"Noon Hour. Workers in Enterprise Cotton Mill, Augusta, Georgia. The wheels are kept running through noon hour (which is only 40 minutes) so employees may be tempted to put in part of this time at machine if they wish"
Ilargi: A few days ago, in States of shock, I focused on budget problems and their political fallout in various US states. Now, a new report from the Center on Budget and Policy Priorities, New Fiscal Year Brings No Relief From Unprecedented State Budget Problems, provides a more detailed in-depth look at the issue, allowing for a few blanks and question marks to be replaced with numbers.
First though, in what may seem an introduction unrelated to state issues, here's two graphs showing decreases in US federal income tax revenues versus increases in federal spending.
And an older but no less important one depicting how fast revenues and spending diverge:
These graphs come from BusinessInsider, where Henry Blodget amusingly does the same Mish Shedlock did: they both quote John Mauldin who quotes David Rosenberg. Small world. Maybe I should quote Blodget who quotes Mauldin who quotes Rosenberg. And then have someone quote me.
Rosenberg, incidentally, mentions an interesting set of statistics that never gets much attention, the BLS Household Survey.
As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted Household number), and on this basis, employment sank — brace yourself — by over 1 million, which is unprecedented.
Note: the Household survey is different from and smaller than the non-farm survey, but that doesn’t make it irrelevant. And the difference between the 216,000 jobs lost according to the non-farm survey versus the almost 5 times as many in this one looks suspicious.
I wanted to put in the income tax graphs because they are the best approximation we seem to have of what happens at all levels of government when it comes to their revenues: they are plunging. Moreover, while federal income tax is allegedly down about 11%, we've seen earlier in the year that business taxes are off by as much as 50%. The New Fiscal Year Brings No Relief From Unprecedented State Budget Problems report shines some light on the extent of revenue losses at state level.
- At least 48 states have addressed or still face shortfalls in their budgets for fiscal year 2010 totaling $168 billion or 24% of state budgets.
- An unusual number of these states are still struggling to balance their 2010 budgets two months after the start of the fiscal year. Three states [..] have not yet adopted budgets for 2010. In addition, new shortfalls have opened up in at least 15 of the states that have adopted budgets [..] . These additional gaps — some of which have already been addressed — totaled $28 billion.
- At least 36 states have looked ahead and anticipate deficits for fiscal year 2011. These shortfalls total $74 billion — 15 percent of budgets — for the 30 states that have estimated the size of these gaps by comparing expected spending with estimated revenues.
- [..] state budget gaps will continue to be significantly larger than in the last recession. All but a handful of states have had to face or are still dealing with shortfalls in fiscal year 2010 that total some $168 billion. If, as is widely expected, the economy does not begin to significantly recover until some time in calendar year 2010 and unemployment remains high through 2010, state shortfalls are likely to be even larger in fiscal year 2011 (which begins in July 2010 in most states). The deficits over the next two fiscal years — 2010 and 2011 — are likely to be more than $350 billion..
Now, first of all: California is the big stinking elephant in the room. Its predicaments add greatly to the absolute numbers, since it’s so large, and -at least for now- likely also to the percentages. That said, it is a state, and should remain part of the overall story. Which, by the way, puts total state budget spending at $700 billion. Which will go down significantly before the fiscal year is over. That's after all where the pain is.
The average shortfall for the 2010 fiscal year (July 1 2009-June 30 2010) is 24,3% of the total budget. The biggest gaps: California: 49.3% , Arizona: 41.1%, Nevada: 37.8%, Illinois: 37.7% , New York: 36.1%, Alaska: 30.0%.
And that’s not all. Two months after fiscal year 2010 began, there are already $28 billion in additional "losses". Potentially, that could add another $168 billion (6x$28 billion) to the shortfalls, which would double the gap to $336 billion, or 48% of total budgets. Again, California plays an outsize role here, it’s for example responsible for about two-thirds of the additional gap, which also has already been "addressed", but before that starts to make you feel better, don't forget that it may continue to "surprise" on the downside. California has some of the highest foreclosure and unemployment numbers around, which will impact losses significantly.
But that's not all either. For fiscal year 2011, expectations are even worse than for 2010. Note: the report uses the phrase "at least" a lot, because a number of states don't have numbers available. The preliminary estimated budget gap for FY 2011 is $182 billion, based on "expected spending and estimated revenues".
Of course, if we can agree that FY2011 is likely to be worse than FY 2010, we need to take into account the already "discovered" and additional potential gaps in the 2010 numbers. When you look at it that way, the estimated $350 billion, 25%, gap over two years ($168 billion + $182 billion) seems to be on the very conservative side. There is no way incumbent politicians as a group have erred on the side of caution. The vast majority will have erred on the side of positivism, for reasons varying from wanting re-election to not understanding the data.
This depicts a huge problem in the making. rainy day funds are rapidly being depleted, while the worst is yet to come. Something will have to give, since states are obliged to balance their books and can't borrow to do that. So what happens? Politicians and high-end civil servants cutting their own salaries? Not very likely. Here's the report again:
- As the 2009 fiscal year ended and states planned for 2010, budget difficulties have led some 41 states to reduce services to their residents, including some of their most vulnerable families and individuals.
- For example, at least 27 states have implemented cuts that will restrict low-income children’s or families’ eligibility for health insurance or reduce their access to health care services. Programs for the elderly and disabled are also being cut. At least 24 states and the District of Columbia are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or significantly increasing the cost of these services.
- At least 25 states are cutting or proposing to cut K-12 and early education; several of them are also reducing access to child care and early education, and at least 34 states have implemented cuts to public colleges and universities. In addition, at least 42 states and the District of Columbia have made cuts reducing the size or work time of state government employees.
To wit, this little tidbit from the state of Washington which is but a first warning sign (good times to be a lawyer):
Judge orders state nursing, rehab cuts restored
Nearly 1,000 of Washington's most disabled citizens are cheering and state budget cutters are headed back to the drawing board after an unexpected court ruling Friday. A judge ruled the state improperly cut publicly-funded nursing and rehabilitation services for many of the state's most vulnerable citizens.
