wonder why? Perhaps some consumers might find that upsetting. They might not feel so good about sucking down that Blended Mocha Frappucino while pondering the entrails of a 5-year old scattered around his deflated soccer ball. Personally, I think it would do us all more than a little good to see that on a regular basis. By all means, show us pictures of the doctors-without-borders, and the three tenors, and the Harlem boys choir. But please, don't sanitize our other half.
One more culture to add to Greenpa's list - the Cree of the subarctic lived without notable population explosions from at least 5000 years ago to European contact in the 1600s. And though their predecessors may have caused some mega-fauna extinctions, they didn't drive moose or caribou or bear or beaver or sturgeon extinct in their hunting grounds
Hi Ed_Gorey!
Sanitization!!!
How about talking about the 70,000 civilians killed in the last month in Sri Lanka instead of the 1,000 Palestinians.
Also, You could pick just about any African country and get really sick to your stomack.
jal
Once, I scoffed at Christian doomsayers, saying "What makes you so special that Christ will return in YOUR lifetime?" Their outlook struck me as so narcissistic.
But now I find myself a doomer. Only I'm not expecting a savior.
Profligate animals, we humans have outdone ourselves. Current studies predict the demise of commercial fishing by mid-century. In the US, farm production will be hit by the growing scarcity of fossil fuel fertilizers and the erosion of topsoil by the intensive farming those fertilizers allowed. Moreover, droughts will lower yields. The sea is acidifying so even radical changes in commercial fishing would most likely be futile. And, of course, the supply chain is already showing lots of weak links. And on and on. None of the news is good.
And yet, the Secretary of the UN warns we need to double food production by 2050. But of course. We NEED to, so it will happen, right?
Sustainability may once have been a reachable goal--were we truly rational, reasonable creatures. Alas, we are not.
It's not just the economic crises. We are indeed entering a Perfect Storm of crises. Economic collapse. Climate change. Resource depletion. Overpopulation. And we mustn't forget that intensive factory farming makes bird flu mutations even more likely while the crumbling medical industry does less and less research investment. That is, don't count on any new vaccines soon.
We do indeed seem doomed.
But that doesn't mean we should stop trying. Derrick Jensen's ecology essay "Beyond Hope" suggests this. Stretching out our demise is, I fear, all we can hope for.
And now, back to reading Greer's The Long Descent.
Have a nice day.
What a fate - always trying to figure out how to live from first principles. Surely we are the only critter that has to do this - or can ? Is this the gift that agriculture gave to the hunter/gatherer - to never be able to live by just doing what your forefathers did. We can be sure that hunt/gather wasn't without complications - like sudden endings maybe. I imagine it could be trying sometimes living your whole life with the same 200-500 others.
But did they have to worry that just about everything they were brought up to do was killing the earth ? That much of their inheritance of golden knowledge was poisonous to their children ? We need a few new myths to live by while we search for a path to a better place (please, no perfectionists).
What can we do in one generation ? Live on current sunshine. When you farm, leave the soil with more than when you started. In other words, buy time and minimize the ecodamage so the next generation can have a moments rest to try to figure out how to live. Its our fate.
(Greyzone - I don't think the choice is extinction or a new species. I'm not denying that the good earth could see a lot of human humus to turnover in the next few dozen spins around the sun. But to say hunt/gather was not sustainable - of course not - a lion or nematode is not sustainable either, if we're talking about the long run. When average duration species is 4 million years, then 2-3 million for hunt/gather lifestyle isn't so bad. Some few like us might muddle on through, as so many times before.
Sustainability is a tough topic for those of us who have spent most of our years living through the consumptive phase of homo sapiens. I cannot imagine a sustainable society anymore that a hunter gatherer could conceptualize an agrarian based culture. I see glimpses.
Clearly we cannot go from exponential growth of everything to sustainability without either a deliberate plan (i.e. where we address over population and excess consumption and all other unsustainable behaviors) or a nasty shock (which I suppose is the route we’re headed for). Bummer.
As for agriculture:
Our dominant agricultural system is a natural extension of our values and monetary/ economic systems. Now that I know how our monetary system works I can see this clearly.
It is true that there is no perfect sustainable agriculture at this point. We have been on the wrong track for a long time and have put all our resources into developing high input, industrial agriculture which does not apply key principles from the science of ecology.
