Monday, September 28, 2009

September 28 2009: A Quicksand Quagmire


Unknown Once was warship Thanksgiving Day, 1864
Army of the James. Butler's dredge-boat, sunk by a Confederate shell, James River, Virginia


Ilargi: After a 50%+ rise in the US stock markets, against the backdrop of unprecedented injections of taxpayer funds (who were dirt poor even before their money was spent and are now dead broke), ongoing horrendous job losses and equally awful increases in foreclosures, it might be a good time to ask two questions:
  1. Why do people invest in stocks?
  2. What are the chances that stock markets will continue to rise?

The answer to the first, of course, is that they do so to make a profit, to get more return on their money than they would if they'd for instance put their money in the bank or buy bonds. Of course, this only works when share prices rise, as they have in the past 6 months. In the 6 months prior to that, not so much, obviously.

Which leads to the second question, and an assessment of the odds that the markets will keep going up. Somewhere down the line, even though you wouldn't know it to look at the past 6 months, these odds will; depend on what happens in the real world. There may be a certain tolerance for some job losses and other negative news, but that cannot be endless. As the government and the Federal Reserve will come under increasing pressure to wind down stimulus and easing measures, both from inside and outside sources, some sector or another within the economy will have to make up for what falls away. And do so at an especially precarious moment.

I gathered a large set of bullet points below that together should, I think, paint a rather comprehensive picture of what will be demanded of the economy in terms of performance. They also would seem to indicate that the economy is highly unlikely to provide that performance. In my view, it carries far too much dead weight on its back. Far too much.

One number that stands out for me is this from Money figures show there's trouble ahead :
Tim Congdon from International Monetary Research says that US bank loans have been falling at an annual pace of almost 14% since early Summer:

"There has been nothing like this in the USA since the 1930s."

When economic data for Q3 are released in early October, there will be undoubtedly be all sorts of positive twists and turns. That is inevitable when you add up everything that's been thrown at the wall in the hope something would stick. Something always does. Still, when at the same time lending plummets to that extent, not much of it is likely to stick. That is one solid indicator of the extent to which the whole system depends on the government, i.e. the broke taxpayer.

John Mauldin calculates that in order to get U3 unemployment down from 9.7% now to 5% in 5 years, by late 2014, 250.000 jobs would have to be created on average each and every single month for 60 months. This is so far removed from any historical trend, certainly over the past two decades, that it would truly be a monster effort. It would also likely take an economic growth rate of somewhere between 5% and 10% over that entire period.

How that could ever be accomplished with the hundreds of billions in losses and writedowns that are yet to be reported and absolved is hard, if not impossible, to imagine. An economy that is in its worst shape in 75 years would arguably have to perform better than it has in all that time. I would be inclined to say we are entering into magical thinking territory, but then again, we seem to have settled there quite a while ago.

What should worry everyone, and certainly the government, is that 52.2% of all young (16-24 years old) people who are not students are unemployed. That is a recipe for social disaster. And it wouldn't be all that hard to design a program that would allow for small businesses to hire them with government assistance. Buy out one or two less bankrupt financial institutions and you can afford such a program and have money left for a manned flight to Venus. Alternatively, you'll have millions of kids who will turn 30 without ever having worked at all. Overall, there's one job for every 6 job seekers. For the foreseeable future, it would even be a major victory if that could be reduced to one available job for every 3 jobless workers.
Since the end of 2008, job openings have diminished 47 percent in manufacturing, 37 percent in construction and 22 percent in retail. Even in education and health services — faster-growing areas in which many unemployed people have trained for new careers — job openings have dropped 21 percent this year.

That is not a foundation to create record numbers of jobs on for years to come.

Oh, and how about this one for a little background info?:
[..] M3 money has been falling at a 5% rate; M2 fell by 12% in August; the Commercial Paper market has shrunk from $1.6 trillion to $1.2 trillion since late May [..]

The short and curly version: while stocks have gone up, the real world has been sucked down into a quicksand quagmire. To get back to the first question, Why do people invest in stocks?, the answer still stands: to make money. But when they think the risk of losing their money is too high, they will get out of stocks and into something else. The lucky ones, that is, who are gone in time. The rest, the delusional happy crowd that always enters last, when the party's largely over, will get fleeced.

Still, my bet is that there are not enough sufficiently delusional people left in the market to sustain this rally for much longer. Not with these numbers floating around. If only because too many remember what they lost last year. The fact that the rally’s lasted this long is not a sign that it's gpoing to keep on going; it means it's about to turn on a dime, bigtime.

But by all means, make up your own minds. Here come the bullets:







Welcome to the New Normal
  • [The] headline unemployment number (9.7%) is what we see when we read the paper. What we typically don't see is the real number of unemployed. For instance, if you have not actively looked for a job in the last four weeks, even if you would like one, you are not counted as unemployed. You are called a "marginally attached" or "discouraged" worker.

  • Right now, about one-third of marginally attached workers actively want jobs but have not bothered to look because they believe there are no jobs in their area, at least not for them. If you add that extra 758,000 to the unemployment data, you get what is called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers the unemployment number is 11% (U-5 unemployment). And if you add those who are employed part-time for economic reasons (i.e., they can't get full-time jobs) the unemployment number rises to 16.8%. (That is called U-6 unemployment.)

  • [..] each year the number of potential workers rises. In fact, the number of workers has risen by about 15 million over the last ten years. This is from population growth and from immigration. Also notice that the normal rise did not happen last year. That is because the number of discouraged workers has risen rapidly and, as noted above, they are not counted. We will revisit this point later. But for now, there are 154,577,000 people in the available work force.

  • [..] we are down almost 8 million jobs since the onset of this recession, and [..] there are almost 15 million people unemployed.

  • [..] there are roughly 9 million people who are working part-time because of business conditions, or those are the only jobs they could find. The average work week is at an all-time low of 33 hours.

  • [..] when the economy does begin to recover, when we finally get to the other side of the mountain, companies are going to raise their labour input first by lifting the workweek from its record low. Just to get back to the pre-recession level of 33.8 hours would be equivalent to hiring three million workers. And, the record number of people working part-time against their will are going to be pushed back into full-time, which will be great news for them, but not so great news for the 125,000 - 150,000 new entrants into the labour market every month.

  • [..] we are adding about 1.5 million workers to the workplace every year. That means over the next five years we are going to need 7.5 million jobs just to maintain that growth, or about 125,000 a month. That is on the low side of what economists normally estimate, which is around 150,000 per month. If we used the 150,000 estimate, it would mean we need 9 million jobs.

  • There are at least 1 million (and probably more like 2 million) discouraged workers who would take jobs if the economy got better. You can derive that number by going back to early 2007 and seeing the level of discouraged workers. That means, by the end of 2014 we are going to have 163 million people in the work force. Today we have 139.6 million jobs, and that number is likely to slip at least another half million (last month the economy lost 216,000 jobs, with a very suspicious birth-death ratio accounting for a lot of job creation). So let's call it 139 million current jobs.

  • Let's assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. 5% unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week.

  • But let's ignore those latter jobs and round it off to 15 million. Let's hope that by the beginning of next year we stop losing jobs. That means that to get back to 5% unemployment within five years we need to see, on average, the creation of 250,000 jobs per month. As an AVERAGE!!!!!

  • Look at the table below. It is the number of jobs added or lost for the last ten years. Do you see a year that averaged 250,000? No.

  • If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000.

  • Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now. Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%.

  • There has never been a period of serious inflation in the US without wage inflation. But real incomes are falling, and there is little reason to believe we will see wage pressures within the next few years.

  • We have enormous excess capacity - capacity utilization is about 68%. Banks are cutting back on their loans, and consumers and businesses are borrowing less. Housing is likely to be in a funk for at least two years. We are deleveraging, which is causing the velocity of money to slow.

    All of this is very deflationary.


The dead end kids
  • The unemployment rate for young Americans has exploded to 52.2%

  • [..] without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults -- aged 16 to 24, excluding students -- getting a job and moving out of their parents' houses are long. Young workers have been among the hardest hit during the current recession -- in which a total of 9.5 million jobs have been lost.

  • During previous recessions, in the early '80s, early '90s and after Sept. 11, 2001, unemployment among 16-to-24 year olds never went above 50%.

  • "They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business."


U.S. Job Seekers Exceed Openings by Record Ratio
  • According to the Labor Department’s latest numbers, from July, only 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed.

  • During the last recession, in 2001, the number of jobless people reached little more than double the number of full-time job openings, according to the Labor Department data. By the beginning of this year, job seekers outnumbered jobs four-to-one, with the ratio growing ever more lopsided in recent months. From the beginning of the recession in December 2007 through July of this year, job openings declined 45% in the West and the South, 36% in the Midwest and 23% in the Northeast.

  • Since the end of 2008, job openings have diminished 47% in manufacturing, 37% in construction and 22% in retail. Even in education and health services — faster-growing areas in which many unemployed people have trained for new careers — job openings have dropped 21% this year. Despite the passage of a stimulus spending package aimed at shoring up state and local coffers, government job openings have diminished 17% this year.


Job losses, early retirements hurt Social Security
  • Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

  • Applications for retirement benefits are 23% higher than last year, while disability claims have risen by about 20%.

  • Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs. Some have no choice.

  • This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago.

  • Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year.

  • The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s [..] Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016.

  • About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.

  • In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year [..]


Money figures show there's trouble ahead
  • The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy.

  • Some expect US car sales to slump 40% in September. Weaker US data is starting to trickle in. Shipments of capital goods fell by 1.9% in August. New house sales are stuck near 430,000 – down 70% from their peak – despite an $8,000 tax credit for first-time buyers. It expires in November.

  • If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23% in August; Japan's were down 36%; industrial production has dropped by 23% in Japan, 18% in Italy, 17% in Germany, 13% in France and Russia and 11% in the US.

  • Fed chairman Ben Bernanke spoke in April 2008 of "a return to growth in the second half of this year", and again in July 2008 that growth would "pick up gradually over the next two years". He could only have thought such a thing if he was ignoring the money data.

  • Tim Congdon from International Monetary Research says that US bank loans have been falling at an annual pace of almost 14% since early Summer: "There has been nothing like this in the USA since the 1930s."

  • M3 money has been falling at a 5% rate; M2 fell by 12% in August; the Commercial Paper market has shrunk from $1.6 trillion to $1.2 trillion since late May; the Monetary Multiplier at the St Louis Fed is below zero (0.925). In Europe, M3 money has been contracting at a 1% rate since April. Private loans have fallen by €111bn since January.


A risky revival
  • [..] the question of whether this is a real recovery or a bubble must still be asked, and there are worrying signs. The rally has been achieved with global economic growth barely above zero and unemployment still rising. The S&P 500 index of US stocks is already far above the forecasts nine out of 10 Wall Street strategists have in place for the end of the year, according to a Bloomberg survey. Concerns are prevalent that US consumers will not return to their old buying habits because of high unemployment and the debts they need to pay off.

  • There are also concerns that China, the other leading source of growth, has achieved that only by stoking lending – notably, Chinese stocks sold off sharply in August when authorities hinted at tightening lending. The speed of the rally is itself cause for concern. Historically, big sell-offs have typically been followed by big bounces. But as measured by the S&P 500, the current rally is stronger after six months than any predecessor, including those that followed the lowest points of the market in 1932, 1974 and 1982.

  • "[Since early 2007] 40 per cent of all movement in the S&P 500 can be predicted or explained from the movement of the yen and vice versa. If we assume, quite reasonably, that the yen and the S&P 500 should be fundamentally unrelated instruments, this implies a breakdown of efficient price discovery in the markets."

  • "It’s the last game of pass the parcel. When the tech bubble burst, balance sheet problems were passed to the household sector [through mortgages]. This time they are being passed to the public sector [through governments’ assumption of banks’ debts]. There’s nobody left to pass it to in the future."











Welcome to the New Normal
by John Mauldin

Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no. We look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation. This week we consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy - and the implications for both the US and world economies if we don't. Economic is often about what we can clearly see, and yet it is understanding what we can't see that gives us true insight. We start with a collection of facts that we can see and then begin a thought exercise to find the implications.

What We See

First, the unemployment rate is now officially at 9.7%. We are approaching the official high we last saw at the end of the double-dip 1982 recession. In the chart below, notice that unemployment rose throughout 1980 and then began to decline, before rising rapidly as the economy entered the second recession within two years. Also notice the rapid drop in unemployment following that recession, as opposed to the recessions of 1991-92 and 2001-02, which have been characterized as jobless recoveries. Unemployment was as low as 3.8% in 2000 and saw a cycle low of 4.4% in early 2007.

(For the record, all this data is available on the Bureau of Labor Statistics website. There is a treasure trove of data. They are quite open about what they do and how they do it. When I call to ask a question, they are quite helpful. How people interpret the data is not their fault.)

This headline unemployment number (9.7%) is what we see when we read the paper. What we typically don't see is the real number of unemployed. For instance, if you have not actively looked for a job in the last four weeks, even if you would like one, you are not counted as unemployed. You are called a "marginally attached" or "discouraged" worker. Often there are very good reasons for this. You could be sick, dealing with a family emergency, going back to school, or not have transportation.

Right now, about one-third of marginally attached workers actively want jobs but have not bothered to look because they believe there are no jobs in their area, at least not for them. If you add that extra 758,000 to the unemployment data, you get what is called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers the unemployment number is 11% (U-5 unemployment).

And if you add those who are employed part-time for economic reasons (i.e., they can't get full-time jobs) the unemployment number rises to 16.8%. (That is called U-6 unemployment.)

Now, stay with me for the next two tables taken directly from the BLS website. The first is the total number of people in the US civilian work force. Notice how each year the number of potential workers rises. In fact, the number of workers has risen by about 15 million over the last ten years. This is from population growth and from immigration. Also notice that the normal rise did not happen last year. That is because the number of discouraged workers has risen rapidly and, as noted above, they are not counted. We will revisit this point later. But for now, there are 154,577,000 people in the available work force.

Next we look at the tables for the actual level of employment. Here we note that we are down almost 8 million jobs since the onset of this recession, and that there are almost 15 million people unemployed.

Going back to the part-time workers, there are roughly 9 million people who are working part-time because of business conditions, or those are the only jobs they could find. The average work week is at an all-time low of 33 hours. The chart below is from my friend David Rosenberg.

David wrote in a special report today:

"What does all this mean? It means that when the economy does begin to recover, when we finally get to the other side of the mountain, companies are going to raise their labour input first by lifting the workweek from its record low. Just to get back to the pre-recession level of 33.8 hours would be equivalent to hiring three million workers. And, the record number of people working part-time against their will are going to be pushed back into full-time, which will be great news for them, but not so great news for the 125,000 - 150,000 new entrants into the labour market every month. They won't have it so easy because employers are going to tap their existing under-utilized resources first since that is common sense. Also keep in mind that there are at least four million jobs in retail, financial, construction and manufacturing jobs lost this cycle that are likely not coming back. In fact, the number of unemployed who were let go for permanent reasons as opposed to temporary layoff rose by more than five million this cycle. This compares to the 1.2 million increase in the 2001 tech-led recession and in the 1990-91 housing-led recession (when Ross Perot talked about the sucking sound of jobs into Mexico)."

Then there is the matter of average weekly earnings. If you adjust for inflation, workers are making roughly what they did in 1980. The chart is straight from the BLS website.

And What We Don't See

Those are the facts. Now it's time to look at what we don't see, and what you don't read or hear from the mainstream media.

We saw above that we are adding about 1.5 million workers to the workplace every year. That means over the next five years we are going to need 7.5 million jobs just to maintain that growth, or about 125,000 a month. That is on the low side of what economists normally estimate, which is around 150,000 per month. If we used the 150,000 estimate, it would mean we need 9 million jobs.

There are at least 1 million (and probably more like 2 million) discouraged workers who would take jobs if the economy got better. You can derive that number by going back to early 2007 and seeing the level of discouraged workers. That means, by the end of 2014 we are going to have 163 million people in the work force (see table above).

Today we have 139.6 million jobs, and that number is likely to slip at least another half million (last month the economy lost 216,000 jobs, with a very suspicious birth-death ratio accounting for a lot of job creation). So let's call it 139 million current jobs.

Let's assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. Five percent unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week. And maybe the extra 1.5 million a year I mentioned above.

But let's ignore those latter jobs and round it off to 15 million. Let's hope that by the beginning of next year we stop losing jobs. That means that to get back to 5% unemployment within five years we need to see, on average,the creation of 250,000 jobs per month. As an AVERAGE!!!!!

Look at the table below. It is the number of jobs added or lost for the last ten years. Do you see a year that averaged 250,000? No.

If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.

Want to get back to 4%? Add another 25,000 jobs a month to 2006.

Let's jump forward to next September. We will need at least 1.5 million jobs to take into account growth in the population. Plus another half million jobs that we are likely to lose before we start to grow again. What is the likelihood of average job growth of 160,000 a month? Anyone want to take the "overs" bet?

Go back to 2003, the year after the end of the last recession. A few hundred thousand jobs were created. Why so slow? Because employers gave more time to those who were already employed and to part-time workers. Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now.

Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%. That would only be an additional 1.8 million jobs (making the most optimistic assumptions) over the new jobs needed for population growth.

A Double-Dip Recession?

And that is before this administration makes the economically suicidal move to raise the top tax rate by 10%. The popular image is that those who pay the highest tax rate are Wall Street execs, bankers, and corporate moguls. The reality is that 75% of them are small business owners, and they are responsible for the large majority of new jobs that are going to be needed, not to mention a large part of consumer spending. If you tax them more you are going to get fewer jobs (as they will have less to invest) and less consumer spending.

A tax increase of the size being contemplated, with unemployment at today's level, will guarantee a double-dip recession, which of course means that unemployment will rise, not fall. Go back and look at that chart on unemployment. Notice the very steep rise in the second recession of the early '80s. That is what we could be facing.

Without getting too political, think about elections in 2010 with unemployment levels still rising. And fast-forward to 2012, with deficits (optimistically) projected to be almost $1 trillion and rising. With a tax increase giving us another recession? Will the bond market provide another $4 trillion? My question is, from where?

There has never been a period of serious inflation in the US without wage inflation. But real incomes are falling, and there is little reason to believe we will see wage pressures within the next few years. The opposite is likely to be the case.

Today's Wall Street Journal tells us that 5 million people have been unemployed for over 6 months. And the longer you are unemployed, the harder it is to get a job. That means you have to settle for a job with less income than you had before.

The only group to see a rise in employment? Those over the age of 55, as they have to take a job, any job, so they can save for retirement.

The Statistical Recovery

The economy is in the process of bottoming. The year-over-year comparisons are getting easier. We will find that new level of spending and economic activity and grow from there. But it is going to be awhile before we get back to full employment. While the numbers may say recovery, it is not going to feel like one.