My take when overseeing all these data is that you can take the picture we have so far and multiply it by a factor of magnitude. That's the future of US states and their level of services provided. They’ll try to open casino's, raise sales taxes, property taxes, squeeze the old and the crippled, anything they feel they can get away with while holding on to their posts. They’ll also lean ever heavier on counties and municipalities, the very entities that must already be bleeding profusely as we speak, but from which we have no comprehensive data as of yet.
Is there any chance the states (and the counties and towns) can count on Washington to help? Well, how's the federal government doing these days amidst all this? Here's former GAO head David Walker with some perspective:
Warning: The Deficits Are Coming!
"Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income—so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to." As for this year's likely deficit of $1.8 trillion, Mr. Walker suggests its size be conveyed thusly: "A deficit that large is $3.4 million a minute, $200 million an hour, $5 billion a day," he says. That does indeed put things into perspective.
That's right. Every American on average pays $6000 towards the federal deficit this year. Think it's a good idea to dig the hole a bit deeper in order to support the states? As an aside, can you imagine having to borrow $200 million an hour?
Washington has predicted grandiose increases in GDP of around 4%, starting this year. If those increases either don't materialize or are short-lived, everything I've listed above will make a sharp turn for the worse. And there's absolutely nothing in sight that supports that sort of GDP growth predictions other than more stimulus packages provided by that same federal government.
Down the line the change we can (or once could) believe in turns into "the more we spend, the richer we are". I for one will have to pass on that one. Meanwhile, I think it borders on criminal behavior to cut budgets for the defenseless amongst us, while those doing the cutting sit pretty and rake in multi-million dollar donations for their next campaigns. Then again, it would be naive not to see by now that that's how it works. In times of plenty, we all ignore the obvious cracks in the system, and when times get leaner and the cracks widen, we start falling through them.
Ilargi: Click the title to go to the original and see tables with info specific to your favorite states.
New Fiscal Year Brings No Relief From Unprecedented State Budget Problems
The unprecedented state fiscal problems brought on by the worst decline in tax receipts in decades show no signs of letting up. On July 1 — the start of the fiscal year in most states — an unusually high number of states were still struggling to adopt budgets for fiscal year 2010. Most states have adopted budgets that closed the shortfalls they faced with a combination of federal stimulus dollars, service reductions, revenue increases, and funds from reserves. But these budgets are already falling out of balance as the economy has caused state revenues to decline even more than projected. States will continue to struggle to find the revenue needed to support critical public services for a number of years.The Center’s most recent survey of state fiscal conditions found many signs of the depth of the state budget crisis.
- At least 48 states have addressed or still face shortfalls in their budgets for fiscal year 2010 totaling $168 billion or 24 percent of state budgets.
- An unusual number of these states are still struggling to balance their 2010 budgets two months after the start of the fiscal year. Three states — Arizona, Michigan, and Pennsylvania — have not yet adopted budgets for 2010. In addition, new shortfalls have opened up in at least 15 of the states that have adopted budgets — California, Colorado, Georgia, Hawaii, Kansas, Kentucky, Maryland, New Mexico, New York, Rhode Island, Utah, Vermont, Virginia, Washington, and Wyoming — plus the District of Columbia . These additional gaps — some of which have already been addressed[1] — totaled $28 billion.
- The states’ fiscal problems will continue into the next fiscal year and likely beyond. At least 36 states have looked ahead and anticipate deficits for fiscal year 2011. These shortfalls total $74 billion — 15 percent of budgets — for the 30 states that have estimated the size of these gaps by comparing expected spending with estimated revenues, and are likely to grow as more states prepare projections and revenues continue to deteriorate.
- Combined budget gaps for the next two fiscal years — those already mostly closed for 2010 and those projected for 2011 — are estimated to total at least $350 billion.
Figure 2’s budget shortfall figures for fiscal years 2009 and 2010 show the national recession’s impact on state budgets. These figures are the total size of the shortfall identified by each state listed. In many cases all or part of this shortfall has already been closed through a combination of spending cuts, withdrawals from reserves, revenue increases, and use of federal stimulus dollars.
Figure 2 also compares the size and duration of the shortfalls that occurred in the recession of the first part of this decade to shortfalls this time. The current recession is more severe — deeper and longer — than the last one, and state fiscal problems have proven to be worse and are likely to remain so. Unemployment, which peaked after the last recession at 6.3 percent, has already hit 9.4 percent, and many economists expect it to rise higher. This would further reduce state income tax receipts and increase demand for Medicaid and other essential services that states provide. With consumers’ reduced access to home equity loans and other sources of credit, sales tax receipts have fallen more steeply than in the last recession. These factors suggest that state budget gaps will continue to be significantly larger than in the last recession. All but a handful of states have had to face or are still dealing with shortfalls in fiscal year 2010 that total some $168 billion. If, as is widely expected, the economy does not begin to significantly recover until the some time in calendar year 2010 and unemployment remains high through 2010, state shortfalls are likely to be even larger in fiscal year 2011 (which begins in July 2010 in most states). The deficits over the next two fiscal years — 2010 and 2011 — are likely to be more than $350 billion. [2]
Several factors could make it particularly difficult for states to recover from the current fiscal situation. Housing markets might be slow to fully recover; their decline already has depressed consumption and sales tax revenue as people refrain from buying furniture, appliances, construction materials, and the like. This also would depress property tax revenues, increasing the likelihood that local governments will look to states to help address the squeeze on local and education budgets. And as the employment situation continues to deteriorate, income tax revenues will weaken further and there will be further downward pressure on sales tax revenues as consumers are reluctant or unable to spend.
Unlike the federal government, the vast majority of states are governed under rules that prohibit them from running a deficit or borrowing to cover their operating expenses. As a result, states have three primary actions they can take during a fiscal crisis: draw down available reserves, cut spending, and raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather the remainder of the recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn, which produces a cumulative negative impact on national recovery as well.