It is the same as the economic system. The faulty dominant paradigm has been king. Who has benefitted? The big corporations. Just as there are alternative monetary and economic systems that could be better for humanity and sustainability, there are much better approaches to agriculture that have been suppressed.
Fukuoka’s “do nothing” agriculture is one approach to permaculture and seems to have a spotty track record. Lots of followers and lots of detractors. Truth somewhere in between?
I have not been to his farm but I have seen many amazing agricultural systems that apply traditional knowledge in combination with contemporary ecological science to produce food.
While not perfect, some of these systems are reasonably sustainable (conserve natural resources, do not generate toxic wastes or rely on large inputs of non-renewable resources). They do require more human labor. These systems are diverse and are testaments to human ingenuity.
Organic agriculture is a step in the right direction but there are a lot of different approaches and some are incredibly fossil fuel dependant. Take California style industrial “organic” agriculture for example. BAD.
Non-industrial, human labor intensive organic agriculture can be successful if corporations/agribusiness (Monsanto!) get out of the way. Today Cuba grows more than 80% of its food organically.
See the film, "The Greening of Cuba"
http://www.foodfirst.org/node/1135
"Gardening is civil and social, but it wants the vigor and freedom of the forest and the outlaw." ~ HENRY DAVID THOREAU
@Greystone:
"Thus we are incapable of sustainable living in any "natural" setting at all."
I beg to stongly differ. According to the serious sustainability fans (or nuts, depending on your point of view), there have been a number of cultures which were living quite sustainably for long periods of time, before the advent of the modern industrialized world.
Check out Ecology Action. Some of their methods are radical, but their goal is truly sustainable agriculture. And they seem quite successful at it.
I personally can't say one way or another, but I am experimenting with some of their techniques as their premises and theory seems like it will work.
I would agree that modern agricultural techniques is not at all sustainable. EA gives it about 40-80 years, IIRC.
If you want to take a look at one of their books, Bigelow basically answered your question. Check out the "How to grow more vegetables" book by John Jeavons. It shows how to do sustainable agriculture quite thoroughly.
@llargi: I would say that people are fundamentally cooperative. Ever been thorough a major disaster? It's funny how people come together when our infrastructure shuts off. People whom you've never met, but lived next to, do come together. And then go back to "normal" ways when the infrastructure returns.
@Stoneleigh: "and I can't see how that turns into sustainability any time soon."
A valid point, when taken as a whole. I can't say for society as a whole, myself. But I do know that, as far as I'm concerned, it starts with me.
Ever study Ghandi's methods?
History has been changed by one person. Repeatedly. And even recently, it continues. But I can't speak for the rest of the world. I can only (try to) practice the ways myself. I'm far from there. But I am trying and learning.
doppelganger: The only way we are on a path to sustainability is if we lose about 100 million Americans and at least a billion worldwide. Otherwise, the rich are going to pay hard to get us sustainable.
Stoneleigh, to add to the above comment: The thing is, mass destitution becomes a matter of mass destruction -- and that's the only way, short of massive increases of taxation, you will ever balance another federal, state, or local budget. You either raise taxes or drop population, and you do not have long before the whole sh*t-fest pops.
Dan W: Bingo. You got it. If growth is not possible, then the population must snap back to either a sustainable amount, or it will go to zero -- depending on what kinds of violence result when TSHTF. That's one of the reasons I've said I am a dead man walking and probably won't see 41. My "terminal disease" is not being a "good 'Murican", and that will be fatal to tens of millions of us over the next number of years.
The problem with "Earth choosing it for them" is, at some point, enough of those who will be "voted off the island" will take others "off the island" with them, like that one guy in LA did yesterday.
Ed_Gorey: Then, for the vast majority of us, it will come in a hail of gunfire. You may well be right.
Frankly, I've heard some of the tinfoilers say the NWO wants 80% of the world's population gone. Trust me, if that is to occur, we're all gone -- they'll take the other 20% in one form or another. So I don't think we have 30 years. We might not well have 3.
Trichter: People _ARE_ fundamentally evil -- brutally so. The only reason people cooperate is either for their own advantage or if they want to survive and be the only group to survive. THEN the knives come out.
Ilargi asked:
If people are capable of living sustainably, what ever it may mean, why have they failed to do so in the past million years?
Answer:
Because they didn't have to.
Nice doomer fest today!
“So this leads one to question - where are we headed in the markets?