Let's review quickly what I have written about the last four weeks. We have enormous excess capacity - capacity utilization is about 68%. Banks are cutting back on their loans, and consumers and businesses are borrowing less. Housing is likely to be in a funk for at least two years. We are deleveraging, which is causing the velocity of money to slow.

All of this is very deflationary. Will the Fed print enough money to reflate the economy? You better hope so. Will we have to deal with it later? Of course. We have no good choices. We are in for a long five years, at the least. Yes, there will be opportunities, and new industries will be created. But it won't happen overnight.





The dead end kids
The unemployment rate for young Americans has exploded to 52.2%-- a post-World War II high, according to the Labor Dept. -- meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.

And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults -- aged 16 to 24, excluding students -- getting a job and moving out of their parents' houses are long. Young workers have been among the hardest hit during the current recession -- in which a total of 9.5 million jobs have been lost. "It's an extremely dire situation in the short run," said Heidi Shierholz, an economist with the Washington-based Economic Policy Institute. "This group won't do as well as their parents unless the jobs situation changes."

Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn't see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill. "There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country," Angrisani said in an interview last week. "All those [unemployed young people] should be getting hired by small businesses."

There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said. "If each of the businesses hired just one person, we would go a long way in growing ourselves back to where we were before the recession," Angrisani noted.

During previous recessions, in the early '80s, early '90s and after Sept. 11, 2001, unemployment among 16-to-24 year olds never went above 50 percent. Except after 9/11, jobs growth followed within two years. A much slower recovery is forecast today. Shierholz believes it could take four or five years to ramp up jobs again. A study from the National Longitudinal Survey of Youth, a government database, said the damage to a new career by a recession can last 15 years. And if young Americans are not working and becoming productive members of society, they are less likely to make major purchases -- from cars to homes -- thus putting the US economy further behind the eight ball.

Angrisani said he believes that Obama's economic team, led by Larry Summers, has a blind spot for small business because no senior member of the team -- dominated by academics and veterans of big business -- has ever started and grown a business. "The Reagan administration had people who knew of small business," he said. "They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business."

Angrisani said the stimulus money going to extending unemployment benefits is like a narcotic that is keeping the unemployed content -- but doing little to get them jobs. Labor Dept. statistics also show that the number of chronically unemployed -- those without a job for 27 weeks or more -- has also hit a post-WWII high.




Another Reason We Won't Have A V-Shaped Recovery: Jobs
In order for the U.S. economy to go roaring right back to the 3%-4% long-term growth the bulls are looking for, consumer spending will have to rebound. 

Consumer spending is still 70%+ of the economy, and it's hard to get a supertanker cruising along at top speed if 70% of its power is removed.

In order for consumer spending to come roaring back, however, one critical thing has to happen:

Consumers have to be employed
If consumers don't have jobs, they don't have much disposable income.  They also can't borrow as easily (because, at least temporarily, banks have decided not to be stupid).  And if consumers aren't employed, companies that sell to them can't grow as quickly, which affects the other 30% of the economy.

And how is consumer employment going?  Badly.

The unemployment rate is now nearing the post-war peak of just over 10%.  Yes, the unemployment rate is a lagging indicator--in part because it doesn't count unemployed people who have given up looking for a job. (As a recovery begins, these folks start looking for jobs, so the ranks of "unemployed" as defined by the BLS suddenly swells).   But the rate is high enough that, unless it drops sharply, it's hard to see where the disposable income necessary to drive strong consumer spending growth (and borrowing capacity) is going to come from.

In the recession of the early 1980s, the unemployment rate dropped quickly in the beginning of the recovery.  In the two more recent recessions, however, it did not. 

The bulls say we'll have a sharp recovery this time because the rate of jobs recovery matches the rate of decline: Panicked employers cut too many jobs and now they'll have to hire them back.  Anything is possible, but this bullish argument does not explain how the job market will rapidly absorb the huge amount of slack that is not reflected in the unemployment rate.  It also does not explain how companies will rapidly increase their payrolls when they're selling to consumers that are hunkering down and trying to rebuild savings.

Specifically:

  • A record-low work-week suggests that employers have a lot of room to ramp production without hiring new employees (or old ones back).  David Rosenberg estimates that just increasing the work-week back to normal levels will be the same as creating 3 million jobs.

  • Consumers still have debt coming out of their ears (consumers are customers of most of the companies that need to start hiring)

  • Consumers' wealth has been clobbered, so they need to start saving instead of spending again (ditto)

  • Approximately 4 million jobs in finance, construction, and real-estate are gone for good (or at least a while)

  • Getting the unemployment rate back to 5% in 5 years would require average monthly job creation of 250,000.  The average for the major boom of the 1990s was 150,000.  The average for the past 30 years has been about 50,000.

  • The number of job openings to unemployed job-seekers has now hit a record high of 1-to-6.  So it will be a long time before we get back to normal on this ratio, let alone create a job-seekers' market.




U.S. Job Seekers Exceed Openings by Record Ratio
Despite signs that the economy has resumed growing, unemployed Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking open positions in 2000. According to the Labor Department’s latest numbers, from July, only 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed.

And even though the pace of layoffs is slowing, many companies remain anxious about growth prospects in the months ahead, making them reluctant to add to their payrolls. "There’s too much uncertainty out there," said Thomas A. Kochan, a labor economist at M.I.T.’s Sloan School of Management. "There’s not going to be an upsurge in job openings for quite a while, not until employers feel confident the economy is really growing." The dearth of jobs reflects the caution of many American businesses when no one knows what will emerge to propel the economy. With unemployment at 9.7 percent nationwide, the shortage of paychecks is both a cause and an effect of weak hiring.

In Milwaukee, Debbie Kransky has been without work since February, when she was laid off from a medical billing position — her second job loss in two years. She has exhausted her unemployment benefits, because her last job lasted for only a month. Indeed, in a perverse quirk of the unemployment system, she would have qualified for continued benefits had she stayed jobless the whole two years, rather than taking a new position this year. But since her latest unemployment claim stemmed from a job that lasted mere weeks, she recently drew her final check of $340.

Ms. Kransky, 51, has run through her life savings of roughly $10,000. Her job search has garnered little besides anxiety. "I’ve worked my entire life," said Ms. Kransky, who lives alone in a one-bedroom apartment. "I’ve got October rent. After that, I don’t know. I’ve never lived month to month my entire life. I’m just so scared, I can’t even put it into words." Last week, Ms. Kransky was invited to an interview for a clerical job with a health insurance company. She drove her Jeep truck downtown and waited in the lobby of an office building for nearly an hour, but no one showed. Despondent, she drove home, down $10 in gasoline.

For years, the economy has been powered by consumers, who borrowed exuberantly against real estate and tapped burgeoning stock portfolios to spend in excess of their incomes. Those sources of easy money have mostly dried up. Consumption is now tempered by saving; optimism has been eclipsed by worry. Meanwhile, some businesses are in a holding pattern as they await the financial consequences of the health care reforms being debated in Washington.



Even after companies regain an inclination to expand, they will probably not hire aggressively anytime soon. Experts say that so many businesses have pared back working hours for people on their payrolls, while eliminating temporary workers, that many can increase output simply by increasing the workload on existing employees. "They have tons of room to increase work without hiring a single person," said Heidi Shierholz, an economist at the Economic Policy Institute Economist. "For people who are out of work, we do not see signs of light at the end of the tunnel." Even typically hard-charging companies are showing caution.

During the technology bubble of the late 1990s and again this decade, Cisco Systems — which makes Internet equipment — expanded rapidly. As the sense takes hold that the recession has passed, Cisco is again envisioning double-digit rates of sales growth, with plans to move aggressively into new markets, like the business of operating large scale computer data servers. Yet even as Cisco pursues such designs, the company’s chief executive, John T. Chambers, said in an interview Friday that he anticipated "slow hiring," given concerns about the vigor of growth ahead. "We’ll be doing it selectively," he said.

Two recent surveys of newspaper help-wanted advertisements and of employers’ inclinations to add workers were at their lowest levels on record, noted Andrew Tilton, a Goldman Sachs economist. Job placement companies say their customers are not yet wiling to hire large numbers of temporary workers, usually a precursor to hiring full-timers. "It’s going to take quite some time before we see robust job growth," said Tig Gilliam, chief executive of Adecco North America, a major job placement and staffing company.

During the last recession, in 2001, the number of jobless people reached little more than double the number of full-time job openings, according to the Labor Department data. By the beginning of this year, job seekers outnumbered jobs four-to-one, with the ratio growing ever more lopsided in recent months. Though layoffs have been both severe and prominent, the greatest source of distress is a predilection against hiring by many American businesses. From the beginning of the recession in December 2007 through July of this year, job openings declined 45 percent in the West and the South, 36 percent in the Midwest and 23 percent in the Northeast.

Shrinking job opportunities have assailed virtually every industry this year. Since the end of 2008, job openings have diminished 47 percent in manufacturing, 37 percent in construction and 22 percent in retail. Even in education and health services — faster-growing areas in which many unemployed people have trained for new careers — job openings have dropped 21 percent this year. Despite the passage of a stimulus spending package aimed at shoring up state and local coffers, government job openings have diminished 17 percent this year.

In the suburbs of Chicago, Vicki Redican, 52, has been unemployed for almost two years, since she lost her $75,000-a-year job as a sales and marketing manager at a plastics company. College-educated, Ms. Redican first sought another management job. More recently, she has tried and failed to land a cashier’s position at a local grocery store, and a barista slot at a Starbucks coffee shop.

Substitute teaching assignments once helped her pay the bills. "Now, there are so many people substitute teaching that I can no longer get assignments," she said. "I’ve learned that I can’t look to tomorrow," she said. "Every day, I try to do the best I can. I say to myself, ‘I don’t control this process.’ That’s the only way you can look at it. Otherwise, you’d have to go up on the roof and crack your head open."




Job losses, early retirements hurt Social Security
Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s. The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large. What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security. "A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."

Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs. Some have no choice. Marylyn Kish turns 62 in December, making her eligible for early benefits. She wants to put off applying for Social Security until she is at least 67 because the longer you wait, the larger your monthly check. But she first needs to find a job.

Kish lives in tiny Concord Township in Lake County, Ohio, northeast of Cleveland. The region, like many others, has been hit hard by the recession. She was laid off about a year ago from her job as an office manager at an employment agency and now spends hours each morning scouring job sites on the Internet. Neither she nor her husband, Raymond, has health insurance. "I want to work," she said. "I have a brain and I want to use it." Kish is far from alone. The share of U.S. residents in their 60s either working or looking for work has climbed steadily since the mid-1990s, according to data from the Bureau of Labor Statistics.

This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago. Kish said her husband already gets early benefits. She will have to apply, too, if she doesn't soon find a job. "We won't starve," she said. "But I want more than that. I want to be able to do more than just pay my bills." Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year. The increase in early retirements is hurting Social Security's short-term finances, already strained from the loss of 6.9 million U.S. jobs. Social Security is funded through payroll taxes, which are down because of so many lost jobs.

The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s, when Congress last overhauled Social Security. Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016 unless Congress acts again to shore up the program. Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund. President Barack Obama has said he would like to tackle Social Security next year.

"The thing to keep in mind is that it's unlikely we are going to pull out (of the recession) with a strong recovery," said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School. "These deficits may last longer than a year or two." About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.

The recession is also fueling applications for disability benefits, said Stephen C. Goss, the Social Security Administration's chief actuary. In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year, Goss said. A lot of people who had been working despite their disabilities are applying for benefits after losing their jobs. "When there's a bad recession and we lose 6 million jobs, people of all types are going to be part of that," Goss said.

Nancy Rhoades said she dreads applying for disability benefits because of her multiple sclerosis. Rhoades, who lives in Orange, Va., about 75 miles northwest of Richmond, said her illness is physically draining, but she takes pride in working and caring for herself. In June, however, her hours were cut in half — to just 10 a week — at a community services organization. She lost her health benefits, though she is able to buy insurance through work, for about $530 a month. "I've had to go into my retirement annuity for medical costs," she said.

Her husband, Wayne, turned 62 on Sunday, and has applied for early Social Security benefits. He still works part time. Nancy Rhoades is just 56, so she won't be eligible for retirement benefits for six more years. She's pretty confident she would qualify for disability benefits, but would rather work. "You don't think of things like this happening to you," she said. "You want to be in a position to work until retirement, and even after retirement."




Cash-strapped sell their kidneys to pay off debts
British victims of the credit crunch are offering to sell their kidneys for £25,000 or more to help pay debts, an investigation by The Sunday Times has revealed. At least a dozen adverts have appeared on the internet offering kidneys for sale from British "donors". Five of the sellers corresponded with undercover journalists, who posed as friends and relatives of sick patients to negotiate sales.

One person willing to sell a kidney is a 26-year-old mental health nurse who said he needed the money to pay debts after a business he set up went bankrupt. Another is a 43-year-old taxi driver from Lancashire, who wants to raise cash to pay off some of his mortgage and buy a new kitchen. Both men said they wanted to help those in need of kidney transplants at the same time as relieving their financial difficulties. A leading doctor said the phenomenon highlighted the need for a public discussion of the issue of selling organs.

Professor Peter Friend, a former president of the British Transplant Society, said: "The West has outlawed it for all sorts of good reasons, but the result is it goes underground. It is really important to have a debate." Nearly 7,000 people in the UK are waiting for kidney transplants and 300 died last year while on the waiting list. Offering to sell an organ in England, Wales and Northern Ireland is an offence under the Human Tissue Act even if the seller is planning to travel to another country for the transplant operation.

Yesterday William Henderson, the taxi driver, justified his offer to sell a kidney by saying: "I thought I was going to give another man a chance of life. I wanted to help myself at the same time. We are in the middle of a giant credit crunch." He added: "A guy from Pakistan wanted one, but I turned him down. I think he was more buying it to sell it on. I’d rather . . . it’s got somewhere good to go."




Money figures show there's trouble ahead
by Ambrose Evans-Pritchard

Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise. Unemployment benefits have masked social hardship unto now but these are starting to expire with cliff-edge effects.The jobless army in Spain will be reduced to €100 a week; in Estonia to €15.

Whoever wins today's elections in Germany will face the reckoning so deftly dodged before. Kurzarbeit, that subsidises firms not to fire workers, is running out. The cash-for-clunkers scheme ended this month. It certainly "worked". Car sales were up 28% in August, but only by stealing from the future. The Center for Automotive Research says sales will fall by a million next year: "It will be the largest downturn ever suffered by the German car industry."

Fiat's Sergio Marchionne warns of "disaster" for Italy unless Rome renews its car scrappage subsidies. Chrysler too will see some "harsh reality" following the expiry of America's scheme this month. Some expect US car sales to slump 40% in September. Weaker US data is starting to trickle in. Shipments of capital goods fell by 1.9% in August. New house sales are stuck near 430,000 – down 70% from their peak – despite an $8,000 tax credit for first-time buyers. It expires in November.

We are moving into a phase when most OECD states must retrench to head off debt-compound traps. Britain faces the broad sword; Spain has told ministries to slash 8% of discretionary spending; the IMF says Japan risks a funding crisis. If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23% in August; Japan's were down 36%; industrial production has dropped by 23% in Japan, 18% in Italy, 17% in Germany, 13% in France and Russia and 11% in the US.

Call this a "V-shaped" recovery if you want. Markets are pricing in economic growth that is not occurring. The overwhelming fact is that private spending has slumped in the deficit countries of the Anglosphere, Club Med, and East Europe but has not risen enough in the surplus countries (East Asia and Germany) to compensate. Excess capacity remains near post-war highs across the world. Yet hawks are already stamping feet at key central banks. Are they about to repeat the errors made in early 2007, and then again in the summer of 2008, when they tightened – or made hawkish noises – even as the underlying credit system fell apart?

Fed chairman Ben Bernanke spoke in April 2008 of "a return to growth in the second half of this year", and again in July 2008 that growth would "pick up gradually over the next two years". He could only have thought such a thing if he was ignoring the money data. Key aggregates had been in free-fall for months. I cited monetarists in July 2008 warning that the lifeblood of the Western credit was "draining away". For whatever reason (the lockhold of New Keynesian ideology?) the Fed missed the signal.

So did the European Central Bank when it raised rates weeks before the Lehman collapse, blathering about a "1970s inflation spiral." Yes, the money entrails can mislead. The gurus squabble like Trotskyists. But you ignore the data at your peril.

Tim Congdon from International Monetary Research says that US bank loans have been falling at an annual pace of almost 14% since early Summer: "There has been nothing like this in the USA since the 1930s." M3 money has been falling at a 5% rate; M2 fell by 12% in August; the Commercial Paper market has shrunk from $1.6 trillion to $1.2 trillion since late May; the Monetary Multiplier at the St Louis Fed is below zero (0.925). In Europe, M3 money has been contracting at a 1% rate since April. Private loans have fallen by €111bn since January. Whether you see a credit crunch in Euroland depends where you sit. It is already garrotting Spain. Germany's Mittelstand says it is "a reality", even if not for big companies that issue bonds. The Economy Ministry is drawing up plans for €250bn in state credit, knowing firms will be unable to roll over debts.

Bundesbank chief Axel Weber sees no crunch now, yet fears a second pulse of the crisis this winter. "We are threatened by stress from our domestic credit industry through the rise in the insolvency of firms and households," he says. Draw your own conclusion. Western central banks will have to "monetize" deficits on a huge scale to stave off debt deflation. The longer they think otherwise, the worse it will be.




A risky revival
by John Authers

This should have been a week for traders in the stock market to feel good about life. US stocks have rallied by close to 60 per cent in barely six months since they hit bottom in March. The Federal Reserve meanwhile pronounced this week that "economic activity has picked up" – the most confident language the central bank has used for some time.

But Crispin Odey, one of London’s most respected hedge fund managers, was seeing things differently. He chose Wednesday, the day of the Fed’s pronouncement, to ruminate, both in a note to clients and in the Financial Times, that the rally was "entering a bubble phase". The word "bubble" is highly emotive but Mr Odey could justify it. He argued that markets were being distorted by governments’ deliberate attempts to push down the price of money by buying bonds, a policy known as quantitative easing.

"At some point the quantitative easing will have to come to an end," he said, "but, until it does, this bull market is sponsored by [Her Majesty’s Government] and everyone should enjoy it." The remarks struck a chord. Stocks endured a sharp sell-off after his words . The fear that the unprecedented supply of cheap money from governments is creating another bubble has been circulating in Wall Street and the City of London for months.