Some states have not been affected by the economic downturn, but the number is dwindling. Mineral-rich states — such as New Mexico, Alaska, and Montana — saw revenue growth as a result of high oil prices. However, the recent decline in oil prices has begun to affect revenues in some of these states. The economies of a handful of other states have so far been less affected by the national economic problems.
In states facing budget gaps, the consequences are severe in many cases — for residents as well as the economy. As the 2009 fiscal year ended and states planned for 2010, budget difficulties have led some 41 states to reduce services to their residents, including some of their most vulnerable families and individuals.[3]
For example, at least 27 states have implemented cuts that will restrict low-income children’s or families’ eligibility for health insurance or reduce their access to health care services. Programs for the elderly and disabled are also being cut. At least 24 states and the District of Columbia are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or significantly increasing the cost of these services.
At least 25 states are cutting or proposing to cut K-12 and early education; several of them are also reducing access to child care and early education, and at least 34 states have implemented cuts to public colleges and universities.
In addition, at least 42 states and the District of Columbia have made cuts reducing the size or work time of state government employees. Such cuts not only often result in reduced access to services residents need, but also add to states’ woes because of the impact on the economy from less consumer activity.
If revenue declines persist as expected in many states, additional spending and service cuts are likely. Budget cuts often are more severe later in a state fiscal crisis, after largely depleted reserves are no longer an option for closing deficits.
Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend — though to the extent these increases are on upper-income residents that effect is minimized because much of the money comes from savings and so does not diminish economic activity.
The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.
States Have Restrained Spending and Accumulated Rainy Day FundsThe current situation has been made more difficult because many states never fully recovered from the fiscal crisis of the early part of the decade. This heightens the potential impact on public services of the shortfalls states now are projecting.
State spending fell sharply relative to the economy during the 2001 recession, and for all states combined it still remains below the fiscal year 2001 level. In 18 states, general fund spending for fiscal year 2008 — six years into the economic recovery — remained below pre-recession levels as a share of the gross domestic product.
In a number of states the reductions made during the downturn in education, higher education, health coverage, and child care remain in effect. These important public services were suffering even as states turned to budget cuts to close the new budget gaps. Spending as a share of the economy declined in fiscal year 2008 and is projected to decline further in 2009 and again in 2010.
One way states can avoid making deep reductions in services during a recession is to build up rainy day funds and other reserves when the economy is growing. At the end of fiscal year 2006, state reserves — general fund balances and rainy day funds — totaled 11.5 percent of annual state spending. Reserves can be particularly important to help states adjust in the early months of a fiscal crisis, but generally are not sufficient to avert the need for substantial budget cuts or tax increases. In this recession, states have already drawn down much of their available reserves; the available reserves in states with deficits are likely to be depleted in the near future.
Federal Assistance CrucialFederal assistance can lessen the extent to which states need to take pro-cyclical actions that can further harm the economy. The American Recovery and Reinvestment Act recognizes this fact and includes substantial assistance for states. The amount in ARRA to help states maintain current activities is about $135 billion to $140 billion — or less than half of projected state shortfalls. Most of this money is in the form of increased Medicaid funding and a “Fiscal Stabilization Fund.” This money has reduced to a degree the depth of state spending cuts and moderated state tax and fee increases. There are also other streams of funding in the economic recovery act flowing through states to local governments or individuals, but this will not address state budget shortfalls.
Warning: The Deficits Are Coming!
David Walker sounds like a modern-day Paul Revere as he warns about the country's perilous future. "We suffer from a fiscal cancer," he tells a meeting of the National Taxpayers Union, the nation's oldest anti-tax lobby. "Our off balance sheet obligations associated with Social Security and Medicare put us in a $56 trillion financial hole—and that's before the recession was officially declared last year. America now owes more than Americans are worth—and the gap is growing!"
His audience sits in rapt attention. A few years ago these antitax activists would have been polite but a tad restless listening to the former head of the Government Accountability Office, the nation's auditor-in-chief. Higher taxes is what hikes their blood pressure the most, but the profligate spending of the Bush and Obama administrations has put them in a mood to listen to this green-eyeshade Cassandra. "He's so unlike most politicians," says Sharron Angle, a former state legislator from Nevada, "his message is clear, detailed and with no varnish."
Mr. Walker, a 57-year-old accountant, didn't set out to be a fiscal truth-teller. He rose to be a partner and global managing director of Arthur Anderson, before being named assistant secretary of labor for pensions and benefits during the Reagan administration. Under the first President Bush, he served as a trustee for Social Security and Medicare, an experience that convinced him both programs are looming train wrecks that could bankrupt the country. In 1998 he was appointed by President Bill Clinton to head the GAO, where he spent the next decade issuing reports trying to stem waste, fraud and abuse in government.
Despite many successes, he was able to make only limited progress in reforming Washington's tangled bookkeeping. When he arrived he was told the Pentagon was nearly a decade away from having a clean audit, or clear evidence that its financial statements were accurate. When he left in 2008, he was told the Pentagon was still a decade away from that goal. "If the federal government was a private corporation, its stock would plummet and shareholders would bring in new management and directors," he said as he retired from the GAO.
Although he found the work fulfilling, Mr. Walker said he decided to leave last year with a third of his 15-year term left because "there are practical limits on what one can—and cannot—do in that job." He became president and CEO of the Peter G. Peterson Foundation, a group seeking to educate the public and policy makers on the need for fiscal prudence. Although it accepts private donations, its own future is secure given that Mr. Peterson, a former head of the Blackstone private equity firm and secretary of commerce under Richard Nixon, has endowed it with a $1 billion gift.
We met to hash over current events in his tastefully appointed office just off of New York's Fifth Avenue. Mr. Walker, a lean man with an unflappable demeanor, welcomed me with the observation that he's never been in more demand as a speaker "but it's only because everyone is so worried for our future." His group calls itself strictly nonpartisan and nonideological, and that seems to limit how tough and specific it can be. Last year, it released a documentary "I.O.U.S.A.," that followed Mr. Walker as he toured the country on his fiscal "wake up" tour. The solutions the film proposes for the debt crisis are either glib or gray: The country should save more, reduce oil consumption, hold politicians accountable and get more value from health-care spending.