Here's my answer in the short term (next week to next month or two):”
Bad (United States) Bank (FDIC/Treasury) Denninger
Clarification of mindset is probably in order,as The old bird is worried I have suffered a attack of "pollyannitis"
I had he pleasure of speaking to Mike Ruppert 5or6 times,mostly on KBOO radio...when he broadcast there was a Q&A that I made a point of getting on.I also attended one of his presentations on peak when I was going full bore on peak awareness,as well following the rise and fall of "From the Wilderness".His saga is a interesting one ...from a distance.Too much weirdness surrounding the guy,Of course,old bird,If you bust CIA assets making money for the machine they get annoyed.I read his newly minted blog...if that is him,as he has occasionally had some startling insights into the ways of the worlds mindset.
That 911 was a inside job is a given.That J.Biden is a tool is a given.That out pres. is not TPTB is a given.
In some ways,old bird ,he will need to be a wolf,bloodthirsty,cut your heart out and eat it,raw [w/a little tabasco]as he is now running the wolf pack that runs our country.Chicago pols are not "nice"people.He is playing nice in public,but Rahm Emanuel[sp?]is a knee-breaker.The crew that are "running"our country now are in full damage control mode,and even those TPTB know it.The bright ones in the elites know they will simply be the last to starve,If it all breaks down to zero.
I have no illusions as to the ones he will look out for.What I can hope[there is that word again]is that the actions he takes after all the "professionals"have blown their wad,and blown up the country will help those of use that are left to re-build...something.
Lots of talk this day about "permiculture""sustainability"> seem to remember lots of evidence of pre-columbian humans going back 30k years in South America that left huge amounts....mountains of terra-preta that are that most sought after garden soils...all created by man.Sustainability has never been a goal before.Now it is...and as was pointed out,may be harshly forced on many.That does not mean it is un-attainable.We have the ability to change our culture...ask any whose business it is in the media to "seed"ideas in the population.
You are seeing the power structure in denial of reality.Its ugly.When any creature faces death,or change...its the same.Obama was chosen I think,as a negotiator...thats his skill.Maybe to gently explain the death of the "american way of life"to a country who will very soon ,see things they have never seen before..
peace
snuffy
I have no idea where Ilargi gets his ideas of human nature from, certainly not from any serious study of Anthropology or other, non-industrial, non large scale agricultural peoples, ie, most of humanity's history, with little blips of exceptions when empires and civilizations rise. Similar errors, by the way, are found in doomers, Hanson, etc. Seems like the conclusions are being dictated by the premises, not a good strategy.
Ilargi, you need to see something else than economic news I think, you're starting to believe our peculiar little blip is all of history and reality. Try reading some serious, roughly 1900 era Anthropology, real, academic stuff. It's pretty good, and should help cure you of your serious misperceptions.
I had a really nice quote from a Native American chief, about 1915, explaining in his own words, how his people had lived in harmony with nature and the ecosystem for millenia, but the damned form ate it and I don't feel like retyping it. I have lots more too where that comes from, all direct quotes from them, all directly contradicting your stated view of 'human nature', and all coming from people who had been around a long, long, long time. Sustainably, obviously, since they were still in America when we 'discovered' it.
If you want to ignore basically all of this history except the last 400 years (about 1% of the total time), that's pretty sloppy, and obviously involves some pretty heavy duty cherry picking of data to come to your conclusions about our 'nature'.
Now, if I have to pick one person to listen to about human nature, someone whose people actually lived in a totally sustainable way for possibly 10s of thousand of years (latest estimates put Native Americans arrival far back, possibly to 40 thousand years), or a Euro transplant who was raised in the center of our industrial wasteland and really hasn't seen much else, ie, northern europe, I'm going to have to go with the guy who actually understood what life was, and who could point back to uncountable generations of his people living in that way.
Now, that's not saying at all we can take our bloated, spoiled, decadent population and make them suddenly live sustainably, or even that our European type can do that, it seems very unlikely, but it's more just pointing to a somewhat annoying tendency of Eurocentrism in such views as you hold of people. Those views almost certainly apply to most Europeans, and possibly to most members of larger civilizations in general, but I see that more as a question of: put a bunch of rats in a tight space and watch their behavior - than any comment on our nature.