To some, this seems alarmist. History is full of examples of strong rallies after big sell-offs – it is all part of the "physics" of markets. The all-time highs for developed market stocks, set in 2007, are not in sight. On conventional valuation measures, stocks are nowhere near as expensive as at the top of past investment bubbles. Also, the economic "free-fall" at the end of last year appears to have been halted. In addition, the Fed’s pronouncement signalled interest rates will remain low for a while – a sweet spot for risky assets such as stocks. A strong recovery for share prices since March, when there was a real fear of a second Great Depression, seems reasonable.

But the question of whether this is a real recovery or a bubble must still be asked, and there are worrying signs. The rally has been achieved with global economic growth barely above zero and unemployment still rising. The S&P 500 index of US stocks is already far above the forecasts nine out of 10 Wall Street strategists have in place for the end of the year, according to a Bloomberg survey. Concerns are prevalent that US consumers will not return to their old buying habits because of high unemployment and the debts they need to pay off.

There are also concerns that China, the other leading source of growth, has achieved that only by stoking lending – notably, Chinese stocks sold off sharply in August when authorities hinted at tightening lending. The speed of the rally is itself cause for concern. Historically, big sell-offs have typically been followed by big bounces. But as measured by the S&P 500, the current rally is stronger after six months than any predecessor, including those that followed the lowest points of the market in 1932, 1974 and 1982.

Relationships between markets also imply unhealthy levels of speculation. Currency and stock markets had minimal correlations before the crisis took hold in 2007, while oil and stocks were usually inversely correlated. But oil and stocks have been rising in tandem this year, just as they fell together during the crisis, while the correlations between the dollar and stock markets remain remarkably close.

The implication of such correlations is alarming. Tim Lee, of Pi Economics in Connecticut, puts it this way: "[Since early 2007] 40 per cent of all movement in the S&P 500 can be predicted or explained from the movement of the yen and vice versa. If we assume, quite reasonably, that the yen and the S&P 500 should be fundamentally unrelated instruments, this implies a breakdown of efficient price discovery in the markets."

So does this qualify as a bubble? The classic definition came from the economist Charles Kindleberger in his 1978 book Manias, Panics and Crashes. For him, a bubble is a phenomenon of mass psychology, and refers to the last stage of an investment mania, when assets are bought "not because of the rate of return on the investment but in anticipation that the asset or security can be sold to someone else at an even higher price". The bubble bursts when there is no longer a "greater fool" ready to pay too much for the asset.

Thus, in a true bubble, stocks are wildly overvalued compared with their fundamental measures, such as their earnings or the value of the assets on their balance sheets. But conventional valuation measures of stocks suggest they are still far from a true bubble. US stocks are trading at a multiple of 18.7 times their average earnings for the past 10 years, according to the data kept by Professor Robert Shiller of Yale University. Historically, extremes in cyclical price/earnings ratios have accurately signalled long-term market peaks and troughs. The cyclical p/e stood at 27 immediately before the crisis in 2007, for example, and reached 43 at the peak of the internet boom. So it looks premature to say stocks are in a bubble.
. . .
But an argument that this is an incipient bubble, carrying real risk that a mania will develop, is easier to sustain. First, according to Kindleberger, bubbles are driven by cheap credit. With US interest rates at zero, credit is very cheap. Second, many investors seem to be using bubble-like logic; they believe others will soon be prepared to buy even more.

There are true "bulls" who believe the global economy will recover strongly from here, bringing up corporate earnings in its wake. But others focus on the cash that has been on the sidelines, and on the pressures on fund managers who want to avoid the embarrassment of having stayed out of the market during the rally.

Mark Lapolla, of Sixth Man Research in California, who has called aggressively for investment in the market, says he "cannot emphasise strongly enough just how big a role simple game theory will play". He argues it is large equity mutual fund managers who are driving the market. Most have done well this year, and are ahead of the benchmark stock market indices against which they are compared. "Therefore the incentive is to not lose ground rather than gain it," he says, so they will stick closely to stocks in the main indices to protect their year-end bonuses.

Jeremy Grantham, co-founder of GMO, a large Boston-based fund manager, says: "Fund managers are simply not prepared to take the career risk of being wrong for a little while and losing business." Thus they are herding into the index, though Mr Grantham – who advocated buying at the bottom in March – already considers stocks too expensive given the many risks in the world economy.

Another concern comes from more recent history. After the internet bubble in 2000, world stocks endured a bear market, falling 49 per cent before hitting a bottom shortly before the invasion of Iraq in March 2003. They then enjoyed a four-year rally in which the main stock indices doubled. It was rational, and successful, to be in the market from 2003 to 2007 but with hindsight it was a "fools’ rally", triggered by cheap money, as Alan Greenspan’s Fed cut its target interest rate to 1 per cent. This fuelled a bubble in mortgages and housing.

The 2003 bounce came when stocks were not cheap – they traded at a multiple to cyclical earnings of about 21, according to Prof Shiller, when at the bottom of previous bear markets this multiple had fallen below 6. So it looks as though cheap money stopped markets taking all the medicine they needed. Similarly the current rally began with stocks trading at a multiple of 13 times the previous 10 years’ earnings. This was the cheapest in 21 years but still double the lows seen after previous great sell-offs, implying cheap money had once again saved prices before all speculative excess had been cleaned out of the system.
. . .
The danger, in this scenario, is that lenders lose confidence in the creditworthiness of governments, which could cause rates to rise and spark a renewed sell-off. But that is not imminent. Just as it made sense to stay in the market while the booming mortgage market kept credit unnaturally cheap, it may make sense to do so while state intervention keeps credit unnaturally cheap. And when bonds and cash pay so little, raising the risks of inflation in the future, the rational response is to buy assets that generate more reliable cash flows, such as stocks; or that act as a hedge against inflation, such as commodities. On this logic, investors may as well heed Mr Odey and "enjoy the bubble".

They should do so now because, if this theory is right, the denouement will be painful. David Bowers of Absolute Strategy Research in London, who has been bullish for a while and advises staying in stocks, says: "It’s the last game of pass the parcel. When the tech bubble burst, balance sheet problems were passed to the household sector [through mortgages]. This time they are being passed to the public sector [through governments’ assumption of banks’ debts]. There’s nobody left to pass it to in the future."




"We’re speaking Japanese without knowing it"
When you’ve studied "eight centuries of financial folly," as international economists Carmen Reinhart and Kenneth Rogoff have, patterns begin to emerge. The most striking pattern they’ve found is that people never learn. We gullible humans make the same mistake time after time, which is believing that the laws of financial physics have been repealed for us. Thus, Americans proclaim confidently that there’s no chance the U.S. will get caught in Japanese-style stagnation. Sure, deflation became entrenched in Japan starting after the stock-market crash that began in 1990. But this time is different, right?

Don’t be so sure. Reinhart says Americans seem to be unwittingly repeating the mistakes of the Japanese, including propping up "zombie" banks that aren’t healthy enough to make new loans and get the economy growing again. Americans kid themselves, she says, by saying, "These are not zombie loans. They’re just non-performing." Summarizes Reinhart: "We’re speaking Japanese without knowing it." (I love that quote.)

Reinhart and Rogoff spoke at a lunch for economics reporters at the Princeton Club in New York, where they discussed their comprehensive new book, "This Time Is Different: Eight Centuries of Financial Folly." To me, one of the most important findings of the book is that generations of economists, right up to the present, have misunderstood the causes of sovereign defaults (i.e., when a country fails to make payments on its foreign debt). It turns out, they say, that a country is much more likely to default on its foreign debt if it’s carrying a lot of domestic debt. No wonder: A country will try repaying its own citizens (who vote) before it worries too much about foreign creditors (who don’t vote and, in any case, tend to be stupidly forgiving).

OK, the importance of domestic debt may not sound too surprising. What’s surprising, rather, is that this factor was completely neglected in most economists’ work. One reason: Governments have not made data about the quantities of their domestic debt available to researchers. Reinhart and Rogoff compiled it and are planning to make it available to other scholars. One footnote: The U.S. does not have foreign debt, in the way that Reinhart and Rogoff use the term. Instead, it has lots of domestic debt (like Treasuries) that happened to be owned by foreigners. To them, foreign debt is debt that is issued in a foreign jurisdiction, usually in that foreign nation’s currency. The U.S. can still stick it to foreign creditors by inflating the dollar so much that foreign-held Treasury bonds become close to worthless. That is exactly what the Chinese are worried about lately.




The Mortgage Machine Backfires
by Gretchen Morgenson

With the mortgage bust approaching Year Three, it is increasingly up to the nation’s courts to examine the dubious practices that guided the mania. A ruling that the Kansas Supreme Court issued last month has done precisely that, and it has significant implications for both the mortgage industry and troubled borrowers. The opinion spotlights a crucial but obscure cog in the nation’s lending machinery: a privately owned loan tracking service known as the Mortgage Electronic Registration System.

This registry, created in 1997 to improve profits and efficiency among lenders, eliminates the need to record changes in property ownership in local land records. Dotting i’s and crossing t’s can be a costly bore, of course. And eliminating the need to record mortgage assignments helped keep the lending machine humming during the boom. Now, however, this clever setup is coming under fire. Legal experts say the fact that the most recent assault comes out of Kansas, a state not known for radical jurists, makes the ruling even more meaningful.

Here’s some background: For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate. During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions.

To avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder. Cost savings to members who joined the registry were meaningful. In 2007, the organization calculated that it had saved the industry $1 billion during the previous decade. Some 60 million loans are registered in the name of MERS.

As long as real estate prices rose, this system ran smoothly. When that trajectory stopped, however, foreclosures brought against delinquent borrowers began flooding the nation’s courts. MERS filed many of them. "MERS is basically an electronic phone book for mortgages," said Kevin Byers, an expert on mortgage securities and a principal at Parkside Associates, a consulting firm in Atlanta. "To call this electronic registry a creditor in foreclosure and bankruptcy actions is legal pretzel logic, nothing more than an artifice constructed to save time, money and paperwork."

The system also led to confusion. When MERS was involved, borrowers who hoped to work out their loans couldn’t identify who they should turn to. As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn’t own the note or the mortgage, could not move against a borrower. Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say.

While the matter before the Kansas Supreme Court didn’t involve an action that MERS took against a borrower, the registry’s legal standing is still central to the ruling. The case involved a borrower named Boyd A. Kesler, who had taken out two mortgages from two different lenders on a property in Ford County, Kan. The first mortgage, for $50,000, was underwritten in 2004 by Landmark National Bank; the second, for $93,100, was issued by the Millennia Mortgage Corporation in 2005, but registered in MERS’s name. It seems to have been transferred to Sovereign Bank, but Ford County records show no such assignment.

In April 2006, Mr. Kesler filed for bankruptcy. That July, Landmark National Bank foreclosed. It did not notify either MERS or Sovereign of the proceedings, and in October, the court overseeing the matter ordered the property sold. It fetched $87,000 and Landmark received what it was owed. Mr. Kesler kept the rest; Sovereign received nothing. Days later, Sovereign asked the court to rescind the sale, arguing that it had an interest in the property and should have received some of the proceeds. It told the court that it hadn’t been alerted to the deal because its nominee, MERS, wasn’t named in the proceedings.

The court was unsympathetic. In January 2007, it found that Sovereign’s failure to register its interest with the county clerk barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property. By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.

Although the Kansas court’s ruling applies only to cases in its jurisdiction, foreclosure experts said it could encourage judges elsewhere to question MERS’s standing in their cases. "It’s as if there is this massive edifice of pretense with respect to how mortgage loans have been recorded all across the country and that edifice is creaking and groaning," said Christopher L. Peterson, a law professor at the University of Utah. "If courts are willing to say MERS doesn’t have any ownership interest in mortgage loans, that may eventually call into question the priority of liens recorded in MERS’s name, and there are millions and millions of them."

In other words, banks holding second mortgages could find themselves in the same pair of unlucky shoes that Sovereign found itself wearing in Kansas. Asked about the ruling, Karmela Lejarde, a spokeswoman for MERS, contested the court’s reasoning. "We believe the Kansas Supreme Court used an erroneous standard of review; this is not the end of the judicial process," she said. "The mortgages on which MERS is the mortgagee will remain binding contracts."

BUT Patrick A. Randolph, a law professor at the University of Missouri, Kansas City, who described himself as a friend of MERS, described the recent decision as unsettling. "This opinion is hostile to the notion of MERS as nominee and could lead to problems for it in foreclosing," he said. "The entire structure of MERS as a recorded nominee could collapse in Kansas, and that could lead to a patch-up job where they would have to run around and re-record the mortgages." If so, MERS would be hoisted on its own petard. And it would be a rare case of poetic justice in this long-running mortgage mess.




Derivatives: Bailed-Out Banks Still Making Billions Off Risky Bets
Derivatives is one of the dirty words of the financial crisis. Though these often-risky bets were blamed by many for helping fuel the credit crunch and the downfall of Lehman Brothers and AIG, it seems that Wall Street has yet to learn its lesson. U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter of 2009, a 225 percent increase from the same period last year, according to the Treasury Department.

More than 1,100 banks now trade in derivatives, a 14 percent increase from last year. Four banks control the market: JPMorgan Chase, Goldman Sachs, Bank of America and Citibank account for 94 percent of the total derivatives reported to be held by U.S. commercial banks, according to national bank regulator the Office of the Comptroller of the Currency. The credit risk posed by derivatives in the banking system now stands at $555 billion, a 37 percent increase from 2008. "By any standard these [credit] exposures remain very high," Kathryn E. Dick, the OCC's deputy comptroller for credit and market risk, said in a statement.

The complex financial instruments, which take the form of futures, forwards, options and swaps, derive their value from an underlying investment or commodity such as currency rates, oil futures and interest rates. They are designed to reduce the risk of loss for one party from the underlying asset. Trading in an unregulated $600 trillion market, they were partly blamed for igniting the financial crisis a year ago. The New York Times reported earlier this month:
Derivatives drove the boom before 2008 by encouraging banks to make loans without adequate reserves. They also worsened the panic last fall because they inherently tie institutions together. Investors worried that the collapse of one bank would lead to big losses at others.

The Obama administration has included oversight of derivatives as part of its overhaul of financial regulations. Wall Street is fighting back as it seems to have returned to its much-criticized practices. Last Thursday former Fed chairman Paul Volcker, who now heads the White House Economic Recovery Advisory Board, warned lawmakers about the danger lurking behind derivatives. Testifying on Capitol Hill, Volcker discussed how "opaque trading in complex derivatives [have] become so large relative to underlying assets" and how "more and more complex financial instruments limit the transparency of markets," he said.

"As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets," he added. But the OCC argues that derivatives trading is not inherently risky, explaining that banks are trading these instruments every minute of every day with institutions more creditworthy than a typical borrower. "The system has always worked on derivatives," said Kevin M. Mukri, an OCC spokesman. "You have higher-quality counterparties -- higher quality than in any other line of business." Furthermore, "the purpose of derivative trading to to mitigate risk -- not increase risk," he said. "Without derivatives it would be a very hectic marketplace."

Yet some well-respected investment banks seem to be exposed to significant risk, judging by their credit exposure from derivatives contracts. Goldman Sachs, formerly a pure investment bank, is now a bank-holding company regulated by the Federal Reserve. It owns Goldman Sachs Bank, an FDIC-insured depository. The bank has about $20 billion in total risk-based capital -- in short, the money it has to cover creditors in case they go belly-up. But the bank has about $186 billion in total credit exposure from its derivatives contracts.

Much of that $186 billion could be backed up by collateral -- banks with at least $100 billion in assets held a combination of cash, bonds and securities against 63 percent of their total net credit exposure as of June 30. But the OCC doesn't break that down by institution, and Goldman Sachs doesn't disclose it either. Nonetheless, the bank's exposure to derivatives losses is about nine times the amount of capital it has set aside. "It's extraordinary for a commercial bank," says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington D.C.-based think tank. "And it really gets down to the central point with Glass-Steagall -- what's the separation here between government-insured deposits and speculative investment banking activity? You'd be very hard pressed to find out with Goldman right now."

Glass-Steagall, a Depression-era banking law that prohibited commercial banks from engaging in the investment business, was essentially repealed in 1999. Some economists have pointed to the repeal as the central cause behind the financial crisis. "Given Goldman Sachs's history as a securities firm, as opposed to being... a traditional commercial bank, you would expect that our derivatives exposure is higher than our exposure to other assets," says company spokesman Samuel Robinson. "It's much higher [because] we don't have a lot of these other assets."

Goldman Sachs announced that it would become a bank holding company last September, less than a week after Lehman Brothers declared bankruptcy. Coming under the Federal Reserve's protective umbrella gave the firm "access to permanent liquidity and funding," Lloyd C. Blankfein, chairman and CEO of Goldman Sachs, said at the time. Baker says that now that the firm is a bank holding company, the bank's exposure to losses from derivatives contracts (compared to available capital) poses particular problems. Now, "the public is on the hook for that. If they run into trouble they could go to the Fed and borrow at the discount window [and] they have access to the FDIC's special lending [program]," he explains. Goldman Sachs has issued about $25 billion in FDIC-backed debt as of June, according to regulatory filings.

"You're having the protections for what's supposed to be relatively boring commercial banking applied to risky investment banking. It's a real serious problem," Baker says. Robinson says that the firm's exposure to potential losses from its derivatives deals, as defined by the OCC, is misleading. "It includes a regulatory-defined measure ... which in aggregate does not represent the firm's ... risk exposure," he says. For example, it doesn't factor in hedges against potential losses or collateral put up by counterparties. "You can have an exposure that's fully hedged, but the hedging benefit does not appear anywhere in the [OCC's] analysis," Robinson says.

Last October Goldman received a $10 billion taxpayer bailout, which it repaid in June. The federal government earned $1.4 billion on its investment. JPMorgan Chase has about three times the amount of their capital exposed in derivatives deals; Citibank about double. For comparison's sake, if all commercial and industrial loans held by U.S. banks went bust the banking system has just enough capital set aside to cover those losses. Not all banks are so heavily invested in derivatives. PNC's exposure (relative to capital) is at 28 percent, and U.S. Bank, the country's sixth-largest by deposits, comes in at seven percent. "It's tough to think of the world without derivatives," Mukri said "And it's not a pleasant world either."




Ohio AG Targets Bank of America, Execs Over Merrill, Seeks Billions
Ohio Attorney General Richard Cordray said Monday his office could soon seek "billions" from Bank of America Corp. and some of its executives, including Chief Executive Ken Lewis, over the bank's handling of its merger with Merrill Lynch & Co. earlier this year. Cordray has filed a lawsuit on behalf of five pension funds accusing the bank and four executives, including Bank of America Chief Financial Officer Joe Price and Merrill's former chief executive, John Thain, with concealing widening losses at Merrill ahead of a shareholder vote last December to approve the deal. The lawsuit also names Bank of America's chief accounting officer, Neil Cotty.