But in its diagnosis of the problem the film scores a bull's-eye. Among the fiscal hawks featured in the film is Rep. Ron Paul, who memorably tells Alan Greenspan that if doctors had the same success rate in meeting his goals as the Fed has had, patients would be dead all over America. Mr. Walker's own speeches are vivid and clear. "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease."
Mr. Walker identifies the disease as having a basic cause: "Washington is totally out of touch and out of control," he sighs. "There is political courage there, but there is far more political careerism and people dodging real solutions." He identifies entrenched incumbency as a real obstacle to change. "Members of Congress ensure they have gerrymandered seats where they pick the voters rather than the voters picking them and then they pass out money to special interests who then make sure they have so much money that no one can easily challenge them," he laments.
He believes gerrymandering should be curbed and term limits imposed if for no other reason than to inject some new blood into the system. On campaign finance, he supports a narrow constitutional amendment that would bar congressional candidates from accepting contributions from people who can't vote for them: "If people can't vote in a district not their own, should we allow them to spend unlimited money on behalf of someone across the country?"
Recognizing those reforms aren't "imminent," Mr. Walker wants Congress to create a "fiscal future commission" that would hold hearings all over America to move towards a consensus on reform. It would then present Congress with a "grand bargain" on entitlement and budget-control reforms. Its recommendations would be guaranteed a vote in Congress and be subject to only limited amendments. I note that critics have called such a commission an end-run around the normal legislative process. He demurred, saying that Congress would still have to approve any recommendations in an up-or-down vote—much like the successful base-closing commission created by GOP Rep. Dick Armey in the 1980s.
What kind of reforms would Mr. Walker hope the commission would endorse? He suggests giving presidents the power to make line-item cuts in budgets that would then require a majority vote in Congress to override. He would also want private-sector accounting standards extended to pensions, health programs and environmental costs. "Social Security reform is a layup, much easier than Medicare," he told me. He believes gradual increases in the retirement age, a modest change in cost-of-living payments and raising the cap on income subject to payroll taxes would solve its long-term problems.
Medicare is a much bigger challenge, exacerbated by the addition of a drug entitlement component in 2003, pushed through a Republican Congress by the Bush administration. "The true costs of that were hidden from both Congress and the people," Mr. Walker says sternly. "The real liability is some $8 trillion." That brings us to the issue of taxes. Wouldn't any "grand bargain" involve significant tax increases that would only hurt the ability of the economy to grow? "Taxes are going up, for reasons of math, demographics and the fact that elements of the population that want more government are more politically active," he insists. "The key will be to have tax reform that simplifies the system and keeps marginal rates as low as possible. The longer people resist addressing both sides of the fiscal equation the deeper the hole will get."
I steer towards the fiscal direction of the Obama administration. He says his stimulus bill was sold as something it wasn't: "A number of people had agendas other than stimulus, and they shaped the package." As for health care, Mr. Walker says he had hopes for comprehensive health-care reform earlier this year and met with most of the major players to fashion a compromise. "President Obama got the sequence wrong by advocating expanding coverage before we've proven our ability to control costs," he says.
"If we don't get our fiscal house in order, but create new obligations we'll have a Thelma and Louise moment where we go over the cliff." Mr. Walker's preferred solution is a plan that combines universal coverage for all Americans with an overall limit on the federal government's annual health expenditures. His description reminds me of the unicorn—a marvelous creature we all wish existed but is not likely to ever be seen on this earth.
As I prepare to go, Mr. Walker returns to the theme of economic education. Poor schools often produce young people with few tools to help them realize the extent of the fiscal trap their generation is going to fall into. One way the Peterson Foundation wants to change that is to bring big numbers down to earth so people can comprehend them. "Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income—so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to." As for this year's likely deficit of $1.8 trillion, Mr. Walker suggests its size be conveyed thusly: "A deficit that large is $3.4 million a minute, $200 million an hour, $5 billion a day," he says. That does indeed put things into perspective.
Despite an occasional detour into support for government intervention, Mr. Walker remains the Jeffersonian he grew up as in his native Virginia. "I view the Constitution with deep respect," he told me. "My ancestors and those of my wife fought and died in the Revolution, and I care a lot about returning us to the principles of the Founding Fathers." He notes that today the role of the federal government has grown such that last year less than 40% of it related to the key roles the Founders envisioned for it: defense, foreign policy, the courts and other basic functions. "What happened to the Founders' intent that all roles not expressly reserved to the federal government belong to the states, and ultimately the people?" he asks. "I'm pleased the recent town halls show people are waking up and realizing it's time to pay attention to first principles."
With that we parted, as he had to get back to work. Today's Paul Revere is hard at work on a book due out in January from Random House that will be called, "Come Back America."
Ilargi: Iknow, it's at least a bit weird to post an article by Henry Blodget which quotes John Mauldin who quotes Dave Rosenberg. Thing is, this is the version that works best for me.
Economy Will Be Back In Recession By Early Next Year
We would like to believe that the economy is going to go roaring right back to steady 3%-4% growth. But we still haven't seen compelling facts to support that view.The bullish argument is that this is simply the way economies recover. And the stimulus-fueled rebound of Q2 and Q3 has certainly been v-shaped (see chart below--which will continue up and to the right in Q3).
But this argument does not explain how consumer spending is going to quickly rev back up to sustainable 3%-4% growth in the face of massive debts, 10% unemployment, huge government deficits, tight credit, and a weak housing market--or that, if consumer spending does not recover, where else the spending is going to come from.
The bearish case, meanwhile, is that this recession is different--a deleveraging recession--and that full recovery will take years. The key element of this latter view is ongoing weakness in consumer spending. To wit:
- Consumers still account for 70% of the spending in the economy
- Consumer spending growth will be constrained by the facts that
- consumers still have debt coming out of their ears
- unemployment is 10% and rising
- Business spending (the other 30% of the economy) depends to some extent on consumer spending
With that as the backdrop, we just don't see how we quickly return to the Old Normal--with a couple of 5%-7% growth years first to make up for lost time.We're all ears, though. If you have any good theories, please send them along.