Definitely not a fan of this view of human nature, which magically just happens to mirror our social mores and norms in a totally uncritical way. Time to learn how to get a bit more open-minded when you view human nature if you don't mind a fan who is not a fan of all your thinking, just the strong parts, saying so. Most of human history isn't recorded, and the parts that aren't, form the vast, overwhelming bulk, of it. That's because those people were too busy living largely in harmony and sustainably to bother with stupid stuff like history and books.
Doesn't mean we'll do that, doesn't mean we'll figure this out, I doubt we will, but I won't insult the real people we overran and force my cultures biases on their world.
Sorry to be harsh, but you really let yourself fall into some very sloppy views when you get into human nature, you generally mean: our, local, specific,crowded, stressed, overpopulated, nature, and that's what you should keep it to, the stuff you understand and know.
Dancing in the Rain wanted to post something about "a Native American chief, about 1915, explaining in his own words, how his people had lived in harmony with nature and the ecosystem for millenia."
This reminded me of something a friend of mine once ranted about. Her graduate degree was in history with a specialty in the American West. Her rant centered on the idealization Native Americans as model conservationists. She said that in high times Native Americans were quite capable of driving hundreds of buffalo off a cliff and taking only a few tongues, a special delicacy. The difference, she said, was that in hard times, the Native Americans knew how to use every last little bit of a buffalo in order to survive.
Its funny how I can agree with maybe 70% of the doomer talk in todays thread and still find myself at odds with the tone of much of it....
What it is. We need to tell ourselves stories about ourselves and our lives. I can therefore agree that billions won't make it. As an ecologist by trade limits to growth are obvious... resource limitations, war, plague, bilderbergers, oligarchs,etc etc etc... all true as makes no odds, ~and~ all depressing, all a shock to my old world view. But still... I tell myself a story about how ~I~ will be in these times... what a fellow! A real hercules for his family, for his tribe... a source of stability and good plans, good reactions to people and situations. Full of forethought and preparations... I am determined to be my own hero in my own play, to take grim joy in the challenge.
So I feel a touch of annoyance with the 'we're all doomed' crowd. Like any cocky male I am secretly sure, ~quite sure~, thank you, that I am not doomed at all.
Naturally I make preparations, and in the background I study first principles, of thermodynamics, and entropy, and ecology. And as I say above it is clear how things have to go, considering broad strokes. And I also ponder my immediate circumstance, the system or 'matrix' I am embedded in, this variant here on the great plains of western Canada. How will that go? Short term? Long term? And yes this picture is also pretty bleak..... nevertheless.... I stubbornly put myself forward, persistently, as a survivor. I ~will~ lead my little tribe through the mess, given a bit of luck, I feel it in my bones, illogically and fully.
Sure life will beat me down, and a sure death is at the end of it. However the point is the journey... There is only one arc to the flight of an arrow, make it a good one.
gkll
@ Ilargi
Are you not trying to say people are fundamentally good?
By no means, nor do I think that our future looks particularly rosy, but blaming our situation on 'human nature' seems like a copout to me. Hey, if it's in our nature what can we do - it's not our choice but our destiny. If, however, we understand our faults as being a result of our ingrained ideologies, then we needn't resort to fatalism. Culture is not everything and can change drastically. What ever happened to the notion of leaving pessimism to the intellect and having optimism of the spirit?
But sure, do tell me: what do you think has caused people to commit cruelties unknown in the rest of the natural world against each other every single day for the past million years?
Okay, clearly this is where our views diverge. I'm not sure what evidence you could present to confirm your conviction that people have indeed been engaging in cruelties against each other and the natural world for the last million years non-stop. But I think one could muster a fair bit of evidence (in theform of relics and artefacts) that there was indeed a time where the destructive, dominator culture was less pervasive. I'll readily concede that humans stem from an aggressive branch of apes that are typically patriarchal. I am, however, of the opinion that there was respite from this form of organising approach, probably owing to certain plants humans imbibed ritualistically. This, I'd assert, lead to temporarily breakdowns of animalistic, dominator tendencies before they later reasserted themselves (perhaps on many occassions).
A couple of tidbits about Vermont and the stimulus:
First off: Bernie was against the first bailout (besides his public statements and vote against it, if you need proof, watch him in the video of Obama trying to convince the senate to vote for it. He sat behind Obama the whole time - because Obama set up in front of his seat. By the end of the speech, Bernie had to literally cover his mouth to keep the frown off the cameras). He's also against this bailout, but knows it's going to pass. Since that's the case, he's doing his best to make sure certain infrastructure projects will be adequately funded for the 1st time in decades.