Shirley Norton, a Bank of America spokeswoman, said: "We are confident we disclosed all that was required and look forward to presenting our position to the court." Cordray's announcement is the latest legal challenge to Bank of America and its chief executive over the bank's purchase of Merrill Lynch during the depths of the financial crisis. New York Attorney General Andrew Cuomo, the Securities and Exchange Commission, a U.S. Treasury investigator and lawmakers in Congress have all said they are investigating the conduct of Bank of America executives surrounding the Merrill deal.

In fact, a U.S. judge recently rejected a proposed $33 million settlement between Bank of America and the SEC over $3.6 billion in bonuses the SEC says Bank of America inappropriately allowed to be paid to Merrill employees late last year. The judge said the settlement is too lenient on Bank of America executives. Bank of America and Merrill agreed to merge last September as the financial crisis raged and the collapse of Wall Street titan Lehman Brothers Holdings Inc. threatened the livelihoods of other securities firms.

In December, before Bank of America shareholders voted to approve the deal, losses at Merrill Lynch widened sharply. Merrill, under then-CEO Thain, nonetheless paid out $3.6 billion in year-end bonuses before the deal closed and Thain has said that Bank of America approved the payments. In January, after the deal closed, Bank of America disclosed the Merrill losses to shareholders and also disclosed a fresh infusion of support from the U.S. Treasury, which agreed to absorb some of Merrill's future losses. Lewis has said he was pressured by then-Treasury Secretary Henry Paulson to go through with the deal, even as losses at Merrill widened, and to delay disclosing Merrill's deteriorating condition.

Although Merrill's businesses have already contributed profits to Bank of America's earnings this year, the flurry of probes has been a significant distraction for the bank and its embattled CEO. Lewis has made headline-making trips to testify before Congress and to answer questions from Cuomo. The lawsuit by Cordray's office in Ohio accuses executives at Bank of America and Merrill of breaking securities laws by concealing information from shareholders. Filed on behalf of five pension funds from Ohio, Texas, Sweden and the Netherlands, the litigation marks an attempt by the funds to recoup losses they suffered when Bank of America's share price fell after its purchase of then-crumbling Merrill Lynch.

The pension funds filed a legal document in March detailing hundreds of millions in losses, but have yet to formally declare how much in damages they're seeking. A spokesman for Cordray's office said the estimates of losses in the filing represent a "snapshot in time." He said, "Estimates of losses in these types of cases will change as the case moves forward based on court rulings and other factors." Cordray made it clear Monday that he will seek damages from the bank as well as executives specifically.

Like Cuomo, Cordray also said Monday he will ask for sworn testimony from executives. That process of interviewing the bank's leaders could bring renewed scrutiny of Thain, who was praised last year for agreeing to sell the company to Bank of America. Lewis then demanded Thain's resignation in January after Lewis grew angry about the way Thain handled the unexpectedly large fourth-quarter losses at Merrill.




China's Surge Confirmed by HSBC Move
In a highly symbolic move, HSBC announced the relocation of chief executive Michael Geoghegan from London to Hong Kong.

Stephen Green, chairman, old the Financial Times. ”Asia and China are the centre of gravity of the world and of our business. To drive the business, you have to be here – Hong Kong is the gateway to China”. Hong Kong and China together accounted for 40 per cent of HSBC’s pre-tax profits in the first half of the year and analysts predict this could reach 50 per cent in the next five to 10 years.

Do you believe it? China’s finance ministry announced in late June that half the $173 billion in central government spending had already been allocated to specific projects. Of much greater importance to China’s rebound are two other government efforts that are paying big dividends: reckless lending and oodles of export subsidies. The state-controlled banking system here opened the spigots with $1.2 trillion in extra lending to Chinese consumers and businesses in the first seven months of this year. This is for an economy with a GDP of about $4 trillion. Although most believe that China’s substantial stimulus package announced earlier this year is being invested in infrastructure, many analysts agree with my perception that most of it is ending up in overheated stock and real estate markets. The Chinese refer to this as “stir fried” markets.

This inevitably leads to the issue of credit quality and the possibility of China’s own homegrown debt bubble. Pivot’s research shows that rather than China having a manageable public debt to GDP ratio of 35%, then inclusion of off balance sheet items like guarantees of local government bonds brings this number up to closer to an uncomfortable 62%.

In addition, China’s non-performing loan data is clearly being managed and does not even include the $200 billion of bad loans from Chinas top four state-owned banks that were moved “off balance sheet” to state-run asset management companies. In return, the banks received $200 billion of bonds that are still on the books of the banks at face value even though their real value is a small fraction of face value. As the bonds come due, they are being rolled over for another 10 years.

China’s bank lending explosion has led to credit to GDP during the first half of 2009 rising to 140%, levels equal to America in 2008 and Japan in 1991 just before their market meltdowns. Chinese financial institutions extended $1.2 trillion worth of local currency loans in the first eight months of this year, an increase of 164 percent from the same period in 2008. China’s top banking regulator, Liu Mingkang, last week warned of growing risks to the country’s financial system as a result of the rapid expansion of new loans. “This year, all kinds of risks have arisen in the banking sector along with the rapid credit expansion,” said Mr. Liu in a recent written statement.

Beijing also has given huge tax breaks and other assistance to exporters. They include placing broad restrictions on imports and intervening heavily in currency markets to hold down the value of the renminbi, to keep Chinese exports competitive even in a weakened global economy.

Even so, American trade data shows that imports from China only eroded 14.2 percent in the first seven months of this year while imports from the rest of the world plunged 32.6 percent. China’s trade surplus, already the world’s largest, was $108 billion for the first seven months of this year. At least a third of the extra bank lending in China appears to have gone into real estate and stock market speculation.

Real estate markets throughout Asia are moving and few faster than in Hong Kong.

Two new luxury flats in Hong Kong have been put on the market for a record per square foot price of HK$75,000 (US$9,640) as the buoyant economy and stock markets on the Chinese mainland lift demand for exclusive properties beyond pre-crisis levels.

Prices for luxury apartments in Hong Kong, where property investment is a passion for many, have risen about 26 per cent since their peak ahead of the collapse of Lehman Brothers a year ago, according to DTZ, a property adviser.





Dutch Banks Have Adequate Capital In Test Scenario - Finance Ministry
The Dutch Finance Ministry Monday said that a stress test carried out by the Dutch Central Bank (DNB) showed that the 15 largest Dutch financial institutions won't need new government aid, except for state-owned ABN Amro and Fortis Bank Netherlands NV. The stress test assumed the Dutch economy would shrink by 6.3% over the period 2009-2010, while unemployment would rise to 9.7%, stock markets would fall 50% and house prices would decline 30%.

"If the fictional circumstances of the stress test would occur, the participating banks and insurers would need to write down an amount of around EUR47 billion. Even though losses would be high, the sector has enough buffers to be able to cope with them," Finance Minister Wouter Bos said in a letter to parliament. He added all banks' Tier 1 capital ratios would, if the stress test scenario occurred, remain within the regulatory capital requirement level of 4%. However, it added DNB could require financial institutions to have a higher Tier 1 ratio then the required 4%, based on the institutions' specific risks, while financial markets may also require higher capital levels for banks and insurers.

Bos, in the letter, said that although he didn't expect any financials, expect state-owned ABN Amro and Fortis Bank Netherlands, to need additional government aid, he couldn't rule out that banks or insurers would be required to raise additional capital. Earlier Monday, the finance ministry said it would give parliament details of its plan to recapitalize the group created by the combination of ABN Amro and Fortis Bank Netherlands in October. The level of refinancing will be based on how much capital is demanded by the DNB, plus costs related to the separation of ABN Amro from the former holding and its integration with Fortis Bank Netherlands. The Dutch government in October last year nationalized Fortis Bank Netherlands and the Dutch parts of ABN Amro, as part of a rescue operation.




The Shame in Breaking Records
by Mehmet Oz

As I listened to 14 month old Analeigha Rivera's tiny heart in the Reliant Center in Houston, I could hear the murmur interrupting her regular rhythm as blood swished through a hole between the main chambers of the heart. An echocardiogram confirmed the diagnosis, so I could show her mother Victoria exactly where the problem was and explained to her that if little Analeigha didn't get supervised care by a pediatric cardiologist, we might miss our window to prevent life-threatening damage.

I looked in her mother's tear-stained eyes and heard the same story that hundreds of others have recounted to me -- Victoria had a job but had lost her insurance. So Analeigha had nowhere to go. After I explained to her that we had resources on-site to help plan the next steps, one of my staff took me aside and told me we had just broken the record for the most people seen in a free clinic in one day. That's when my spirit sank a little.

I have always had a competitive personality. I have always tried to inspire those around me to win. But when I found myself on CNN on Saturday afternoon announcing that we had made history, I didn't feel an ounce of pride. Instead, I felt the underlying frustration that has slowly boiled every time I look into the face of a person on whom I am about to perform surgery who has no means of affording the care they need because they lack health insurance. I wanted to channel this outrage and use my new show as a way to put a face to these people.

The "uninsured" -- that word we keep hearing as our elected officials grapple with a reform initiative that dominates headlines, talk shows, and political rhetoric. But the "uninsured" is a word that refers to people in the abstract. I wanted to show America who these people were, their struggles, their fears, their true challenges. I had spent time at free clinics before, and wanted to shine a spotlight on this remarkable movement for all Americans, so we partnered with the National Association of Free Clinics to hold the free clinic in Houston's three football field size Reliant Center. This was an essential teaching opportunity as our nation finds itself in a time that tries our very soul.

We picked Houston because it has the highest rate of people living without insurance in the nation - 30% or about 1.3 million residents. Texas leads all 50 states with 25% of its residents living without insurance; the national average is a whopping 15%. We announced the clinic last week and after an article appeared in the Houston Chronicle on Wednesday, pre-registration surged and we had to close appointments by early Friday afternoon with 2000 people scheduled to receive free health care. Saturday turned out to be the largest health relief mobilization in Houston since Hurricane Katrina. More than 700 doctors, nurses and volunteers turned out to help. The part that you have to understand about Saturday is that it wasn't in response to a disaster - it was just another day in Houston.

And show up they did. They came as entire families. Many drove hours to get there; others hitchhiked. I walked out at 5am and greeted the first woman on line, Karen, a working school teacher who could not keep up with her insurance payments. Think about it for moment - sitting on the pavement at 5am in the dark waiting for a massive convention center to open just to see a doctor? This is what it's come to, and it should frustrate you as it does me. So many patients had tragic stories that still burn in my heart. Most were embarrassed to seek help and many felt invisible in society, like they didn't matter anymore.

Bobby Parker, a 63 year old woman from the Houston suburb of Channelworth had severe hypertension, putting her at grave risk for stroke and cardiovascular disease. She needed immediate care and I escorted her over to the mobile medical unit for more extensive screening. With us walked her 19-year-old granddaughter Amanda who suffers with acid reflux disease. She recently lost her Medicaid and cannot afford medical care to evaluate the problem or her prescription to keep it under control, giving her severe discomfort from the heartburn and putting her at risk for esophageal cancer. Her grandmother has an advanced degree in social work and worked her entire life in social services helping those in need. Should either woman be in this situation?

Anthony DeLane saw the free clinic on television that morning and decided to show up for problems he was having with his foot. Anthony actually had a diabetic foot ulcer with exposed bone that incurred a serious infection that was making its way up his leg. People often lose toes or feet at this advanced stage. Anthony works long hours as a commercial driver but doesn't have health insurance. He was rushed to the hospital and will get the care he needs to hopefully save his foot. Can you imagine the irony of a truck driver losing his foot so he can longer work, all because he could not afford health coverage?

These stories put a face on 47 million Americans without coverage. Many are hard-working people who took a wrong turn in their lives; 83% of the 4 million people seen last year in free clinics were employed. Analeigha's mother worked. Anthony Delane worked. Bobby Parker had worked her whole life. Should working people not have an option to see a doctor when there is bone protruding from their foot? If most of the people we saw Saturday were employed, it should be apparent to all of us that many people are one paycheck away from losing their existing insurance. These people work hard. They went to school. They deserve better from us.

I am asked constantly what my personal views are on the health care reform debate happening in Washington. People ask me which senator's plan I like. I really have no interest in discussing the dollars and cents of health care or specific insurance plan options. I purposefully extricate myself from that conversation because I don't think 14-monthold Analeigha's heart is a political discussion.

Smart people are working on the legal and financial nuances of fixing health care in America. Others are creating a distraction for reasons I can't imagine. My best contribution is to bear witness to the true nature of the life-threatening struggle facing one in seven Americans and make them real to my television audience and the American people so our policy makers have the empathy of the electorate while making decisions. My hope is that we get to a day when I never have to watch an echocardiogram on a floor normally reserved for rodeo trade shows.

My hope is that no one else ever has to break our record. While I am proud that the patients who came understood someone loved and cared about them and got them desperately needed care, I feel a sense of shame that Saturday had to happen at all. Do you?




David Paterson On Meet The Press: "I'm Blind, I'm Not Oblivious"



David Paterson thrived politically as a state senator, working his way up in a nearly all-white Albany political structure. Now, he's governor, and things have never been worse. For nearly a year, Paterson, the state's first black governor, has been battered by a faltering economy and with poll numbers hovering at record lows. This week, he learned President Barack Obama's administration is worried he'll drag other Democrats down in 2010 if he runs for a full term, perhaps even threatening the narrow margin the party needs to ward off filibusters in the U.S. Senate.

These days, Paterson finds himself very much alone. Paterson said Sunday on NBC's "Meet the Press" that Obama never directly asked him to step aside, and he wouldn't discuss what presidential aides may have told him confidentially. But the legally blind governor added he's heard the message from Democrats in New York and Washington: "I'm blind, I'm not oblivious." "But I am running for governor," he said. "I don't think I am a drag on the party. I think I'm fighting for the priorities of my party."

At an Associated Press event in Syracuse last week, Paterson said that when he was Gov. Eliot Spitzer's lieutenant governor, he had never envisioned becoming the state's chief executive. "I had this grand plan that Hillary Clinton was going to become president," he said. "Maybe the governor would appoint me to the Senate."

In January 2008, that was the plan. Paterson worked to draw black voters to Sen. Hillary Clinton's presidential campaign. On TV screens and front pages, he was wedged next to President Bill Clinton and closer to the senator than Chelsea. Democrats thought it was a well-deserved fit for Paterson as a reward for bringing the party close to controlling the state Senate for the first time in decades. Former New York City Mayor Ed Koch said Paterson was capable, highly intelligent and courageous. Paterson was the dashing statesman in an otherwise plodding Albany. He was smart, collegial, a reformer, ambitious and funny – on purpose.

Now, for many, he's a punch line. Even Paterson is starting to talk about exit scenarios. "I don't think anyone who is clearly hurting their party would take an action like running when it is going to make the party lose," he said. Then he added a shot: "I'm not sure those that are always calling for loyalty in the Democratic Party have been loyal themselves." Albany's top two legislative Democrats – Assembly Speaker Sheldon Silver and Senate Conference Leader John Sampson – last week committed to Paterson "right now" and "until otherwise known." Another Democratic pal, Rep. Gregory Meeks of Queens, called Paterson "my governor, my friend, who has done a relatively good job."

For a sitting governor, that praise is a few shades shy of faint. All of this comes days after Washington Democrats sent a clear message that Paterson should step aside for the popular Attorney General Andrew Cuomo. They are concerned that a weak top of the ticket could hurt other Democrats, including Kirsten Gillibrand, whom Paterson appointed to fill Clinton's Senate seat. A Paterson run could even entice Republican savior-in-waiting Rudy Giuliani to run for governor. "He needs a game-changer," said Lee Miringoff of the Marist College poll, which found Paterson had a 17 percent approval rating. Many, however, say the game is over.

Last week's criticism and an apparent snub by Obama who gushed over Cuomo during a New York visit was embarrassing publicly for Paterson. Worse, it may be lethal financially, giving Democratic campaign contributors cover to cut checks to Cuomo and, with the apparent blessing of the nation's first black president, not worry about a backlash. That will make Paterson's decision for him. It was the same force that made Cuomo exit the 2002 race for governor as money and support flowed to then-state Comptroller Carl McCall in his losing campaign to unseat Gov. George Pataki.

Without friends, a free flow of campaign cash and the contacts made from a previous campaign for governor, Paterson is mostly alone. Inheriting the job 18 months ago when Spitzer resigned amid a prostitution probe and governing through the worst fiscal crisis in state history left him saying "no" to powerful, well-funded special interests, while repeatedly committing his own political missteps, including the ugly process to replace Clinton with Gillibrand.

Paterson angered the Kennedy family when he didn't embrace Caroline Kennedy for the job and a Paterson operative later leaked unsubstantiated rumors about her in an attempt to show she was ill suited. He is left with a message that is not much more than his character – which polls show New Yorkers like – and how he feels he kept the state from worse fiscal fates faced by other states. So Paterson says he's "clearly running" even as Democrats urge him to reconsider. "You don't give up because you have low poll numbers," he told "Meet the Press." "If everybody can tell what the future is, why didn't they tell me I'd be governor? I could have used the heads-up."


123 comments:

Stoneleigh said...

Farmerod (from yesterday),

Sometimes I wish accumulating gold wasn't in the lifeboat document. It's so much less important than the next most important item.

Well, I did put it basically at the bottom, mostly for those who have too much to store any other way. Very few would get far enough down the list to get to the gold ownership stage, even if they pooled resources. Getting out of debt, holding liquidity safely and building as much self-sufficiency as you can are all far more important. I suggest only owning gold if you're fairly confident that you won't need to rely on that portion of your wealth for at least a decade. Not many of us are in that category. Personally I'd rather have good tools any day.

Gold ownership is very much a double-edged sword. It will hold its value in real terms (even if it's all over the map in nominal terms), but it's too concentrated a store of value to be practical for every day use. That trait also makes trying to use it a very dangerous proposition, as you point out.

el gallinazo said...

Stoneleigh.

What about the one troy ounce silver coins, currently equivalent to about $17 of paper? Silver was never "legally" confiscated or manipulated conspiratorially by central banks, is far less concentrated, and it has also been considered money back to antiquity, particularly by the lower and middle classes. In Peru, I often have heard money generally referred to as "plata." The pound sterling was originally silver. The peso, pieces of eight, and thaler. all related if not identical, were a silver coin of approximately 27.5 grams. So for buying castles or politicians it's gold, but for buying cheese, I think it's silver.

David said...

Farmerod said:


And, by the way, what form will your change be in? Or will everything cost 1 ounce of gold? How will you spend gold money without arousing the worst instincts of others? And do you really think your government is going to let you hold that gold if it doesn't want you to?