In the meantime, here's the latest thinking from John Mauldin, who is (almost) as bearish as ever. Specifically, he's predicting that the economy will be back in recession by early next year.
Unemployment Was NOT a Green ShootBut quickly, let's look at today's unemployment numbers. This was not the way one would want to celebrate Labor Day. Unemployment rose to 9.7%. Some take comfort in that unemployment in the Establishment Survey (where they call existing business and poll them) was only down by 216,000, which admittedly is better than 600,000 but is still a very bad number. Rising unemployment is not the stuff that inflation is typically made of. And there are reasons to think the picture may be worse than that. Here are a few thoughts from David Rosenberg:
"What was really key were the details of the Household Survey, which provide a rather alarming picture of what is happening in the labor market.
"First, employment in this survey showed a plunge of 392,000, but that number was flattered by a surge in self-employment (whether these newly minted consultants were making any money is another story) as wage & salary workers (the ones that work at companies, big and small) plunged 637,000 — the largest decline since March (when the stock market was testing its lows for the cycle). As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted Household number), and on this basis, employment sank — brace yourself — by over 1 million, which is unprecedented. We shall see if the nattering nabobs of positivity discuss that particularly statistic in their post-payroll assessments; we are not exactly holding our breath."
The ISM numbers came out this week and, while manufacturing is up, the service industry (which is far larger) is still contracting, and the employment elements in the surveys show employers are still planning to cut jobs. Think about almost 11% unemployment next summer in the middle of the political season. Watch the competition among politicians to demonstrate they care and "get it." And watch as they spend your money to show how much they care.
And from the above mentioned Liscio Report: "As we outlined back in May, financial crises hammer employment, resulting in average losses of 6.3% followed by a long flat line. We hate to point it out, but we're currently down 4.8% from the December 2007 onset, and if US job losses in this recession stay in line with the major financial recessions in "advanced" countries studied by the IMF, we stand to lose another 1.8 million jobs. Some of those will likely be taken out in upcoming benchmarks, stimulus money has some clout, and no one has a reliable crystal ball, but we need to remember where we are in a painful cycle if we see some hopeful flickers."
That would take us to well over 11% unemployment.
Interesting statistic. Want to know where wages are rising? Think federal government workers. The gap between civilian and government workers was less than $13,000 nine years ago, but now is almost $30,000. Inflation has been 24%, but government wages are up 55%. According to a recent release from Rasmussen Reports, a government job remains "the top employment choice in today's economic environment." (chart from Clusterstock)
States, counties, and cities are having to make deep cuts, in both jobs and programs. Today's Wall Street Journal talks about the cuts in state after state. States cannot print money like the US can, so at some point they have to either raise taxes or cut spending to balance their budgets. Raising taxes just makes it less profitable for businesses to remain in your state. There is a very high correlation with high state taxes and unemployment.
The following chart shows how rapidly income taxes are falling. Sales tax receipts are down. At some point voters are going to demand that their federal government show some of the same restraint that households, cities, and counties are being forced into. My bet is that next year raises for government workers, even those in unions, will come under attack. They won't be cut, but watch as political backlash builds.
Without federal stimulus, the GDP of the US would have been over minus 6% in the second quarter, not the minus 1% it was. The third quarter would be flat to down and not the plus 3% it is likely to be. Housing and autos will turn down as the stimulus on those markets goes away.
I think it is very possible we will see a negative GDP by the first quarter of next year. Unemployment will still be rising. Deflation will be more of a problem, because the housing component (the largest portion of the consumer-inflation index), based roughly on rentals, is clearly under pressure. While we don't have enough space this week to go into detail, savings are up and consumer spending is down. Without the stimulus, things would be much worse.
Here's the kicker. Expect to see a big push for another large stimulus package next spring (and maybe sooner), as the effects of the current one wear off. The government wants to bring back demand by getting consumers to spend again. And you can count on unemployment benefits being extended. A tax holiday on Social Security taxes below a certain income? In the short run they can do it, but at a long-run cost.
It is going to be hard for a Democratic administration to not push for another large stimulus. That is what Krugman and his fellow travelers will be pushing. Classic Keynesian thinking wants both for the government to run large deficits and for the central bank to print more money. Remember, last year I said that the Fed would print a lot more money than they are talking about in the current plans. They are going to have the cover to do so, because deflation is going to be seen as the problem.
Next week, we will look at money supply and the velocity of money, savings, consumer demand, and more as we further explore the complex molecule that is deflation.
But one last thought, as I have had a lot of questions on gold recently. "Isn't gold telling us that inflation is coming back?" The answer is no. Since the early '80s the correlation between gold and inflation has dropped to zero. Gold has had very little to say in the last 30 years about inflation.
But what it may be saying is that paper currencies are a problem. Gold is going up not only in dollar terms, but in euros, pounds, yen, and more. My view is that gold should be seen as a neutral currency. The dollar is the worst currency in the world, except for all the others. Is it possible the Fed will not respond and print more money next year? Sure. And the dollar could rise as deflation kicks in. The only time we saw the purchasing power of the dollar rise in a sustained manner was during deflation, in the last century.
The race is not always to the swiftest or the fight to the strongest, but that's the way to bet. And right now, my bet is the Fed will print money to fight a double-dip recession and deflation. And gold would be one way to play that bet.
Massachusetts: State jobless pay to end for many
Massachusetts is experiencing its first wave of jobless workers to exhaust unemployment benefits after nearly two years of rising unemployment, state labor officials said. The state this week sent out letters notifying about 2,500 jobless workers that they had or would soon receive their last unemployment checks, having used up state and federal extensions that provided up to 79 weeks, or about 18 months, of benefits. The state expects about 21,000 jobless workers to run out of unemployment benefits by Thanksgiving.