1) Bridge repairs for safety reasons. 436 of our large bridges (20 ft span or larger) are officially "structurally deficient," (think Minnesota) mostly due to age, but partly due to persistent flooding we've had over the last few years. 331 of our bridges were built before the flood of 1927. 60% of our bridges were built before 1968, and thus are aging and in need of repair, even if they're not all in imminent need of wholesale replacement.
2) Most of our roads are unpaved. Many are only partially paved, and the average cost to pave, due to rivers and streams (which need protection), and a heavy concentration of granite ledge, is roughly $1 million/mile. Road work in Vermont is different than elsewhere. On unpaved roads, we need road graders out on a regular basis to create a drivable surface. I would say everyone should move to the cities as part of the solution, but we actually need farms. Food will be scarce enough without local farms (though I'm guessing most will end up as tenant farmers for big ag).
3) Courtesy of Act 250, our property values did not inflate at anywhere near the rate of the rest of the country, or even the rest of New England. Median owner-occupied home prices ($119,600) are fairly close to what they should be relative to median household income ($44k). Sadly, that won't protect us from the meltdown, but the landing in VT MAY be somewhat softer than other states (it was softer in the 1980s real estate boom that crippled much of the northeast). Bailout money can, if used wisely, more readily keep Vermonters housed.
4) We've been pushing for a better public transit infrastructure for years. Being a rural mountainous state makes transit projects much more expensive per-capita than elsewhere, so most go wanting. This package can make several of those projects (like reclaiming certain rail trails for rail transit and adding bus routes) possible.
5) Our electrical contract with HydroQuebec expires in 2012. So does the license for VT Yankee. That's more than 60% of our electricity. We NEED to get new electrical infrastructure off the ground immediately, to offset the huge price increase that will hit when we have to start buying on the open-market. We may finally have the right legislature to overcome the Governor's NIMBY attitude on wind, and we have plenty of wind-power friendly locations.
5) Despite the "availability" of broadband in every county, it turns out that most roads in the rural counties (aka most of the state) have no cable or DSL lines at all, and are running copper, not fiber. "Broadband" in these areas = "satellite" and anyone who has ever tried to use satellite will know that "broadband" is a misnomer. From a job-creation perspective, this leaves the state in a very vulnerable position. Fiber was not run because there would be too much "dark fiber" per mile for the profit-seeking telecom companies to be bothered. Stimulus money can help fill this gap.
6) There is currently a move to connect family farms to the food pantries and schools, and to grow our network of farmer's markets, ensuring locally-grown, affordable, fresh produce is available to every family in the state. This is a high priority for the ag committees in the leg, so if they have any say in the matter, significant money will go toward this. There are already programs in schools, at food pantries, and at farmer's markets throughout the state, stimulus money can make them ubiquitous.
7) We also have burgeoning alt energy and green building industries, which are facing significant hurdles due to unpredictable incentive programs. Stimulus money can change that.
8) Towns all over the state have formed energy committees to help identify efficiency measures and local energy production options for our towns. Not all of these projects are "shovel ready" but many are, and lack only for funding.
9) Vermont has the oldest, draftiest housing stock in the country. Somewhere near 70% is stick-built, uninsulated structures over 80 yrs old. It's also one of the coldest states. Significant efficiency measures in this housing stock can have a much more immediate and dramatic impact on the state's heating fuel usage than in almost any other state.
One other unique feature: We have citizen legislature, with a per-capita number of legislators second only to NH. Legislator's home phone numbers and street addresses are public information, and people think nothing of walking up to them on the street to give a piece of their mind. This means Vermont is more likely to actually use the stimulus money than other states (accountability is up-close and personal here). Plus our banks are healthier than in other states, because the bankers know personally the people to whom they are lending, and tend toward much more conservative loan practices. We also have more banks that don't sell their loans on the 3rd-party market than in other states.
None of this is meant to deny that the state is still screwed because of the failure of the global economy, but to explain (a) why infrastructure projects tend to cost a lot more in VT and (b) why the stimulus money may be better spent and have a larger real impact in VT than elsewhere.
anon1:13A.M. said, " Seems like conclusions are being dictated by the premises,not a good strategy."
Interesting comment. I don't understand how a sound conclusion can be formed without premises?
I'd appreciate knowing more.
anon1:13A.M. said, " Seems like conclusions are being dictated by the premises,not a good strategy."