Greenpa said...

RE: gold.

Silver.




OK, OK, OK, Farmerod,


"Gold" is a euphemism for "Precious Metals"

As Greenpa was quick to point out

it can also be silver

You can purchase today so-called bags of "junk silver"

That is,
bags of coins from the mid-1970s and prior which contained coins of 90% silver.

You can purchase silver at a pretty-much standard ratio of the same price of gold.

In other words, you can have silver coins of dime, quarter, half-dollar, and Silver dollar denominations.

Got a problem with a dime for that loaf a bread, sir?

Please don't think that everybody is going to be walking around with bars of gold to purchase groceries, worrying all the time that some bandit is going to cop their money,

After all, people have been paying with silver coinage for everyday purchases since, oh, about 5000 BC.

Top said...

@Stoneleigh

What do you think of copper pipe as a 'store of value'?

Copper is very useful stuff and pipe is also very useful. Worst comes to worst, you can cut off shorter pieces of pipe as change ;>)

ps @ el gallinazo

"So for buying castles or politicians it's gold, but for buying cheese, I think it's silver."

For buying gruel how about copper?

jal said...

What do they mean when they say that there are billions of dollars sitting on the side?
Do they mean that the money is in T bills?

How have banks been making money?
They are not lending. Are they playing the stock market?

How are edge funds making money?
If they are into T bills they are not making money for their funds?

Every analyst with a model and every economist with a theory all read and have access to the same info that we do at TAE, ( and more).

Who is playing the stock market?
jal

Farmerod said...

@David

You were talking about gold, mentioning the word "gold" at least 4 times. There were no mentions of precious metals. In any case, gold is not a euphemism for precious metals; it is an example of them.

Whereas Greenpa, Stoneleigh, Snuffy and a few others could do well to have some precious metals on hand, this is only because they have done everything else on the lifeboat list in a big way. For the general schmuck, the appearance of precious metals on the lifeboat list stands out like an ad for a miracle weight loss pill; eat all the crap you want as long as you take this pill. People always want the easy way out and will ignore the "do everything else first" part.

I personally know a few people who will be pawning their gold for dimes on the dollar because they won't be able to pay their mortgage. I bet that's been happening since time immemorial too.

I'm with Top. Copper pipe is great example of a metal to stock up on although maybe not at this very moment. I'd wait until maybe next year. Other metals formed into the shape of tools are even better.

Vern said...

The stock market rally will end when the FED decides to stop fueling it. Years ago Martin Weiss advised "Don't fight the FED". That advice is still sound.

Bukko_in_Australia said...

I've been a bit of a gold bug for decades. I first bought 50 Maple Leafs in the early 1980s (AFTER the pop-up to $850/oz due to the invasion of Poland had faded, of course) because I was worried that Reagan would start a war to end all civilisation. I reckoned it would give me a survival edge.

It wasn't a terrible investment -- pretty much held its original price -- but I would have been better off putting that $15,000 in a savings account earning 5% a year compounded. Still, when I needed to pay my way through nursing school when I was unemployed in the early 1990s, it was there. I unloaded it for spot price at a pawn shop, even though I was living in a small Gulf Coast Florida town. It was a store of value that couldn't evaporate like some of my sharemarket investments.

Now, even though I labour in the humble profession of wiping arses, I find myself in the position of being debt-free and having enjoyably positive numbers in the accounting books. The Mrs. and I literally have gold (and silver) coins buried in the dirt in one of the countries where we are legally allowed to reside. (Not saying which one, though!)

We also have "paper gold" in care of a Swiss bank. If we choose to sell it, they won't give us actual dubloons, just a cheque in the currency of our choosing for the value of that gold on the day we choose to divest.

Now, the gold coins won't do us much good unless we want to buy an entire cow. And "gold" in a Swiss account won't be any use to us if TSHTF in an end-of-organised-civilisation way, like nuclear warfare in the Middle East.

In light of that, why do I plan to convert the "paper" gold into the real thing? As Stoneleigh said, gold is a concentrated way to hold wealth. If someone wanted to move six-figure sums from one country to another, what's a better way: getting a cashier's cheque which will have to be deposited in (and explained to) the dodgy banking system, or toting 100 shiny round bits of metal in a carry-on bag? The weight is not all that much, and by filling out a customs form at the airport, this can be done without penalty or taxation.

Whatever may happen, I reckon it's better to have gold -- even though it ultimately has no more intrinsic value than paper, despite the historical antecedents. I trust it more than piles of currency, which are always subject to governments that decree "We are eliminating the old banknotes and replacing them with new ones to resolve the current economic emergency. You can give us 10 of the old ones in exchange for one of the new ones. Offer, and old currency, only valid for six more weeks."

I reckon that gold will always be available to exchange for silver, even in an economic disaster situation. There will be risks with that, like the old gun-in-the-face instead of silver-in-the-hand trick, but life itself is a risk, eh? And it's a lot easier to hide a small pile of gold coins than the same value in silver. I know. I've dug holes for both.

Ed_Gorey said...

@ Stoneleigh and Farmerod,

I question the logic of the family/community farm as a "lifeboat".

The world we are entering includes a multitude of unknowns which could easily favor someone who remains liquid, mobile, and nimble.

The land-bound small farmer is confronted with a number of likely problems. First, you don't own your land, even if you've paid the mortgage. The state gives you the illusion of ownership since it's a comforting notion that entices the masses into debt. Even when you've paid off the mortgage, your home ultimately belongs to the state. If you can't pay the property taxes, then you'll need to move elsewhere, just like a renter who can't pay the rent.

In the years ahead, very few peons are going to be able to hold onto their land possessions. Like all other valuable assets, land will be sold to raise scarce cash for food, medical care, protection, heat, etc. I doubt many farmers will become truly self-sufficient enough to supply all these necessities. I also doubt many cohesive local communities will develop with a sufficient population and skill diversity to supply these essentials. Thus, like everything else, land will be sold to supply those essentials which can't be produced. The small and shrinking fraction of remaining land owners will be easy targets for local officials desperate to concentrate resources at the center through repeated and relentless tax hikes. Like the few remaining car owners, who will get little sympathy from the (former car-owning) masses when the roadways deteriorate, the landowners will get little sympathy from former-homeowners when property taxes are raised. Indeed, to relieve social pressures created by the growing numbers of hungry and landless peons, exorbitant taxes may be used by authorities to force small farmers off their land so the land can be redistributed to the landless peons who have demonstrated loyalty to the local or regional lord (see Zimbabwae).

Due to the pyschology of previous investment, many small farmers will be reluctant to cut their losses even as their situation becomes gradually more untenable. They'll have watched the alpacas and the hazel nut trees grow, and they won't want to leave it all behind. This emotional link will hold them in place, and it would be foolish to assume that this human weakness won't be exploited by authorities at the center.

I haven't even mentioned all the other problems with being tied in one place. Those problems include: local despotism, scarcity or absence of an essential local service/good (like surgery or heat source), near-complete collapse of local economy, rampant banditry, etc. It's a long list.

I won't elaborate all the benefits of remaining mobile and nimble. Suffice it to say, they are the inverse of all the problems I've identified for small family/community farms.

Glennjeff said...

Here is my take on precious.

Australian Silver Dollars are beautiful coins. In a deflationary collapse $1 AU will be a usefull bit of currency. In an inflationary world 1 troy oz of silver, currently costing $30 AU as coin, will maintain a lot of it's value due to it's importance in electrical components.

If TSHTF so bad that we don't have electricity ... well, we've all gotta die one day.

I'm hoping silver prices will collapse before the Aussie dollar does. BUY BUY BUY.

Shades of Gollum.

Cassandra said...

I liked this: from zero hedge's comments section - (Londonbanker)

"The game here for the Fed is to export losses and import profits. The mechanism for this is margin calls on leveraged investors/leveraged markets. The reason for pumping up the asset classes globally has been to benefit from the foreknowledge of this on the upside, and the foreknowledge of this on the downside. GS and buddies will all profit handsomely. The failures and major losses will all be targeted at foreign competitors and domestic competitors so that those left standing get a larger percentage of a shrinking pie.

The power to call margin is the power to destroy. In leveraged markets, the withdrawal of leverage necessitates collapse as forced selling wipes out value. Those destroyed on the downswing lose all their assets as collateral to the creditor bank. Those assets are held and then sold on the next rally. Lather, rinse, repeat = perpetual motion profit machine for a more and more concentrated and powerful financial elite.

We no longer have market capitalism. We have state capitalism which depends on the liquidity of the central bank to drive momentum in markets and determine change in direction. The Fed is about to stop QE, withdraw liquidity through reverse repos, etc., and that will force the change in direction which will justify the PBs calling margin on all the leverage extended earlier this year. A trigger event (foreign bank failure/state or municipal government default/attack on Iran) will destabilise markets. The margin calls into the uncertain markets will force liquidations, crash global markets, destroy weaker players, and create a political opportunity to force more bad legislation and bad policy through a frightened Congress."

Bigelow said...

@jal
“What do they mean when they say that there are billions of dollars sitting on the side?”

That is the $2.5 Trillion reported to be in U.S. money market funds.
The FED might want to “borrow” it.
Fed's exit strategy may use money market funds: report

David said...

Farmerod said:

I personally know a few people who will be pawning their gold for dimes on the dollar because they won't be able to pay their mortgage. I bet that's been happening since time immemorial too.

Then you must know one of two things as a certainty:

1) These people you personally know are mentally deficient if they sell their gold coinage for a small percentage of the current market valuation,

or

2) You know exactly where the price of gold will be over the course of the years to come, and are drop-dead certain that it will plummet to a small fraction of where it is today.

If this is the case, than one of two conclusions can be reached:

1) These people you personally know are in great need of psychological and financial counseling and you would be doing them an immense favour by suggesting this to them.

or

2) You are prescient beyond all other observers of precious metal markets, and should immediately hang out your shingle (or at least procure a blog) and issue prognostications regarding the short-, intermediate-, and long-term direction of gold and silver prices.

Gold and silver coinage has a track record as a monetary means of exchange that date back nearly 10,000 years.

Copper? Ummm, not so much.

Oh right. My mistake. This time it's different.

Coy Ote said...

As I have often posted... IMO, silver coinage--commonly called "junk silver" has multiple values in catastrophic times.

It's recognizable, has intrinsic value, and has stood the test of time as a life-saving survival item during "long emergency" situations.

Not for large scale volumes or estate protection investment, rather for temporary bartering purposes.

Stoneleigh said...

I should point out that I don't do precious metals. I have more important things to do with my limited resources.

As for the argument about which metals make sense for those who are determined to go that route, silver has some advantages in that it has historically been a monetary metal. However, silver holds its value less well than gold in hard times, as part of its value derives from its many uses as an industrial metal, and those uses matter much less during economic hard times. The value of copper would be similarly impacted.

Either silver or copper could be worth holding for their versatility down the line (ie monetary or other uses depending on the circumstances). Since they are much less concentrated sources of value than gold they would make you less of a target while still being reasonably portable. It still far more important for most people to do the other things on the list first, although it would depend on circumstances.

The more mobile you wish to be, the more you may need what you own to be fully portable and in a form that would be universally recognized. Opportunities for trading precious metals are more likely to be found in urban settings where 'unofficial channels' may proliferate in the future. Out in rural or isolated areas, precious metals are likely to be much less tradable for what you really need.

Coy Ote said...

One more thing... I would not recommend walking down the road shouting... "I've got silver! I've got silver!"
Not now... not when...

Gravity said...

How about mercury, plenty of that around lately, they've conquered planet mercury or something.

After considering the kind of civil unrest that would be generated by mandatory vaccinations, I see great opportunities by reversing the deal, and going for significant cash-prizes as a reward for voluntary vaccination.

This will motivate a greater proportion of otherwise violently opposed citizens to comply with the shots, while also providing an opportunity for a direct cash injection into all layers of population that would circumvent normally clogged bureaucratic channels.

Plus, if you get the levels of mercury just right, it might cause an irrational impulse to spend the reward money by means of temporarily impaired judgment, thus yielding advantageous multiplier-effects, providing the shots don't cause lasting harm in too many people.

Coy Ote said...

Ed Gorey - "The world we are entering includes a multitude of unknowns which could easily favor someone who remains liquid, mobile, and nimble."

Interesting point. I would be interested in some ways to achieve more mobility. Vehicle? Fuel? Scattered caches or cabins? Etc..

el gallinazo said...

Ilargi,

There was a time when people invested in stocks mainly for the dividends that they paid rather than their resale value. The word dividend didn't appear in your piece once. As a matter of fact, it only appeared in the entire posting once and that not in relationship to equities. Not a criticism of your article but just an indication of the transition to "casino capitalism."

Also,

Once again about this BS about money on the sidelines. One can look at the money in the stock market as water in a giant beaker. There are only two main ways that this money can increase AFAIK. One way is for the average stock prices to rise, and since stocks are certainly marked to market, this increases the nominal amount of money in the market. The other way is public offerings when companies make up shares out of thin air and offer them for sale to the public. When an entity pulls its money out of say bonds and buys stocks, the seller of those stocks winds up with an identical amount of initially M1 money in its checking account. Money on the sidelines is a garbage concept and the fact that Bloomberg reporters should use it is telling.

Coy Ote said...

Stonelady - Your overview of metals is much appreciated and, as usual, IMO contains some very sound points.

Bukko - I think you gave some pretty simple and yet sage advice here...

"I reckon that gold will always be available to exchange for silver, even in an economic disaster situation. There will be risks with that, like the old gun-in-the-face instead of silver-in-the-hand trick, but life itself is a risk, eh? And it's a lot easier to hide a small pile of gold coins than the same value in silver. I know. I've dug holes for both."

Chaos said...

Re: Why Buy Stocks?

I've been saying this to my circle for quite some time. The only reason to buy stocks, in classical theory, is if you expect growth in those companies. Growth=rising stock prices: easy. Given that, why in the world would anyone invest in stocks for the near and far future? Where does the growth come from? From the consumer (70% of the US economy)? Nope. From business/manufacturing? Nope. From financials? Nope. Health care? Hah!

Green shoots=wishful thinking...

DIYer said...

Gravity,
Mercury is a little too liquid, I think.

Another new future career to add to the list:
Metal detector in the backyards of TAE readers ;-)

Ilargi said...

David,

Your 7:27 comment is not exactly of high value. There will be tons of people forced to sell assets, whether it's gold or anything else, for peanuts just trying to hold on to necessities or purchase them.

Farmerod is very accurate on that, and no, it has zilch to do with these people being morons, unless you'd like to call 3/4 of the population mentally deficient, or anyone knowing the price of gold in advance.

It would be appreciated if you try to keep your level of discussion a notch or two above that comment.

el gallinazo said...

Ed_Gorey makes a strong case. Bottom line - it's a dangerous world no matter how you cut it. When I was 16, I become a counselor in training for a summer at a wilderness camp in rural Maine. We spent a lot of our time running white water in canoes. As a sternman, you had to figure a long term strategy (like 30 seconds). Often you would see two reasonable routes and had only a couple of seconds to make a choice as to the better one. The bowman worried about not hitting the rocks over the next 5 seconds. I view the world we are going into as analogous to this but a bit less fun. We are trapped on the freakin' canoe, so we might as well do as best we can.

P.S. I wound up wrecking a canoe which really pissed off the camp owner. Hope I do better this time :-)

Ilargi said...

"Ed_Gorey said...
@ Stoneleigh and Farmerod,

I question the logic of the family/community farm as a "lifeboat".

The world we are entering includes a multitude of unknowns which could easily favor someone who remains liquid, mobile, and nimble.


To which, obviously, one might reply: "the unknowns could just as easily favor the community builder".

Life is not only determined by unknowns. There are many people (probably a majority) who for many different reasons will not or cannot leave their bases. Young children, older dependents, a wide variety of emotional ties, wanting to be in familiar territory in times of crisis, there are too many possibilities to mention that can make one decide to "stick it out", no matter what the odds.

So questioning the logic of a lifeboat is not a very smart way to go. You may well question whether it's the way for everyone to go, but then, no-one ever claimed it was.

These things are so obvious that I would have hoped our regular readers would by now be fully aware of them. Apparently not, though.

el gallinazo said...

Bukko

Let's just hope that some bored English bloke with an obsolete metal detector doesn't discover your stash for another 1200 years :-)

Stoneleigh said...

Ed Gorey,

The post you wrote is very good indeed.

The world we are entering includes a multitude of unknowns which could easily favor someone who remains liquid, mobile, and nimble.

Very true. Not everyone can take that route though. It depends to some extent on your dependents and dependencies. There is also a great deal of value in social capital that you sacrifice if you go for mobility, but everyone will have to make their own choice for their own circumstances.

The land-bound small farmer is confronted with a number of likely problems. First, you don't own your land, even if you've paid the mortgage. The state gives you the illusion of ownership since it's a comforting notion that entices the masses into debt. Even when you've paid off the mortgage, your home ultimately belongs to the state. If you can't pay the property taxes, then you'll need to move elsewhere, just like a renter who can't pay the rent.

Very much so, which is one reason you need to preserve liquidity accessibly. Even if you property is paid off you must still pay taxes, and those taxes will rise as sure as night follows day. That is, they will certainly rise in real terms, and may well rise in nominal terms too, which would mean going through the roof in real terms. You need to prepare for this.

In the years ahead, very few peons are going to be able to hold onto their land possessions. Like all other valuable assets, land will be sold to raise scarce cash for food, medical care, protection, heat, etc.

Very true. This is one reason why property prices will collapse along with other assets.

I doubt many farmers will become truly self-sufficient enough to supply all these necessities. I also doubt many cohesive local communities will develop with a sufficient population and skill diversity to supply these essentials. Thus, like everything else, land will be sold to supply those essentials which can't be produced. The small and shrinking fraction of remaining land owners will be easy targets for local officials desperate to concentrate resources at the center through repeated and relentless tax hikes. Like the few remaining car owners, who will get little sympathy from the (former car-owning) masses when the roadways deteriorate, the landowners will get little sympathy from former-homeowners when property taxes are raised. Indeed, to relieve social pressures created by the growing numbers of hungry and landless peons, exorbitant taxes may be used by authorities to force small farmers off their land so the land can be redistributed to the landless peons who have demonstrated loyalty to the local or regional lord (see Zimbabwae).

Right again. This will be a substantial risk, but then we are entering a world of ubiquitous risk no matter what you do. Mobility (and therefore being a permanent stranger) is risky to, just in a different way. Everyone needs to pick the risks and vulnerabilities they choose to live with, and risk and vulnerability are unavoidable. The right balance will depend on people's own circumstances.

Gravity said...