Nationally, about 400,000 jobless workers will exhaust their benefits over the next few months. "They shouldn’t give up hope,’’ said Suzanne Bump, state secretary of labor and workforce development. "They should continue job searches, no matter how discouraging the results have been. They should avail themselves of all the state and nonprofit assistance available.’’ Those who have exhausted jobless benefits could be eligible for welfare, food stamps, and other social assistance programs. In the letter, labor officials provided a list of state and nonprofit agencies that may be able to help. Residents also can call 211, a state hot line staffed by specialists to provide referrals and information about health and human services.
The depletion of unemployment benefits is another measure of the depth of the national recession, widely viewed as the worst since the Great Depression. US employers have cut back employment for 20 consecutive months, slashing payrolls by more than 7 million jobs. Since the recession began in December 2007, the unemployment rate has nearly doubled to 9.7 percent, from 4.9 percent. In Massachusetts, the recession began a little later, but the plunge has been nearly as swift. The jobless rate jumped to 8.8 percent in July, from 4.7 percent in March 2008, when the recession began here. Many economists expect unemployment in the state to exceed the 9.1 percent reached during the recession of the early 1990s.
Massachusetts employers have cut nearly 120,000 jobs, or about 4 percent of employment, since the recession began. In July, the state changed a law to prevent as many as 85,000 jobless residents from losing federally funded extended benefits. Long-term unemployment has become a growing problem across the nation, one that Congress is likely to take up after lawmakers return from summer recess next week. Among the concerns: An emergency federal program that provides up to 33 additional weeks of benefits is set to expire at the end of the year. Bump said Governor Deval Patrick has been working with other governors to press Congress for additional relief. "We haven’t seen this kind of job loss in 60 years,’’ she said.
US families turn to food stamps as wages drop
The number of working Americans turning to free government food stamps has surged as their hours and wages erode, in a stark sign that the recession is inflicting pain on the employed as well as the newly jobless. While the increase in take-up is often attributed to the sharp rise in unemployment – which on Friday hit 9.7 per cent – the Financial Times has learnt that some 40 per cent of the families now on food stamps have "earned income", up from 25 per cent two years ago.
The agriculture department, which runs the programme, attributes this rise to workers having their hours cut back. "I’m sort of stunned, it seems like a dire warning that even the jobs people are retaining in this recession aren’t at the wage level and hours level that they need to provide for their families," said Heidi Shierholz, economist at the Economic Policy Institute. The pace of outright job losses in the US has started to recede, prompting hopes that the labour market could be stabilising. Official figures on Friday showed that non-farm payrolls dropped by a better than expected 216,000 in August, but still marked the 20th consecutive month that the US economy has shed jobs.
Less attention has been paid to those still in the workforce, whose incomes are also being squeezed. The average working week is now about 33 hours, the lowest on record, while the number forced to work part-time because they cannot find full-time work has risen more than 50 per cent in the past year to a record 8.8m. Wages and benefits have decelerated. The food stamp data suggest that "the labour market problems are more significant than you would expect, given just the unemployment rate", said John Silvia, chief economist at Wells Fargo. "For me it suggests the consumer is not going to rebound or contribute to economic growth for the next year, as the consumer would in a traditional economic recovery."
Consumer spending has traditionally been the engine of the US economy, making up about two thirds of GDP. Economists fear that people may be unwilling to resume that role. Kevin Concannon, undersecretary for food, nutrition and consumer services at the agriculture department, called the increased enrolment of working families "very significant". Food stamps are distributed once a month on electronic cards that can be spent at many grocery stores. The $787bn stimulus bill added about $80 (€55, £50) to a family’s monthly allowance, which now stands at an average $290.
4 stimulus breaks due to run out at year end
Time could be running out for some key tax and spending provisions in the federal stimulus act that are set to expire by Dec. 31. These include beefed-up unemployment benefits, the sales tax deduction for new-vehicle purchases, a federal subsidy for Cobra health-insurance premiums and the $8,000 first-time home-buyer credit. Although these provisions were meant to be temporary, Congress has a hard time saying goodbye to any goodies and an even harder time paying for them. When they come back to work this week, lawmakers will have to decide whether to extend a raft of other tax breaks that were supposed to die years ago but keep getting renewed one year at a time.
Congress could renew the expiring stimulus provisions, but not without "real macroeconomic risks," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "The stimulus was crafted to be a temporary jolt to get the economy going again. The bargain at the time was, you don't pay for stimulus. But if you want to extend those policies, you have to find a way to pay for them, particularly because of the massive challenges we already face."
Here's a look at some expiring provisions and their prospects for renewal:
- Cobra subsidy: Workers who are terminated between Sept. 1, 2008, and Dec. 31, 2009, and are eligible to stay in their group health plan at their own expense under the law known as Cobra can get the government to pay 65 percent of their premium for up to nine months, as long as they are not eligible for Medicare or any other group health plan.
People who started getting the subsidy when it became available March 1 run out after November. People who are still getting the subsidy at year end can continue until it's used up. But people who get laid off after Dec. 31 won't get any subsidy. There are no bills to extend the subsidy, but it's likely to come up. The subsidy "was supposed to be a bridge to get us to health care reform," MacGuineas says. "If health care doesn't get fixed, maybe they will keep this Cobra subsidy in place."- Home-buyer credit: People who buy a home to live in before Dec. 1 and have not owned a home in the past three years can get a tax credit up to $8,000. The credit phases out for higher-income people. To qualify, you must close by Nov. 30.
S1230, sponsored by Johnny Isakson, R-Ga., would expand the credit to $15,000, remove the income restriction, open it up to all home buyers and extend it for one year after enactment. "Given the fact that home pries are still declining and there's a lot of inventory on the market, the credit is something that may well be extended," though not necessarily expanded as the bill envisions, says Bob Scharin, senior tax analyst at the tax and accounting division of Thomson Reuters.
Joshua Gordon, policy director with the Concord Coalition, says extending it makes no sense. "The whole point is to stimulate home buying. You don't do that if the credit is thought to be permanent - no one has an incentive to buy now rather than wait." He adds that the credit might be having "a perverse incentive. People are trying to buy homes before it expires, which is causing home prices to go up, which is causing some buyers to pay more than the $8,000 credit is worth."- Unemployment: The stimulus act increased the weekly unemployment benefit by $25 per week, allowed people to deduct up to $2,400 in benefits on their federal tax return and extended the federal government's extended benefits program, which provides additional compensation to people who have used up their regular state benefits.