Interesting comment. I don't understand how a sound conclusion can be formed without premises?
I'd appreciate knowing more.
So let's say we achieve this passive sustainability, what then?
The immediate danger is gone we wait for the next wall.
Scientific progress is the only assurance for human life and any life continuance. And it should not be forgotten.
Eugen
Both Snuffy and Greenpa both refer to humans beings in the Western hemisphere for over 40k years. I have long suspected this but all the archaeologists I have read talk 14K. Any good URL's to research the 40k assertion?
@ ANON 444AM RE: tidbits about VT
GREAT POINTS!!
My wife and I belong to a UU Church that is hosting Bernie this weekend. I know that he opposed the TARP, and I congratulated him for it. I am nonetheless disturbed by our government's---Bernie included---unwillingness to demand that banks open their vaults so that we all can see the damage. I am bummed out that Bernie and Pat are touting the stim. monies as routes toward growth and recovery. While your points vis the infrastructure are excellent and illuminating, very few jobs are created, very little if ANY REAL production takes place, and lots of spending that produces very little in the way of capital goods maintains the illusion of GDP growth whilst simultaneously increasing our debt burden.
This post is a "heads up" for everyone. You need to watch out for this.
Eugen said: "Scientific progress is the only assurance for human life and any life continuance. And it should not be forgotten."
Indeed. But, historically, periods where this has been allowed to happen are few and far between.
Our culture has had VERY few moments when scientific progress and independent thinking have flourished. The rest of the times are characterized by the lack of this.
One historian I've read pointed this out. IIRC, it's typically been 100-300 year time periods.
It's been about 250 years since the start of the thinking which resulted in our current period. A fallout of the Enlightment, and one result is the U.S. Constitution.
My point is that periods of change like the one coming up offer the greatest danger to Scientific progress and independent thinking. If we're successful in retaining it, it will be very unusual historically speaking.
Good luck, all.
Ilargi & Stoneleigh,
There is evidence already that housing prices have come down 80% of peak bubble value. After having the house in the market for a while, a relative in Miami finally sold the house he inherited from his mother for $50,000. The tax assessment is $245,000. Similar homes were sold in the same neighborhood for $300,000 in 2005-2006. A neighbor has been asking $89,000 for a similar house and cannot find a buyer!
Your analysis and "predictions" are not far-fetched.
snuffy, are you going to this Saturday's Economic Town Hall at the First Unitarian Church in downtown Portland? I hope to get away from family obligations to attend, but four hours in the afternoon is a large chunk of time... I'm just curious about how aware the Greenie/Left herd in Portland is going to be. And of course add my two cents if the opportunity arises. I sort of wonder if everyone who has ever dreamed about free hot lunches and single-payer health care is coming out of the woodwork to project their pet project onto the Apocalypse. The greenie shock doctrine of somehow forcing Big Government to Finally Do What We Want Because It Makes Sense, Damnit!
Town Hall on the Economic Crisis (Portland)
It looks like Putin reads TAE
His speach from Davos:
http://www.russiatoday.com/news/news/36554
In the last 3 minutes of the discussion, Nassim Taleb says that this will be the worst trial for America since the Revolution -- vastly worse than people expect.
http://paul.kedrosky.com/archives/2009/01/28/daniel_kahneman.html
Maybe I&S will make a front page on the "Bad Banks" one of these days.
When the Gov. is giving out Billions of money it is poured into a sieve funnel, (the many existing programs), and gets distributed according to the rules and regulations of those programs.
====
Canada already has a “Bad Asset Bank”. It is increasing the size to $125 billion. It’s called the Canada Mortgage and Housing Corporation.
Also
The Government will allocate up to $12 billion to a new Canadian Secured Credit Facility to purchase term asset-backed securities backed by loans
and leases on vehicles and equipment.
http://www.budget.gc.ca/2009/pdf/budget-planbugetaire-eng.pdf
Budget 2009—
Canada’s Economic Action Plan
Chapter 3 p.80
Extraordinary Financing Framework
====
The fact that conditions are different in Canada will probably mean that the banks will be able to continue to operate.
I don't know if its possible to use the same approach to save the "big US banks".
jal
Why So Little Self-Recrimination Among Economists?
POL-CAN said...
It looks like Putin reads TAE
His speach from Davos:
http://www.russiatoday.com/news/news/36554
January 29, 2009 10:43 AM
=======
What an understatement!!!!