I agree with Ilargi that the unemployment rate of the revolutionary age-group is of paramount importance.

This must have been considered already, so they came up with that extensive volunteerism act to neutralise this most volatile segment, by coercing them into tearing down all those empty homes as well as planting trees and installing solar-panels, and acting in a general eco-topic proto-fascist youth-movement designed to provide state-centered social cohesion in conjunction with state-sponsored employment.

H.R. 2857
Generations Invigorating Volunteerism and Education Act

I believe this effort, and others, are in part meant to address the inevitable swamp of youthfully unemployed who might otherwise become an increasingly unstable factor, by directly alligning their profitabilities with the state's, and so binding them to state-sponsored ideology in a most uncomfortable, yet productive, way.

Ahimsa said...

Good discussion on precious metals ...

Thought this excellent 2006 article on gold by Jamey Hecht might be of interest:

"Big Brother's Blunt Instrument: Gold Confiscation in a Post-Dollar Currency Crisis"

http://www.fromthewilderness.com/free/ww3/070706_bb_blunt.shtml

Excerpt:

"In a future where bullion is confiscated, numismatics are impractical, and the dollar is wallpaper, what are we to use as money? I can trade shoes for frying pans, but if I want to barter myself a cow I had better have a hell of a lot of shoes.

The answer is a semi-numismatic coin: all the gold you can get while still retaining the benefits of a rare coin. The Swiss 20 franc coin and the French 20 franc coin [these days we call each such coin a franc, since it doesn’t much matter what their face value was in Switzerland or France all those years ago] are non-reportable; nobody knows you own them unless you choose to say so. They were not confiscated in 1933 and will likely be spared confiscation in the future for reasons outlined above. And each franc coin is .1867 ounces of gold, so there are five to an ounce. If you manage to hang onto a one-ounce bullion coin like the Gold Eagle, it will only buy you items that cost a lot. The ounce of five francs is divisible, portable, hideable and above all, spendable. I’ve invested in Swiss Francs and I encourage my clients to do so as well.

You can eat neither gold nor paper fiat money. But paper always loses its value eventually, while gold never does. After the collapse of the dollar – which is just one element of a larger collapse that includes energy scarcity, climate change, and population overshoot – we will need community, skills, stockpiled supplies, hand tools, mechanical devices like bicycles, musical instruments, and (arguably) weapons. We will also need tradable precious metals in pre-standardized small units. Gold will have different uses in the different stages of collapse, but it will always be a key ingredient of adaptation and preparedness."

Greenpa said...

Farmerod: "I personally know a few people who will be pawning their gold for dimes on the dollar because they won't be able to pay their mortgage. I bet that's been happening since time immemorial too."

absolutely true.

There are numerous novels available about the transition in China from terminally corrupt end of dynasty corrupt government to full wartime chaos to rigidly puritanical Communism; following the fates of families through the turmoil. While Chinese culture is not analogous to Western at many points, the family experiences and threats survived can be highly educational.

Amy Tan's "Joy Luck Club" is a good place to start. After you read it, the thing to realize; viscerally- is that virtually every person in China can match those stories.

Lin Yu Tang is also very good.

I'm heartened by the fact that nobody here has suggested precious stones as a store of value. Rubies etc. do keep their value- but the chance of an individual from outside the extreme wealthy circles being able to cash one in for actual value are subminiscule.

snerfling said...

I&S, from my perspective, timing the next leg down is relatively easy. The entire premise of the actions taken by both .gov & the Fed were to restore securitization. No private sector re-inflation (money + credit), no recovery, end of story.

In order for inflation/securitization to recur, one basic component MUST necessarily exist: home prices must rise. Not just stabilize, not just work through the existing inventory backlog (both visible & shadow), but experience an honest-to-god rise with a concomitant increases in speculation (ie "flipping").

Not only that, but the 'profits' need to be taken out and spent on $100k kitchen remodels, Hummers, RVs, boats, vacations & vacation homes, etc.

From the most recent Z1, we can clearly see that this isn't occurring on a macro scale. But it's even more evident 'on the ground'.

I happen to live in a very desirable SoCal beach town. It's very homogeneous (ie low crime), it's still sunny & warm, we've got a famously wide, sandy beach, and no one is fleeing any brutal on-coming winters.

This was ground zero during the bubble, and if any place were to provide an indication that the previous exuberance was being successfully restored, this would be it.

But it isn't. We've got a few REO vacancies, a few families living for free, and a couple of properties not selling & just sitting on the market.

Over the last 6-12 mos, the PTB have spent $trillions buying time waiting for a turn-around. It's not coming and there are no longer any $trillions available to push off the final reckoning.

When the market tops out shortly, it's going to be a rapid descent driven not only by reality setting in amongst 'civilians', but by the shorts & other traders who finally have a firm sell signal.

-Centiare-

jal said...

FDIC to Ask Banks to Pre-Pay Premiums to Inject Cash Into Deposit Insurance Fund?

Where did the FDIC invest all their "cash"? T bills?

The money market already invests in in T bills. The gov. cannot ask for them to do it again.

jal

Ahimsa said...

A lot of food for thought today. Thank you all, especially Stoneleigh and Ilargi.

Dr J said...

The Mehmet Oz piece was interesting. I admire him for using his fame to shine a light on the horrible inequities of the current health care system. On the other hand, with the exception of the congenital heart defect, every case he described would have been easily treated or prevented by a simple [insert the word for that of which we are no longer allowed to speak] change. No matter how saintly he becomes in the health care debate, I will always remember him for his asinine performance on Larry King when he actually put his hand over Gary Taubes' mouth when Gary was explaining how this works.
Mehmet ... do you suppose they call him Meh for short?

bluebird said...

As most of us have lived in times of increasing property taxes, when the value of property declines, does this result in a decline in property taxes? Or are you saying that no matter the cheap price of the property, taxes on that property could increase?

Ilargi said...

For the ongoing "The FDIC is broke" story, I think it’s good to read Chris Whalen's Why Does Bloomberg Keep Getting the FDIC Story WRONG?.

”Repeat after me: The FDIC does not run out of cash.  The FDIC does not run out of cash. FDIC can confiscate all of the net assets and earnings of all FDIC insured banks. That is trillions in total liquidity.  FDIC can borrow from Treasury, the Fed and even from FDIC insured banks. They can also issue notes."

rumor said...

Property taxes in most municipalities in N. America, as far as I know, are set with (1) a rate that is based on (2) the assessed market value of the home.

As market values decline, the nominal amount of tax owed would decrease unless municipalities generally see fit to increase the tax rate. What Stoneleigh has been saying, and what simply seems readily apparent from the generally growing fiscal burdens of municipalities in the US and Canada, is that the local governments will find themselves in a hard place where they will be strongly pressured, from a fiscal standpoint, to increase taxes, perhaps severely, in order to remain even poorly solvent. Politically, this will be extremely difficult, which is why it will probably be proceeded by severe cuts to social programs and municipal services.

So, one can expect, first, for tax rates to fall while municipal services are cannibalized and public employees are laid off and have their pension packages plundered and/or wiped out, and second, for higher taxes after that.

That's my assessment, anyway.

Farmerod said...

A lot of food for thought today. Thank you all, especially Stoneleigh and Ilargi.

Ditto. The first thing I wanted to comment on before getting sidetracked was the stunning unemployment numbers in the 16-24 year old group. At the outset, I would want to know what that number was, say, 4 years ago. In any case, the number right now sounds terrible. When I finished my degree in '91, having poured on the coals to get it done in 4 years, I was welcomed by a complete lack of employment opportunities. I actually had an OK job for 6 months after grad but then got laid off. Thinking back, I would have thought that fire truck manufacturing was relatively recession proof. No. Provincial governments cut back to municipalities which then simply said, keep the old truck in service longer. In a matter of months, I was out the door (LIFO).

I tried to invent stuff for a while, having had good ideas (which were later commercialized) but little ability to prototype or convince others to prototype. I learned computers (better) and tried to make money but had no success. I installed sump pumps with my father in law which paid poorly but got me out of the house. I also did a bunch of home reno's on my parents' house. Thinking back, the reno's were probably not needed or even wanted, but it was important to do something.

It was only when I saw an ad on the unemployment office door that I saw an opportunity to work for the government as an air traffic controller. Really, I was never very well suited to the profession, not being one to remember or follow arcane rules, but the prospect of continued unemployment has a way of sharpening motivation and encouraging adaptation. There were 600 people writing the aptitude test that day in the convention centre. The rest is history. ATC was a life saver for me and ultimately allowed me the financial options and mobility I now enjoy. But it could have gone the other way just as easily. Lots of guys wasted 2 or more years of their life chasing something they were not capable of doing.

The degree of demoralization, however, that occurred in my 18 months of unemployment was significant. I thought it was a personal failing of mine at the time; some of my engineering buds did have good jobs right out of university. Living back at home, though, at least took the pressure off of paying the rent even if coming back was somewhat humiliating. I never had visions of selling pot or stealing stuff but I could definitely see others who were my gender and age doing that. Or breaking stuff or people.

I understand what those guys are feeling. Which is why I fear them.

TAE Summary said...

* Gold makes a great double edged sword; Silver is better than gold because its not as valuable; Copper is better than silver because it's even less valuable; Dirt beats them all; Mercury is too liquid

* Gold, silver, dirt and your sorry ass all really belong to the government and can be confiscated at any time; Semi-numismatic coins are the exception; Swiss 20 franc coins CAN'T be confiscated because they are family heirlooms

* Those owning gold are either idiots or geniuses or both

* Timing of next leg down is easy; Stock market rally will end when Fed stops fueling it; Don't fight the Fed; Stocks used to pay dividends; The power to call margin is the power to destroy

* Some like navigating the rapids in lifeboats; Some prefer the freedom of swimming with the current while wearing only a golden speedo and silver nose plugs; Lifeboaters are solid, stationary and stodgy; Lifeboats can end up on the rocks; Those who don't like lifeboats are free to build deathboats

* Low value comments are two notches too low to appreciate

* Unemployment of the young mitigated by Obama Youth plans; US to take great leap forward

* Ahimsa finds food for thought; Apparently no meat in today's comments

bluebird said...

About that ongoing "The FDIC is broke" story...

Doesn't it indicate that when someone has to borrow, they don't have enough money? Borrowing from the Treasury, that's us the taxpayers. Sooner or later, the taxpayers are going to be broke.

Ahimsa said...

Dr. J said:

"I will always remember him for his asinine performance on Larry King when he actually put his hand over Gary Taubes' mouth when Gary was explaining how this works."

Taubes deserved it!!! :)

On this video Dr. Oz challenges a dangerously unhealthy cowboy (90% plus blocked arteries) to eat plant-based for 28 days:

http://www.vegsource.com/articles2/media_oz1.htm

David said...

Illargi said:

There will be tons of people forced to sell assets, whether it's gold or anything else, for peanuts just trying to hold on to necessities or purchase them.

I'm sorry, but I'm not trying to be contentioius here.

I simply fail to see the logic of someone selling gold for "dimes on the dollar".

There is a ready market for gold, worldwide, priced electronically, and honoured by dealers across the globe. Why anyone in their right mind would sell their gold/silver for less than the current market value is totally beyond me.

Therefore, the only other conclusion I would reach is that Farmerrod was referring to the fact that people who have already purchased gold would be parting with it for far less than what they paid for it.

So, therefore, my question is . . . how exactly do you know that?

How does one know where the price of gold is going to be 1 month, 1 year, 1 decade from now . . . to be able to declare that people that have invested in gold coinage are going to be suffering a huge loss?

Yes, people may have to sell their iPods, wide-screen TVs, and SUVs for pennies on the dollar. But gold coinage is not a manufactured piece of junk.

Gold is money, and has been for thousands of years.

The Fed was founded in 1913, and the US dollar has lost 93% of its value since then. A one-ounce gold coin has the same purchasing power today as it did in 1913.

.

RobertM said...

It's hard for me to figure out why anyone in the stock market could believe that 10% annual growth would be sustainable. Perhaps Prof. Bartlett was right when he said "The greatest shortcoming of the human race is our inability to understand the exponential function.".
Did we learn nothing from the Persian story?
I would say it HAS to crash...it's not mathematically sustainable.

Ilargi said...

Ahimsa, Dr. J

You are warned, yet again.

TAE Summary

Your last point therefore went moot in exactly two minutes.

Greenpa said...

y'all remember my suggesting a debtors' strike back there? Notify the banks you will not pay anything until they restore the original agreement?

Well here ya go:

http://www.youtube.com/watch?v=jGC1mCS4OVo

and:

http://tinyurl.com/ybzasbh

Alas, she's not an orator. Heartfelt, though, which is pretty ok. And persistent, launching a website (which is not such a much, yet) ;

DebtorsRevoltNow.com

David said...

Stoneleigh said...

Ed Gorey,

The post you wrote is very good indeed.

"The world we are entering includes a multitude of unknowns which could easily favor someone who remains liquid, mobile, and nimble."

Very true. Not everyone can take that route though. It depends to some extent on your dependents and dependencies. There is also a great deal of value in social capital that you sacrifice if you go for mobility, but everyone will have to make their own choice for their own circumstances.


One of the verities of human societies has been the issue of migration. History is replete with stories of mass population migration when confronted with resource depletion, severe climate change, war, famine, etc. The US confronted this hard reality in the Dust Bowl of the 1930s.

If you have created your homestead, and then a major turning point arrives, and all your neighbors for hundreds of miles around are forced to leave, no matter how well-stocked your homestead is, what are you going to do?

Especially with the Sword of Damocles of impending, wide-sweeping climate change and resultant disastrous impacts hanging over us, what will be the consequences of being tied down to a specific place once mass migrations are set into motion?

I think Ed Gorey is looking at this from a very interesting viewpoint.

Maybe the very best set of options is to, as Sharon Astyk puts it "Adapt in Place" . . . make the most of what you already have in your locale,

BUT ALSO

to have the good foresight to make excellent preparations for moving your family, and a foundation set of goods/monies, to a more hospitable locale, within a relatively short-term period of time.

.

Farmerod said...

Bluebird:
As most of us have lived in times of increasing property taxes, when the value of property declines, does this result in a decline in property taxes? Or are you saying that no matter the cheap price of the property, taxes on that property could increase?

All government financial models will continue to be based on the same factors; revenue and expenses. Each jurisdiction will enact various cuts to services at different rates based on its particular political circumstances and each jurisdiction will generate income likewise. On the income side, I see more stories about new fees for service which seems to acknowledge that increasing property tax is politically unpopular. On the expense side, arts programs always seem to get cut first and, indeed, that is what has happened where I live. I don't think it will be long until the next lowest perceived priority starts to get nibbled at.

Because of declining property values, tax rates will necessarily increase in most jurisdictions, particularly if those jurisdictions have difficulty raising revenue by other means. While property values were rising earlier this decade, municipal poiticians in the three cities I lived in were all able to win elections on - and largely keep their promises of - not raising property taxe RATES. Of course, because of increasing assessments, revenue went up and homeowners paid more ... mostly happily, because they were making more on their house than they were paying increased taxes.

I suspect all that will change drastically in the near future as the double whammy of decreasing home values and increasing property taxes sets in. This is one dimesion of the positive feedback loop of deflation. It's another large expense to add to the mortgage, utilities, food, clothing. I think we've already decided the plasma TV is off the table.

Ilargi said...

greenpa,

Are there still people who haven't seen that video?

She got a sweet new deal from the bank. Paying only 18% now.

In my view, it's the sort of thing that easily gets too much attention.

el gallinazo said...

largi said...
TAE Summary

Your last point therefore went moot in exactly two minutes.

Well for those two minutes it was incredibly funny. Thanks.

David,

When the G-Men make it a felony to own or sell gold, what happens to all those wonderful, electronic markets? It will become like selling crack is today, Reference is to the coming times, not today.

Re discussion of youth unemployment and government programs. I watched The Triumph of the Will a couple of years ago. One of the things that impressed me was the huge youth rallies with the youth doing military drills with ***shovels***

Bigelow said...

Study prompts provinces to rethink flu plan
“Report suggests people who get vaccinated are more likely to catch H1N1”

State lifts limit on mercury preservative in swine-flu shots
“In preparation for swine-flu vaccinations next month, the state's Health Department on Thursday temporarily suspended a rule that limits the amount of a mercury preservative in vaccines given to pregnant women and children under the age of 3.”

Stoneleigh said...

David,

Gold is money, and has been for thousands of years.

The Fed was founded in 1913, and the US dollar has lost 93% of its value since then. A one-ounce gold coin has the same purchasing power today as it did in 1913.


Agreed, but that doesn't mean its price can't fall in nominal terms in the interim (nominal value having been all over the map in the last few decades. The problem comes when people are forced to sell virtually all at once into an environment of falling nominal prices - the price becomes temporarily depressed by a flood of desperate sellers where there are few buyers prepared to part with cash. People will sell gold because they will have no choice. They won't be able to sell their accumulated crap, and when they can't sell what they'd like to they'll sell what they can, including gold.

The people who buy it then, having preserved liquidity in the meantime, will be getting a bargain, albeit with strings attached. Confiscation is likely again, and the consequent collapse of legitimate dealerships, meaning that 'unofficial channels' would be necessary, and those have their own risks. They wouldn't be available everywhere either. Anything as valuable as gold will be highly sought after (often by those who seek to take it rather than pay for it), and also tightly controlled by increasingly repressive central authority. Ordinary people will have a very hard time operating in this milieu, as one determinant of price is relative negotiating power. The little guy never gets a break (unless it's his knee caps) when dealing with people like that.

All the little guy can do is either to sell now and take a paper profit or to hold on to his gold for the long term when it will indeed be very valuable (still no safer to deal with though). If he has to sell in the interim he'll probably take a loss, depending of course on when he bought it and what he paid.

Essentially, when looking at all assets, you don't want to be backed into a position where you have to sell into a deflationary price collapse just to survive. If you do the other things on the list first, then the likelihood of that happening is very much reduced (but never eliminated).

Stoneleigh said...

TAE summary,

Some like navigating the rapids in lifeboats; Some prefer the freedom of swimming with the current while wearing only a golden speedo and silver nose plugs; Lifeboaters are solid, stationary and stodgy; Lifeboats can end up on the rocks; Those who don't like lifeboats are free to build deathboats

LOL - priceless!

Ilargi said...

Bigelow,

The report is very interesting.

The article gets it a bit off though. What the study suggests is that people who got a regular flu shot last year are twice as susceptible to swine flu this year. Since regular shots vary from year to year, that is an important distinction, at least potentially.

Still, when I saw reports on the study last week, it was clear to me right away that it would cause mayhem. The fact that the researchers are not allowed to talk about it pending peer review doesn't seem to help the issue, or at least to take away the confusion.