In California, a person who exhausted 26 weeks of state benefits could get up to 20 more weeks under the first federal extension, then up to 13 weeks under a second extension and up to 20 weeks more under a third extension. The first and second extensions were supposed to expire in the spring but the stimulus extended them until Dec. 31. The stimulus also provided 100 percent federal funding for the third extension.
All these federal benefits sunset after Dec. 31. A person who was already receiving extended benefits on Jan. 1 could finish that round of benefits, but not start the next extension. A person who was still receiving their regular state benefits on Jan. 1 would get no extended benefits. HR3404, sponsored by Rep. Jim McDermott, D-Wash., would extend all of the expiring provisions through next year. It also would create a fourth extension of up to 13 weeks for people in high-unemployment states.
To help people who will receive their last check in the next few months, McDermott plans to put the fourth extension into a separate bill and focus on passing that quickly. The rest will go into another bill, says Mike DeCesare, McDermott's press secretary. Sen. Jack Reed, D-R.I., has introduced a similar bill, S1647.- New-car deduction: If you buy a new vehicle between Feb. 17 and Dec. 31 of this year, you can deduct the sales tax on up to $49,500 of the purchase price on your federal tax return. The deduction phases out for higher-income taxpayers. This incentive got overshadowed by Cash for Clunkers.
"I haven't heard a peep" about extending the deduction, says Roberton Williams, senior fellow with the Tax Policy Center. "The fact that we are seeing some economic revival means there is less pressure to do more for a specific industry." But Scharin says he wouldn't count an extension out. The car industry has political clout and the deduction has broad appeal because it's available to people whether they itemize their deductions or not.
States Cut Back and Layoffs Hit Even Recipients of Stimulus Aid
It was just five months ago that Vice President Joseph R. Biden Jr. made the New Flyer bus factory here a symbol of the stimulus. With several cabinet secretaries in tow, he held a town-hall-style meeting at the factory, where he praised the company as "an example of the future" and said that it stood to get more orders for its hybrid electric buses thanks to the $8.4 billion that the stimulus law devotes to mass transit.
But last month, the company that administration officials had pictured as a stimulus success story began laying off 320 people, or 13 percent of its work force, having discovered how cutbacks at the state level can dampen the boost provided by the federal stimulus money. The Chicago Transit Authority did use some of its stimulus money to buy 58 new hybrid buses from New Flyer. But Chicago had to shelve plans to order another 140 buses from them after the state money that it had hoped to use to pay for them failed to materialize. The delayed order scrambled New Flyer’s production schedule for the rest of the year, and led to the layoffs.
One of those laid off was David Wahl, 52, who had worked there for a decade and who sat behind the vice president at the town-hall-style meeting, soaking up the optimism of the moment. "With mass transit being pushed so hard," Mr. Wahl recalled, "I figured I’d be able to work until I was 75." The layoffs at New Flyer are a vivid illustration of the way that some of the economic impact of the $787 billion federal stimulus law is being diluted by the actions state and local governments are taking to weather the recession.
While the stimulus law cut federal taxes to inject money into the economy quickly, at least 30 states have raised taxes since January, according to the Center on Budget and Policy Priorities, a liberal fiscal policy group. The stimulus will spend $27.5 billion in federal money on highway projects, but at least 19 states are planning to cut their highway spending this year, according to the American Road & Transportation Builders Association, a trade group. And as the stimulus devotes $8.4 billion to mass transit, transit systems across the nation have been forced to cut service, raise fares and delay capital spending.
Dean Baker, an economist who was an author of a paper called "The State and Local Drag on the Stimulus," said that while the stimulus had undoubtedly helped states, the cutbacks and tax increases at the state and local level threaten to offset much of its economic impact. "The economy doesn’t care whether the dollars are coming from the federal or the state and local level," said Mr. Baker, a co-director of the Center for Economic and Policy Research.
Mr. Biden did not respond directly to news of the layoffs at New Flyer, but another administration official said the stimulus money was expected to help transit agencies buy almost 8,000 new buses, which would help New Flyer and its competitors. Sasha Johnson, a spokeswoman for the Department of Transportation, said stimulus dollars had helped bus companies survive the economic downtown, and would have an increasing effect through the year. "Without the boost provided by Recovery Act orders, bus companies like New Flyer would be even harder hit than they have been," Ms. Johnson said.
In St. Cloud, though, all that red ink from the states dimmed the hopes for more federally financed green jobs, for now. Chicago transit officials — who noted recently that their older buses had enough miles on them to have gone to the moon and back — estimated that they needed $7 billion for capital improvements. But the State of Illinois, facing budget pressure, agreed to spend only $2.7 billion, and not all of that will go to Chicago. The city’s hopes for another 140 buses from here were put off.
New Flyer Industries, which is based in Winnipeg, Manitoba, said over the summer that it still had a large backlog of bus orders, including some from California, Milwaukee, Philadelphia and Rochester, that would use stimulus money. But because its buses are engineered to order for each customer, the company said in a statement, it cannot easily switch its production schedule to fill the gaps left by the delayed order. So the company plans to cut 320 jobs, to reduce its production schedule to 36 units a week from 50, and to close its plants during the last two weeks of the year. Glenn Asham, New Flyer’s chief financial officer, declined to comment further.
Even before New Flyer announced its layoffs, St. Cloud’s mayor, David Kleis, was critical of the stimulus law. He said the two small road projects that were approved by the state were low on the city’s list of priorities, while the city’s top priority — widening a busy, accident-prone intersection in a commercial area — did not make the grade. Neither did his applications for money to pay for more police officers, or for the city’s wastewater treatment plant. "The expectations were just very high here after that town hall meeting," Mr. Kleis said.