"It looks like Putin reads TAE"
Putin has identified the problems and layed out a restructuring template.
READ IT AND BE PART OF THE SOLUTION.
Can we find more of these presentations and deliberations?
JAL
Orion, I read this morning that the new Cdn budget eliminates funding for large science projects.
Such tragedy unfolding. Fund the big three but not science! So distressing.
Hi folks. Take a look at this item, which I would say is Debt-Rattle-worthy....
http://www.ritholtz.com/blog/2009/01/who-is-the-treasury-secretarys-boss/
The Moral Hazard of the "Bad Bank"
By Barry Ritholtz
excerpt:
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Consider this statement from Geithner, who said that Treasury is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”
No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!
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POL-CAN said...
It looks like Putin reads TAE
A sober speech. Much better than the BS coming from Washington DC.
Here is the web site:
http://www.weforum.org/en/events/AnnualMeeting2009/index.htm
Annual Meeting 2009
Davos-Klosters, Switzerland, 28 January - 1 February
"Shaping the Post-Crisis World"
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jal
Stoneleigh and Ilargi
Thankyou - dont often log in but read everyday.
Greyzone
Your comment re 5000 on a space ship and farming:
The fertile crescent I think is an good example of the "wonderful sustainable farming"
and there is an interesting article by Garret Hardin called "Living on a Lifeboat " which complements your spaceship.
http://www.garretthardinsociety.org/articles/art_living_on_a_lifeboat.html
As always
Happy Surfer.
Just remember this.....we're just a blip on the radar...Big picture people...
"Over 99% of species that ever lived are now extinct, but extinction occurs at an uneven rate. Based on the fossil record, the background rate of extinctions on Earth is about two to five taxonomic families of marine invertebrates and vertebrates every million years. Marine fossils are mostly used to measure extinction rates because they are more plentiful and cover a longer time span than fossils of land organisms.
Since life began on earth, several major mass extinctions have significantly exceeded the background extinction rate. The most recent, the Cretaceous–Tertiary extinction event, occurred 65 million years ago, and has attracted more attention than all others because it killed the dinosaurs. In the past 540 million years there have been five major events when over 50% of animal species died. There probably were mass extinctions in the Archean and Proterozoic Eons, but before the Phanerozoic there were no animals with hard body parts to leave a significant fossil record.
Estimates of the number of major mass extinctions in the last 540 million years range from as few as five to more than twenty. These differences stem from the threshold chosen for describing an extinction event as "major", and the data chosen to measure past diversity."
El Gallinazo, you can try Forbidden Archeology
The Hidden History of the Human Race
by Michael A. Cremo and Richard L. Thompson. I've read it and I can recommend it. You can also google "Ameghino". In the Museum of La Plata, Argentina, I saw once a prehistoric beast with a flint arrow stuck on a bone. "This museum belongs to the Department of Natural Sciences and Museum of the National University of La Plata. It is one hundred years old and was founded by the expert Francisco Moreno. It is the most important museum of Natural Sciences in Latin America and is visited by more than 500,000 people each year. It has more than two million specimens, which are divided into the following areas: Paleontology of Vertebrates, Paleobotany, Paleontology of Invertebrates, Botany, Zoology, Archaeology, Ethnography, Biology and Geology. It has 23 exhibition rooms that show the Earth’s evolution and 15 departments that conduct research. "
That's if by western Hemisphere you meant the Americas.
In Spain -Europe, just across the Atlantic, latitude as New York, more or less- Atapuerca Cave has fossils of humans since more than One Million years ago, continuously inhabited.
http://www.atapuerca.com/
Atapuerca is in English, it has an irritating Flash at the beginning.
Being strongly convinced that USA is the most progresive society in the world I was expecting that it will take the flag and championed the change that is needed. But not a single voice from the complacent West.
Is TAE & Blog the only progressive voice left in this side of the globe?
At least this guys below are moving, accepting.
China
Putin, link from POL-CAN
Eugen
Gallinutzo- so Australia has now emigrated and become part of North Amurica!!?? News to me!
:-)
This site has tons of links to specific digs.
http://www.andaman.org/BOOK/chapter54/text54.htm
My own understanding is that most archaeologists now agree that 10,000 is definitely too recent 14k is commonly accepted, and I think there is a big bunch of workers who now accept 30K +, mostly in South America. Then there's the one in Mexico claiming 250K- or 1M...