The biggest victims may well be the producers of the seasonal flu shots.

el gallinazo said...

One of the things that rarely comes up here in the lifeboat strategy department is age demographics. We geezers, into our 60's and up, are not about to compete with the 20 somethings digging ditches or plowing the back 40 without a mule in the coming world made by hand. Thus for those of us who currently have liquid assets, it's even more important to preserve them as best we can.

Greenpa said...

Ilargi: Are there still people who haven't seen that video?

lol. Ah, well, it was new to me.

She got a sweet new deal from the bank. Paying only 18% now.

CNN says it's 12.9.

"In my view, it's the sort of thing that easily gets too much attention."

Sure. Like Polanski's arrest. But indicative of a slight shift in krill movement, perhaps.

I'll find it much more interesting when she's got 100,000 people withholding payments.

A new kind of green shoots, eh?

Ahimsa said...

@ TAE Summary

LOL. One of your best...


Ilargi,

Thank you for giving me equal time.

:)

Johanna Knox said...

el gallinazo,

I have been thinking a bit about the flipside of that ...

Some of us may have trouble preserving existing liquidity, because of an inability to convince loved ones of certain courses of action. In our case, figuring out how to maintain some kind of earning power and/or value to our community is pressing ...

Bigelow said...

“The Fed needs the dollar to go down by half over the next 14 years. We have $60 trillion of liabilities so that’s TARP, based on budgets, stimulus, Ginne May, Fannie Mae, Freddie Mac, Medicare, student loans, FHA, you go through all the contingent liabilities it comes to about 60 trillion. There is no combination of growth, no feasible combination of growth and taxes that can fund that liability.”

[…]

“But what they really want to do is basically displace the dollar with SDRs and you mention SDRs people just yawn …this is the unannounced part of the G-20, the IMF is being sort of anointed as a global central bank. They are now running a balance sheet. They’ve issued debt for the first time in history.”
Future of the Dollar, CNBC

Ilargi said...

Palin's Memoir Due in November; English Edition to Follow

A memoir by former Alaska Governor Sarah Palin will be published this November, with an English translation due shortly thereafter, her publisher confirmed today.

According to Carol Foyler, a spokesperson for the publisher, translators are working "around the clock" to translate Ms. Palin's text into English.

"We have hired the best linguists in the country, but this is still hard work," Ms. Foyler acknowledged. "It must have been easier to crack the Enigma code in World War II."

Ms. Foyler said that the publishing company was "delighted" with Ms. Palin's manuscript and "deeply relieved that she didn't quit in the middle of it."

Paleocon said...

Musings of an afternoon....

Can anybody with a 30 year mortgage really consider themselves an "owner", when after 5 years of payments they've "paid" 1/3 of the value, yet almost zilch of the principal?

Can anybody with almost zero down consider themselves an "owner" at all?

Would a renter ever sign an 18-year lease, with a termination clause equal to 1 year's rent?

Seems to me that the notion of home ownership had meaning if you bought with 40% down and maybe a 10 year note, with no plan to ever move or sell.

3% down, 30 year notes makes no sense at all. Just to exit in a flat market you have to pay realtors' fees on both ends. That's about a year's worth of payments.

The only way the math makes any sense at all is with equity growth. That means we're not a nation that believes in home ownership, but a nation that believes in unfettered growth of wealth. You can't even say "believes in inflation" because, while true, the value you end up with is the same as you started with, in constant dollars. Your house is worth more dollars, but your dollars are worth less house.

And yet unfettered, continual, monotonic wealth growth violates exponential growth limits. So really, we're all playing a Ponzi game, rationalizing the ante based on rental premiums and mortgage credits at tax time.

So, in the end, we're a nation of people who can't do math. Me included, and yet contradictorily I can do math. I'm now enlightened, but still playing the hand I mistakenly picked up. It's not any easy game to exit, and counter-intuitively the only way to clearly win the home mortgage game is to never play.

Conclusion: Any mortgage that can't be paid in full in just a few years is an enslavement tool, not a freedom tool.

EBrown said...

Hear Hear TAE Sum, you out did yourself on this one!

Re unemployment among the young -
I too was shocked by the statistics in this death rattle. A lot of the 16-24 demographic is currently in school and not counted, but for those who are in hte work force, the chances of landing a job, any job, look bad. Let alone a job that pays a decent wage.

I'm not terribly far removed from said demographic, and have little confidence in the long ability of my chosen profession to pay me well. Still, I'll take my paycheck and build my lifeboat as long as it lasts...

jal said...

Re.: Ilargi said ...

Why do people invest in stocks?
What are the chances that stock markets will continue to rise?
-----
There are now thousands of people trying to understand, for the first time in their lives, why they lost so much of the savings that they had entrusted to financial advisors/investors/managers so that they would be able to have a nest egg/retirement income.

I’m going to do a couple of simple examples to try to help those people.
Please add corrections and improvements.
-----


How money managers are making money.
-----

Simple example #1

Me and my buddy, do the following transactions.

I sell him a stock worth $100 for $100. ( For the following transactions, none of the fundamentals have changed to make the stock value go up)

He sells it back to me for $102. ( Each transaction has a 2% operating cost.)

I sell it back to him for $104.04
Back to me for $106.12
Back to him for $108.24
Back to me for $110.41
Back to him for $112.62
Back to me for $114.87
Back to him for $117.17
Back to me for $ 119.51
Back to him for $121.90
Back to me for $124.34
Back to him for $126.83
Back to me for $129.36
Back to him for $131.95
Back to me for $134.59
Back to him for $137.28
Back to me for $140.03

It took only 17 transactions for that $100 stock to gain 40% by only adding a 2% operating cost to the selling price.

Stop being so bright!
... the stock is now worth $140 and not the $60 that you would claim it is worth because we took out $40 of operating expense from the value of that stock.
Actually, there is a $80 spread from the actual worth of the stock, ($60), to the market value of the stock, ($140).

See ... A market correction does not mean that the stock goes back to $100 but it has to go to $60. BECAUSE me and my buddy took out $40 in fees.

Of course, such open and blatant transactions would be spotted by the regulators and we would go to jail.

heheh
-----
Simple example #2.

Instead of doing the above transactions between two people lets do it with a group of 10 institutions. You could identify them with well known letters. (GS, BofA, JPM, etc.)

Instead of doing it with $100 you do it with a basket of stock with a value of millions of dollars.
Instead of having one basket of stocks you would have many basket of stocks going round and round.

If you doubt such a scenario, then you are in a minority.

There trillions of dollars sitting on the side line, in T-bills, watching the stock market manipulations.

The banks are not making any money by making new loans so they can only make money by playing this kind of game in the stock market.

Everyone is watching and waiting for the musical chair game to end, (market correction), before they try to buy stocks for their true value.
-----

Simple example #3.
Each example gets more complicated and closer to what is really happening in the market.

It’s always the same game of musical chair but this time we going to add some “gamblers”, Investment Advisors, that are suppose to manage your pension funds, trust funds, etc. into the transactions.

Since many of those Investment advisors that are managing other peoples money are under pressure to “make money” and since they figure that they can get in and sell out to someone else before the market makes a correction, ( after all they are getting paid because they believe that they are smarter than the other “gamblers”), they will get into the musical chair game.
Of course, the original musical chair participants are going to let those “gamblers” get into the game. However, they will not buy back those baskets of stocks. They will keep their profits for their lavish lifestyle.

When the “gamblers” realize that they miscalculated and then try to sell their basket, then as the market for those basket of stock goes down the “group of 10 friends” will use “shorts” to double their money.

See ... it’s very simple to make money in the stock market ... drive the price up and find a buyer.
------

Paleocon said...

Jal,

In your example it seems the real value of the investment advisor (and the rating agencies, and the regulators) is to determine who is closest to a chair when the music stops playing.

Greenpa said...

Ilargi said...
"Palin's Memoir Due in November; English Edition to Follow"

Ah, well, but shooting Milfs in a barrel is just so proverbially easy.

Dr J said...

OMG Greenpa, did you refer to Palin as a MILF?!
I thought only Republican hard-liners had those kind of fantasies!

rumor said...

I think we can all agree that Palin's conventional attractiveness is broadly appealing and probably part of her success as a celebrity/politician/whatever.

Mugabe said...

More observations on the dollar-short carry trade:

In the Bloomberg article cited by Denninger, the hypothetical carry trade is to borrow dollars and convert them to commodity currencies and put them in three-month bank deposits. Fairly simple, and according to Bloomberg very profitable given the interest rate difference and sinking dollar. They imply that hedge funds can borrow dollars at around 1.5%.

Yesterday the legendary oracle Peter Schiff noted that "Schiff said the Federal Reserve will soon run into the dilemma of either having to supply the carry traders with an endless amount of cheap dollars or put a halt to the carry trade and aggressively raise interest rates ..." In other words, the market tries to iron out interest rate differentials via the carry trade, and the Fed can only keep dollar rates low by feeding the carry traders ad infinitum.

Meanwhile, the following headline keeps appearing: "US official: Fed will need to move quickly when time comes to boost rates, battle inflation" Dallas Fed President Richard Fisher has been tapped to sing that song.

Connecting the dots, it sounds like the Fed really is worried about the carry trade, and Fisher is trying to dampen it by trying to scare the traders by threatening to raise rates faster than they can exit the trade.

Stoneleigh said...

Someone mentioned dividends, which were once the reason investors bought stock. Investors have been focused on stock price appreciation instead for a long time now, but dividends will be making a comeback. When stocks are perceived as risky and capital appreciation marginal to unlikely, stocks will have to pay dividends again, and probably at a historically high level, in order to attract any investors at all.

We're not talking about any time soon though. Dividends would be high near a stock market bottom, and we're nowhere near one of those. We have an enormous amount of upheaval to live through first, and the number of people who will be considered investors near a bottom will be vanishingly small compared to today, as well as much wealthier in comparison with the general population than today.

NZSanctuary said...

I'm not sure if anyone followed the Project 10^100, but Google now is promoting the voting part of it: http://www.project10tothe100.com/vote.html

Reading the finalist section I cannot help but feel disheartened by the choices.


Re: yesterday's comments:
Stoneleigh:
"Real estate will plummet. My long-standing prediction is that it will fall by 90% or more on average"

I know you and Ilargi have consistently stood by this message, and given the recent credit boom, historical prices vs wages (the property boom in NZ has been outrageous), inventory glut, other financial woes and so on, a similar sort of drop does not seem unreasonable here.

I have some questions, though:

Obviously you don't have a crystal ball, but what is your thinking in terms of time frames? And what factors do you see as being the most important in bringing prices down - unemployment, inventory, credit contraction? It is difficult to know what to look at here in New Zealand. I am in the market for land, but cannot quite afford to buy yet without going into debt, and certainly don't want to get in too early...

Greenpa said...

Dr. J- why, I could have sworn I wrote "fish"...

jal said...

...stocks will have to pay dividends again, and probably at a historically high level,..."

With all of the dilutions of stocks!!!!

With all of the preferred loans!!!!

It's not going to happen this year ... next year ... and maybe never ... if you are right on the depth of the reset.

jal

Dr J said...

rumour:

"I think we can all agree that Palin's conventional attractiveness is broadly appealing and probably part of her success as a celebrity/politician/whatever."

Call it maturity, or whatever, one of the benefits of getting to my age is that the little head no longer rules the big head. It wouldn't matter how conventionally attractive a woman might be, if she turns out to be a scoundrel I will still find her repulsive.

cjb said...

Stoneleigh
I live in a small community of about 80 people. We have our own water treatment plant and our own waste water plant both of which are run with electricity. That worries me. Are water supply is taken care of by a combination of wells (also reliant on electricity) and a government controlled canal that runs through our property. Our water rights at this point are unlimited as this arrangement was made in the 1940's. We have a 7 acre organic garden and we raise our own grass fed beef. We have our own heavy equipment and lots of tools. Everything we have is paid for even the land.

On the surface it looks like we are sitting pretty. But I am concerned as mentioned above about our reliance on electricity.

The reason I tell you about my living situation is to give you as clear a picture as I can what it looks like. What holes do you see in my situation? What am I not thinking about?

Thanks to you and Ilargi for the blessing you provide for those with eyes to see and ears to hear.

Dr J said...

Greenpa:

"Dr. J- why, I could have sworn I wrote "fish"..."

LOL - easy enough mistake to make in this instance.

Greenpa said...

on the serious side-

http://news.bbc.co.uk/2/hi/africa/8057316.stm

Kenya is a microcosm of the world's future, available for study today. You couldn't ask for a more lucid demonstration of environmental collapse, and the social ramifications.

I'll reiterate my key advice- become related to a cop. Not much else is going to help, when the river quits running. And note- "best buddies" with a cop is not the same thing.

VK said...

@ Greenpa, Dr J

Re: Palin

Sure sounds fishy to me.

Stoneleigh said...

Just as prices will fall due to lack of price support, wages will fall due to lack of bargaining power and inability to pay (by both employers and end customers). For those who think their current debt is manageable, do not count on your current salary, even if you do manage to keep your job.

In an inflationary environment salaries rise in nominal terms even when they are losing purchasing power (falling in real terms), so people don't notice the erosion.

During deflation there's nowhere to hide. Salaries would have to be cut just to keep purchasing power the same, but keeping it the same won't be an option for hard-pressed employers. Purchasing power will have to be cut, hence the fall in nominal salary will have to be even greater (real salary being nominal salary minus negative inflation during a deflationary credit collapse). This is a recipe for War in the Labour Markets.

Ilargi said...

NZS

"And what factors do you see as being the most important in bringing prices down - unemployment, inventory, credit contraction?"

It's important to note that's it's the combination of these factors that will make prices plunge beyond historical, normal and affordable levels.

Ilargi said...

PS NZS

And of course the mutual reinforcement of these factors (you could add a few more).

Greenpa said...

cjb- to me, you seem like the perfect community to for setting up the capability to cut your powerlines.

A community wind turbine and/or wood-gas generator could give your 80 folks the ability to at least pump your water- and run your lights.

As I've mentioned before here, entire small communities going off-grid is a desirable direction; saves money, gives a measure of independence, and creates permanent local employment.

David said...

Attention all seed-saving gardeners:

For the first time ever in years of vegetable gardening I thought I would save some seeds, from some varieties, to plant next year. Since all of my crops are heirlooms, I've not been concerned about saving any seeds from hybrids, because of course, that just doesn't work.

However, because I've grown multiple strains of most all varieties (8 types of tomatoes, 6 types of beans, 9 types of peppers, etc., etc.) I've been told that this won't work either.

Because of cross-pollination between these varieties, I would be getting seeds that themselves would be like hybrids, and could therefore not predict what the actual produce would be from these seeds.

And I've been told that professional seed growers maintain distances of 1/4 to 1/2 mile between similar species of varietals. So, my question is . . . for most people who can't space similar varietals that far apart due to the total size of their property, do you just grow one type of each varietal if you want to save seeds for future plantings?

peter said...

Illargi,
have you seen this?
(http://www.tavakolistructuredfinance.com/Fraud.pdf)

It's a nice tightly written summary
of what happened and what needs to be done - but wont.

NZSanctuary said...

"Study prompts provinces to rethink flu plan
“Report suggests people who get vaccinated are more likely to catch H1N1”

State lifts limit on mercury preservative in swine-flu shots "

Vaccination is one of the biggest "big lies". It is amazing how immune people are to facts (excuse the pun).

It will be interesting to see how the pharmaceutical industry is treated during the wealth consolidation of the next few decades. I imagine health will be a useful tool of leverage, taxes, and so on, for government, and drug companies will remain in high standing.

Dr J said...

NZSanctuary:

"Vaccination is one of the biggest "big lies"."

The merits of flu vaccine, notwithstanding, people who aren't old enough to remember the devastation of diseases like polio and smallpox can be susceptible to this notion. Nothing could be further from the truth, however.

We have had the luxury of advanced vaccination technology which has protected us these and other diseases for the past decades and this, perhaps, lulls us into complacency or worse. One of the real issues we will face if there is a major meltdown is the re-emergence of serious vaccine-preventable diseases in the developed world. If that comes to pass, I can assure you it won't be pretty and people will be desperate to find vaccines again.

VK said...

@ Stoneleigh, Ahimsa and the parents out there.

This video is sooo funny!

http://www.eatmedaily.com/2009/09/psychological-experiments-in-self-control-the-marshmallow-test/

In this reprise of a now-classic Stanford psychological experiment from the 1960s, kids are put in a room with a marshmallow and told they can either eat it immediately or wait until the researcher gets back, and they'll be given a second marshmallow. Hilarity ensues as the kids suffer marshmallow temptation!

But the consequences go deeper: In the New Yorker article "Don’t!" from May that detailed the very same experiment, it turned out that the ones who passed the marshmallow test enjoyed greater success as adults. Said Walter Mischel, the Stanford professor of psychology in charge of the experiment, "What we’re really measuring with the marshmallows isn’t will power or self-control... It’s much more important than that. This task forces kids to find a way to make the situation work for them. They want the second marshmallow, but how can they get it? We can’t control the world, but we can control how we think about it.”

el gallinazo said...

rumor said...
"I think we can all agree that Palin's conventional attractiveness is broadly appealing and probably part of her success as a celebrity/politician/whatever."

I agree that Usacos in general thought she was sexy, and this was a major factor in her temporary political success. But I must demur that I personally ever found her physically attractive regardless of her moral repulsiveness. I think her success had more to do with her stupid coquettishness which I also found repulsive. She could have been running for VP under Ralph Nader (so to speak), and I would not have found her personally physically attractive. Different strokes etc.

Dr J said...

el g:

"Different strokes etc."

LOL - careful, we may start calling you "el wanker".

NZSanctuary said...

Dr J:

This isn't really the place for such a discussion except perhaps for the following:

I have read widely on this subject for over a decade, including many documents and books from the 1800s, and can assure you that sanitation was the primary reason for the decrease in mortality from infectious diseases in the late 1800s/early 1900s (including Smallpox) in developed countries. Sanitation (access to clean water, and the ability to deal with human waste) will be vitally important in the future – those building their lifeboats/off the grid farms, etc., should be particularly aware of this.

Contrary to the perpetuated myth, vaccination played no role in the elimination of Smallpox (there was much debate in the 1800s about it – the medical establishment vs the actual statistics). Nor polio – a couple of definition changes after the vaccine was introduced was the main reason for that decline (that is a unique case, and requires a lot to go into).

But again, I'm not going to summarize a couple of thousand hours of reading on the subject here, there would be too many "but, but but"s, and this isn't the place. Suffice to say, just looking at the long term mortality data from infectious disease (from the 19th century till the late 20th century) it is clear how little vaccination has done.

NZSanctuary said...

"One of the real issues we will face if there is a major meltdown is the re-emergence of serious vaccine-preventable diseases in the developed world."

What the previous rant was really pointing out was this: the re-emergence of infectious disease as a major issue will occur if sanitation, sewerage, and other basic health provisions (food availability, etc) are compromised due to the wealth re-organisation ahead, not a lack of vaccines.

KJ said...

rumer wrote "one can expect, first, for tax rates to fall while municipal services are cannibalized and public employees are laid off and have their pension packages plundered and/or wiped out, and second, for higher taxes after that."

I have to disagree. Who sets the tax rates? The public employees. They'll cut services, yes. They'll lay off the marginal govt workers, yes. But cut their own pensions? No. Cut into their own core group? No. They'll raise taxes and raise their own wages at the same time.

What I'm trying to say is that govt is run for the workers. Junk fees, permits, inspection fees on businesses, levies, special assessments, tax mils, everything is imposed by govt workers for the benefit of govt workers. They are not our friends.

el gallinazo said...

Google news - today's post

WASHINGTON — Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.
The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

__________

And just where is that $2.5 trillion being stashed - Fort Knox?

David said...

El G said:

She could have been running for VP under Ralph Nader (so to speak), and I would not have found her personally physically attractive.

Attraction is, and always has been,

in the eye of the beholder.

What anyone beholds in Sarah Palin that attracts them to her,

is suspect at best,

and perverse at worst.

She is the personification of a Mass Media construct of a pole-dancing actress crossed with the genome of Newt Gingrich.

If that image doesn't rot your mind into perdition,

then

you need serious help.

Robert said...

How well I recall the polio epidemic as a young Texan. Some summers swimming, movies and other activities were restricted. One of my Baylor Med classmates, the late Louis K Rosner, genius author of books on Mulitiple Sclerosis, missed a year of school due to polio, spent most of his adult life as a paraplegic and died too young of post polio complications. I generally tried to avoid the iron lung corridor at Houston's Jefferson Davis Charity Hospital. Too horrible.
R. Wilson MD

---Three cheers for the absence of the anononuts.

David said...

NZSanctuary said...

Dr J:

This isn't really the place for such a discussion except perhaps for the following:


C'mon NZS, don't waste your time on this particular topic.

You are trying to go up against the established medical point of view.

Fail.

This is pretty much like going up against establishment economists.

If you have no cred with the established Faux-Nobel economist/Wall Street/Academic Sycophant/community then your opinion doesn't matter one whit.

If you do not have a "Medical Degree" from an American "Accredited Medical School", you also have no cred.

All you have to do is have a rich mommy/daddy push you through an Accredited Medical School, and then -- Voila! -- you have a medical degree and can pronounce magical decrees on any and all sorts of medical conditions.

Or, you can become a Witch Doctor.

Or an Economist

Pretty much the same thing.

Farmerod said...

That's like Canada's supposed $54Billion+ employment insurance surplus. The money collected goes into general revenue so it's a little too easy to spend. So we do. Now it's not there so we borrow more.

Farmerod said...

David

You're sure to get a better answer from any number of regulars to this site but I'll give it a go in the interim. Not all is lost in terms of your seed-saving, I suspect. Isolation distances vary from crop to crop. For example, tomatoes are self-pollinated so as long as your different varieties aren't right next to each other, the seed might breed true. Google isolation distances for each crop, bearing in mind that other factors like prevailing wind and natural and artificial barriers play a part.

BTW, I quite enjoy campari tomatoes so I did a little research on them. Despite being a hybrid, several on the web were saying that you could still grow a pretty good tomato from their seeds. I started some in June but had to abandon all but one plant during a recent move. So far I've got two small green tomatoes. I'll let you know how they turn out.

woodsy_gardener said...

David and all seed savers:

Here is a wonderful little booklet about seed saving.

A few notes:
Save your bean and pea seed, they rarely cross. There are several techniques for growing plants that cross given as well a seed processing techniques.

Also you may want some to cross to widen the genetic base. My parsley seeds are saved from 3 varieties I started 4 years ago. My mustard seed is saved from 40 varieties mixed together 4 years ago.

David said...

Blogger Farmerod said...

David

You're sure to get a better answer from any number of regulars to this site but I'll give it a go in the interim.


Thank you very much for your generous contribution to my knowledge.

Because I grow crops in dozens of raised beds in a biointensive environment, the varietals are necessarily very tightly spaced together.

The bees are extraordinarily plentiful (amazing!) and natural (thanks for all your input Snuffy!) so I'm guessing that there is a lot of cross-pollination going on.

Be that as it may, I'm willing to take a leap and capture seed and plant them next year in the experimental beds just to see what we get.

I will mention that the most amazing tomato cultivar that I had the privilege of growing this year was the "cherry Roma" tomato.

Imagine all the compactness of a cherry, with the concentrated sweetness natural to that varietal, with the low-moisture, pulp-free characteristics of a paste tomato. The combination is absolutely staggering.

In the mouth, the taste is beyond sublime.

In a sauce, the texture/flavor is, as the kids say, "to die for".

Try one or two of these plants next year. I'd hope you wouldn't be disappointed.

el gallinazo said...

Ron Paul talks sense about Iran

http://www.youtube.com/watch?v=8YGiuF97fRE&feature=player_embedded#t=430

and Ariana Huffington talks trash about Iran

(or why I am no longer a warmongering liberal or progressive)

http://www.youtube.com/watch?v=NEuxel6Fv-0&feature=player_embedded#t=517

Dr J said...

NZSanctuary - I guess we are at opposite poles on the vaccination topic. I agree that the discussion will become too involved (and possibly nasty - see David's comment) for this site.

Permit me to leave you with a couple of data points, however.

I had polio as a child and, although I was supposed to die, recovered without any serious paralysis. Polio used to sweep across the land, infecting all and sundry in those days. It didn't matter if you were rich or poor, you were in harm's way.

Although I agree with your general assertion that improvements in hygiene, nutrition, housing, and all the other socioeconomic stuff is very important with respect to disease control, the smallpox vaccine was instrumental in eradicating the disease. Countries where people still live in squalor no longer have smallpox because of the vaccine, not because of improvements in socioeconomics.

I am sure those who are convinced otherwise won't be swayed so we shall agree to disagree. I vaccinate my kids and rue the day when others won't have this option.

Greenpa said...

re: hybrids, and hybrid seeds.

A hybrid is NOT a hybrid, is not a hybrid, is not a hybrid.

Hybrid, alas, is what we call a "garbage can" word.

At best, it might be a word comparable to "Chordate" - which includes sea squirts, bats, whales, etc. A bunch of entities that are utterly unalike.

Explaining which is which is an extraordinarily long task, and I know very large numbers of PhD biologists who are clueless about it all.

A lot of this stems from "hybrid corn", which is a crazy unique kind of hybrid, and often confused with mules- which corn bears no resemblance to whatsoever regarding genetic specifics.

I wouldn't be afraid to try growing your seed- it's quite likely the fruit will be fine, and the plants healthy, and productive.

If you want to maintain the pure strains; yup, you gotta isolate. Native American farmers were probably not so fussy, though, and they were the most spectacular and successful plant breeders anywhere, anywhen.

Ilargi said...

"A hybrid is NOT a hybrid, is not a hybrid, is not a hybrid.

Hybrid, alas, is what we call a "garbage can" word."


Hey, hey, dim that thar over there, bluesister.

I'm a deepseeded hybrid and mighty proud of it.

David said...

Greenpa said...

re: hybrids, and hybrid seeds.

A hybrid is NOT a hybrid, is not a hybrid, is not a hybrid.


Thank you for your elucidation!

It's easy to be sucked into the didactic of maintaining some kind of "pure" laboratory environment.

Probably one of the best things that comes out of growing your own crops is realizing that there is no perfect solution. Ever.

There is only tghe commitment to keep trying, and trying, and trying.

Always there is the attempt to do better and better with each season. But there are failures and there are triumphs.

That is part and parcel of what we all (I presume to pontificate) are attempting to do here.

We don't all have everything that would make us perfectly prepared.

But,

We have our own self-determination, and

thanks to I & S

We do have each other.

Go ahead and dump on me for the sentimentality,

but it is true.

Dr J said...

David:

"We have our own self-determination, and

thanks to I & S

We do have each other."

Agreed. And, in light of that, maybe you could drop the ad hominems from here on in.

rumor said...

I never said I personally found Palin attractive. You're all reading in something I didn't write.

(Now I know how Ilargi feels?)

(But who am I kidding, it's not the first time people have glossed over words I've chosen carefully. That's basically the story of my job.)

NZSanctuary said...

I&S:
What is your guesstimate of the speed at which we will see a decline in real estate – any time frames? Is the 80-90% drop from peak something that you think is likely within 2 years, 5 years, 10 years? Is the bulk of it likely to happen swiftly, or will it be drawn out? I'm curious to know what your thinking is behind the rate of the squeeze...

Dr J:
Polio and smallpox are some of the most mis-informed topics in medicine, I have found. The "official" history is at stark odds with the actual reports of the day and statistical evidence. I have the privilege of working with books - including those from the world's largest medical sciences publisher (Elsevier) so I have plenty of access to the orthodox stories.

Ilargi said...

NZS, Dr. J

I feel a vaccine discussion coming on that might rival the diet babble, and you both know what I'm going to say next.

For everyone: when you read something, anything, please think for one moment about how all the other readers will receive it, to what extent it interests them, not just you.

jal said...

re.: future jobs

The present estimate is that there will be a permanent 30 million unemployed people in the USA.
Getting involved with municipality to change their by-laws so as to allow “tent cities” in a controlled manner would benefit both parties.

Yep!
Municipalities could become slum landlords. They will have lots that have water, sewage and municipal services that produce no income if left empty.

Someone has got to be in charge of those rented lots. Each municipality will end up with a different model and system of operation.

A municipality could have multiple “renters’ paying for those services.

Hummm!

Some might actually end up being upscale camping ground others might end being rv parks.

They do not need to be “shanty towns”. There will be a need for a variety of cheap housing.

jal

Dr J said...

NZSanctuary - I am not a slave to orthodoxy as you will know from the diet discussions. If I am mistaken about the utility of vaccines, I would be interested in being enlightened (Ilargi permitting, of course).

Could you perhaps start with an explanation of why you think smallpox vaccine was not instrumental in the eradication of the disease.

gylangirl said...

www.democracynow.org

Fmr. UN Weapons Inspector Scott Ritter Warns Against "Politically Motivated Hype" on Iran Nuke Program

Former UN weapons inspector Scott Ritter joins us to discuss what he calls “politically motivated hype” over Iran’s nuclear program. The Obama administration has warned of sanctions unless Iran allows inspections of a newly disclosed nuclear site. Iran insists the site has been used for peaceful purposes. The row comes just after Iran’s test-firing of medium- and long-range missiles and before Iranian officials are due to hold talks with the US and five other nations in Geneva. [includes rush transcript]

Second verse, same as the first...
I’m Puppet Chief of State I am, Puppet Chief of State I am I am
I lie so my master can profit from a war and
We’ve been through this war charade before
Led every time by a puppet Chief
Puppet Chief of State I am I am
Puppet Chief of State I am

Ilargi said...

NZS,

"I&S:
What is your guesstimate of the speed at which we will see a decline in real estate – any time frames? Is the 80-90% drop from peak something that you think is likely within 2 years, 5 years, 10 years? Is the bulk of it likely to happen swiftly, or will it be drawn out? I'm curious to know what your thinking is behind the rate of the squeeze..."


The US wouldn't have a real estate market left to speak of without -hidden or not- government intervention. And even then , people are much poorer now then they were last year this time, and home prices are down 13% since then. Hence: ever less qualified buyers, and ever more available homes, while the government must one day withdraw.

The 80-90% plunge will take less than 5 years, and quite possibly much less.

Ilargi said...

Dr.J, NZS,

"Could you perhaps start with an explanation of why you think smallpox vaccine was not instrumental in the eradication of the disease."

Do what you will, but don't dream of doing it here.

Can you guys stop making me feel like a highschool teacher?

windbow said...

NZSanctuary said...

I'm not sure if anyone followed the Project 10^100, but Google now is promoting the voting part of it: http://www.project10tothe100.com/vote.html

Reading the finalist section I cannot help but feel disheartened by the choices.


Felt the same way. As the magnitude of our crisis seems to increase almost daily, these selections seem so, I don't know, feeble. I was expecting WOW.

DIYer said...

Greenpa & David,

As I understand it, some of the corn seed companies maintain their breeding stock in abandoned underground mines, with artificial lighting in carefully filtered and humidified air. The "hybrid" product is the result of DNA wranglers carefully braiding together 3 or 4 generations from the breeding lines, none of which would survive in the open (the last cross is done in open fields, since they need to produce a large quantity of seeds for sale). The final product is resistant to further propagation.

One thing I have seen firsthand is the immediate effect of corn pollen -- if you plant field corn or popcorn within a few yards of your sweet corn, you'll have hard kernels amongst the sweet. It isn't necessary to raise another generation to see this effect. This would be true even with heirloom varieties: the hard-dry kernel is dominant and pollen-dependent.

Beans and other legumes, on the other hand, are self-pollinated and you can grow different varieties in the same garden. You may reseed them from last year's crop.

Farmerod said...

@David
Thank you very much for your generous contribution to my knowledge.

Why the petulance?

snuffy said...

The words here improve each reading...and more thoughtful reflection...

Ed Gorey...Being nimble,and mobile,and quick-footed may be well and good...but it seems a little too much like the word "Refugee"to me.Still being able to move is part of the plan.The next major expenditure or "acquisition"I have my heart set on,with this in mind is a small [22' to 28']sailboat whose name will be "Plan B"...

Greenpa,

That comment about "she who will not be named"had me snorting cranberry juice all over my keyboard...

And the mix of newt and a poledancer

As the young ones would say,

Euuuuuwww...ick!!

Whatever floats your boats.I don't care how the other cat swings....I am with the old bird on this one.She is repellent on many levels

Paleocon..
My mortgage worked ou a little differently.First I bought raw land,put a funky trailer on it.Built a house myself.Paid off the second,and have the primary down to 60k.I always put at least 50-100 extra on the land payment,and could not rent a place for what my payment is.It has been a nice tax writeoff for a long time now.Its worked out now as Mrs snuffy and I have been allergic to refie's.We owe 25% of whats its assessed at,and could still see a 60% drop before being anywhere close to "underwater".Most folks have not stayed in one place for 14 years and steadily "built"both equity and value in our home.Yes I have worked my ass off here...and I have invested everything[all the eggs] in one basket...but its a nice basket.

I think all the comments I have seen here about probable scenarios have some chance of occurring.What i expect is some action being taken by TPTB as a "game changer",that will blow all expectations all to hell.

Or we may find out the "worse case scenarios" for something as dramatic as climate change will act as the game changer.The old saw that "What is unsustainable will work..until it does not"will be the new mantra

Or a nice hot war with ,[I dont know,pick someone ]

I think as the powers that be are trying desperately to keep the "Status Quo"...just as long as they possibly, humanly can,because they haven't a clue where we will go from here...except they know its going to be bad for everyone,including those who gave them lots of money to ensure they remained unaffected,and in control...

time for sleep....

snuffy

Ilargi said...

"New" Post Up.

ccpo said...

Re: 90% plunge in RE prices. My nephew in So Cal just closed on a house today. My wife and I just put down earnest money on a house in a... city in difficulties. ;)

Our house is bigger. He has a little larger lot. He's paying approximately 15 times what we are. More like 35 when you add in interest on a loan, which we don't have, having paid cash.

In some places, prices have already fallen 80 - 90%.

If we live here a year or so we'll be ahead of the game vs. renting. Anything beyond that will be gravy. Should we stay 2 years we'll have saved fairly significant money. If we could then sell for even 1/3 we'd be pretty far ahead of the game.

It's a mad, mad, mad, mad world.

Laugh while you can.

Cheers

team10tim said...

RE: Sarah Palin, milf

From: Fahrenheit 451

"I voted last election, same as everyone, and I laid it on the line for President Noble. I think he's one of the nicest-looking men ever became president." (Ray Bradbury, 1953, p.96)

"What possessed the 'Outs' to run him? You just don't go running a short little man like that against a tall man. Besides-he mumbled. Half the time I couldn't hear a word he said. And the words I did hear I didn't understand!"
(Ray Bradbury, 1953, p.97)

From real life, the Kennedy-Nixon debate:

Most folks who heard it on the radio thought Nixon 'won' and most folks who saw it on tv thought that Kennedy 'won.' Hot vs Not 1 2

The sad truth of the matter is that conventionally attractive politicians are more electable than frumpy ones. Politicians tend to be taller, more symmetric, and more conventionality attractive than average.

The weighting of attractiveness vs ideological support hasn't yet been mapped out. To put is coarsely, we don't yet know to what extent an increase in do-ability counteracts out an increase in reprehensibility.

On the plus side though, it appears to cut both ways as Dennis Kucinich proved on the campaign trail in 2004 when his high degree of integrity rendered him more attractive. Thus landing the unsightly little lump of a man a bombshell bride.

Weaseldog said...

David said, "1) These people you personally know are mentally deficient if they sell their gold coinage for a small percentage of the current market valuation,"

Anyone who's ever had to sell when the market has dropped, in other words, they bought high, but sold because they needed to raise cash, are always mentally deficient...

Good thing that those people are out there, or non-mentally deficient would never ever profit by trading, because no one would ever sell anything at a loss...

Weaseldog said...

David said, "Therefore, the only other conclusion I would reach is that Farmerrod was referring to the fact that people who have already purchased gold would be parting with it for far less than what they paid for it.?"

Gold is worth what someone will pay you for it.

If you fall on hard times during a bear market for gold, you'll be selling with the price dropping.

If you take gold bars to a local shop and other locals are trying to sell also, then you'll get even less.

If you hold gold as paper, you may get nothing because it's just a promissory note and the there is more paper gold sold, than there is physical gold to back it.

Weaseldog said...

David said, "And I've been told that professional seed growers maintain distances of 1/4 to 1/2 mile between similar species of varietals. So, my question is . . . for most people who can't space similar varietals that far apart due to the total size of their property, do you just grow one type of each varietal if you want to save seeds for future plantings?"

This is a good time to determine what plants do best in our conditions. And concentrate on seed saving those.

A little cross pollination is nothing to worry about. you'll still get veggies, though your crops might not be 'pure' enough to sell resell the seeds as those same varieties.

If you wish to develop seeds for resale, then you do need to play the numbers games and plant in large quantities to limit gene pollution.

If you're growing veggies to eat, not so much.

Bill Real said...

Wow, that was an amazing post Ilargi. More please!