Eugen said:
Being strongly convinced that USA is the most progresive society in the world I was expecting that it will take the flag and championed the change that is needed. But not a single voice from the complacent West.
What makes you think that the West is progressive? I think quite the opposite. As has been stated on this blog many times... TPTB are interested in propping up the current system at all costs. Obama's "Change" / "Yes we can" is bullsh*t, and Harper and Brown are tools.
The reson I posted the link to the Putin speech is that I find him to be a genius compared to our leaders. Why can we not find someone like that to run USA/Canada/UK etc.? If you have an hour to read some more of his stuff, please consider his Q/A with global reporters from June 2007:
http://www.globalresearch.ca/index.php?context=va&aid=5938
IMO, the future does not belong to the west......
By th way Tehelka's recent issue has several stories of the new jobless in India:
http://www.tehelka.com/story_main41.asp?filename=Ne310109cover_story.asp
Jobless, Sleepless
Layoff levels are high and recruitments nil. It’s bad news all the way. The pink slip has made lives insecure and futures uncertain, finds SHANTANU GUHA RAY
http://www.tehelka.com/story_main41.asp?filename=Ne310109personal_accounts.asp
‘I’d rather forego being a hosiery worker and sell vegetables for a regular income’
http://www.tehelka.com/story_main41.asp?filename=Ne310109worn_down.asp
Worn Down
Famous for its handmade carpet industry and the maximum number of Mercedes cars, Bhadohi is now a ghost town
http://www.tehelka.com/story_main41.asp?filename=Ne310109hanging_by.asp
Hanging By A Thread
India’s knitwear capital is coming apart at the seams, with workers accusing the government of not doing enough
My little 2 cent prediction.
The Slicky Boy's on Wall Street are awarding themselves extra goodies as the curtain closes down,down,down. And when the curtain rises again for the next act--there is always another act to follow--all the bottomed out assets will have been gobbled up by the purveyors of avarice and theft. A little more icing on the cake if you will.
And on future Sunday afternoons the herd will still hold hands over a jingoistic hearts, singing along in a stadium named after some vulture corporation.
On the subject of sustainability in agriculture and the depletion of soil -- I wonder if any study has been done regarding modern burial methods in that people consume the products of the erth but when they die they're buried in air-tight coffins. There is no more dust to dust -- our death dust doesn't replenish the soil.
Boy, quite a doom fest today. Two quick points:
1. No species in any kingdom, be it plant, animal, fungi, etc, has ever achieved "sustainability" (whatever that means), simply because it runs contrary to natural selection.
(Genetic mutations that provide favorable survival/reproductive advantages, within given environmental conditions, will replicate & displace competitors [grow] until either mutations and/or environments change that eliminate those advantages.)
2. Therefore, the natural state is one of growth & extinction. Nothing to get upset about, nor condemn your fellow man for acting selfishly. It's just the way things are.
Now, as to growth, who says the era of growth is over? Just because fossil fuels got us to where we are today does not mean it is a necessary input for further growth.
An earlier poster hinted at the correct answer, which is genetic engineering. No matter how complicated genomes appear to be, at the end of the day they are closed systems. That is, we can ultimately reverse engineer each & every aspect of how our world is composed.
Once we reach that state, there is simply nothing preventing us from creating whatever food/life forms we want to service our growth needs.
It appears most here **want** humanity to fail. I enjoy Ilargi's posts and thought Dan W's commentary was spot on. But my pessimism is limited to TPTB focus on restoring the past failed system, rather than lay the groundwork for where humanity is heading.
Here's an update on the State bailout. One report has it that California will get $19 Billion, from the House Bill, to balance its budget.
This is different than the $7 Billion reported in today's TAE article. I presume that the difference is due to the politicing currently going on, and we won't know the real number until the Bill is passed.
Nonetheless, that would be a huge chunk of the $40 Billion that they are trying to cover, and might actually allow a budget to be passed.
I suspect that this is what is stalling negotiations; all the Legislators are waiting to see how much pork they will get.
I also don't expect any functional reform here. If history is any guide, they won't reform the process, the spending or their attitudes. And we'll be back in the same boat in a year or two.
But this should make up for a large part of the tens of billions of dollars that the Illegal Immigrants are costing us. So, hey, thanks to the rest of America for helping subsidize this.
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