Mr. Wahl said the loss of his job was still sinking in. He joined New Flyer soon after it opened the St. Cloud plant in 1999 — he was the 118th employee, he said — and worked on everything from power steering to putting on side panels to installing engines. When the work force unionized, he became president of the local. Last November, he moved to a nonunion job working with transit systems as they prepared to take delivery of the buses. "It was a lot easier on the body," he said. But the switch to a nonunion job also made it easier for him to be in the first round of layoffs, despite his 10 years with the company. "First it’s shock, and then you get angry," Mr. Wahl said. "And then you wonder, What am I going to do?"
So far he has filed for unemployment benefits, and a couple of days after his 52nd birthday, he drove to the Workforce Center in Crow Wing County to see if he might qualify for help getting a driver’s license allowing him to become a long-haul truck driver. The stimulus law may have failed to save Mr. Wahl’s job, but it is helping him out in a way that he hoped he would never need: thanks to a provision in the law that pays 65 percent of the cost of continuing health insurance for the unemployed under the Cobra law, Mr. Wahl’s health insurance bills will now be closer to $400 a month instead of the $1,200 they would have been otherwise.
Dollar Likely to Gain Strength as a Haven for the Nervous
The U.S. dollar seems poised to remain a favorite of investors seeking shelter from economic uncertainty this week, as U.S. employment numbers failed to spark a return to trading on fundamentals. There was little currency news from a meeting of finance ministers and central bank heads from the Group of 20 leading economies to undermine the dollar. In contrast to some recent meetings of G20 officials, there was little open questioning of the dollar's role as the dominant reserve currency.
Investors are getting mixed signals on a global economic recovery, so they are heading into the safe-haven dollar and yen when conditions cloud, but seeking profits in high-yielding currencies, such as the euro, when the outlook brightens. Friday's lukewarm U.S. payroll numbers for August didn't give investors clarity on whether the global economy is headed in the right direction, and left the dollar as part of a risk-aversion strategy. "The market remains a very fragile environment in the sense that we're seeing not only day-to-day reversals, but intraday reversals," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
The dollar should eventually advance based on signs that the U.S. economy is improving. However, U.S. data to be released this week, which include trade-balance figures, aren't likely to push currencies out of their recent ranges, said analysts. G20 officials -- including U.S. Treasury Secretary Timothy Geithner -- did little to quell doubts about the sustainability of the global economic recovery. At the end of a two-day meeting in London Saturday, they said they "remain cautious about the outlook for growth and jobs," so much so that they would "continue to implement decisively our...expansionary monetary and fiscal policies."
Over recent months, developing economies with large foreign-exchange reserves have expressed dissatisfaction with the dominant role played by the dollar in the international currency and trade system. But there was little comment on that subject during the G20 meeting. "We expect, and the world expects, the dollar to be the principal reserve currency of the global economy for a long period of time," Mr. Geithner said as the meeting ended. Financial markets are closed Monday in the U.S. and Canada for Labor Day, which will tend to keep volumes low early in the week.
China alarmed by US money printing
The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing" "We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.
"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said. China's reserves are more than – $2 trillion, the world's largest. "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added. The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.
Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise. "Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down." Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets. "This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."
Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery. China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult". Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China. "The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis." Yet the consequences are not symmetric. "He who goes borrowing, goes sorrowing," said Mr Cheng. It was a quote from US founding father Benjamin Franklin.
How China Cooks Its Books
In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.
"I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line." Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who "resign" don't count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force.
China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn't just unethical, it's also dangerous: The push to develop rosy economic data could actually lead China's economy over the cliff. Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.
Pressure to distort or fudge statistics likely comes from up high -- and it's intense. "China announces its annual objective of GDP growth rate each year. In Chinese culture, the government has to reach the objective; otherwise, they will 'lose face,'" said Gary Liu, deputy director of the China Europe International Business School's Lujiazui International Financial Research Center. "For instance, the government announced that it wanted to ensure a GDP growth rate of 8 percent in 2009, and it has become the priority for government officials to meet that objective."
But local and provincial governmental officials are the ones who actually fiddle with the numbers. They retain considerable autonomy and power, and have a self-interested reason to manipulate economic statistics. When they reach or exceed the central government's economic goals, they get rewarded with better jobs or more money. "The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted," explained Liu.
Such statistical creativity is nothing new in China. In 1958, Chairman Mao proclaimed that China would surpass Britain in steel production within 15 years. He mobilized villages throughout China to establish backyard steel furnaces, where in a futile attempt to reach outrageous production goals, villagers could melt down pots and pans and even burn their own furniture for furnace fuel. This effort produced worthless pig iron and diverted enough labor away from agriculture to be a main driver in the devastating famine of the Great Leap Forward.
Last October, Vice Premier Li Keqiang said in a speech after inspecting China's Statistics Bureau, "China's foundation for statistics is still very weak, and the quality of statistics is to be further improved" -- a brutally harsh assessment coming from a top state official. Indeed, China has predicated its very claim of being the healthiest large economy in the world on faulty statistics. The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along.
A close examination of retail sales and GDP growth, however, tells a different story. China's domestic retail sales have risen about 15 percent year on year, but that does not really translate into Chinese consumers purchasing 15 percent more televisions and T-shirts. The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics.
China's retail statistics seem implausible for other reasons, too. They would imply an increase in salaries among Chinese people, allowing them to purchase that extra 15 percent. To be sure, the Statistics Bureau reported salaries had increased 12.9 percent in the first half of 2009. But Chinese netizens complained such numbers were hard to believe -- as did the bureau's chief. A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank?
It couldn't; the numbers don't add up. China announced a $600 billion stimulus package (equal to about 14 percent of GDP) last fall. At that point, local governments started counting the dedicated stimulus funds in GDP statistics -- before finding projects to use the funds, and therefore far before the trillions of yuan started trickling into the economy. Local governments keen to raise their growth and production numbers said they spent stimulus money while still deciding on what to spend it, one economist explained. Thus, China's provincial GDP tabulations add up to far more than the countrywide estimate.
Alternative macroeconomic metrics, such as the purchasing managers' index (PMI), which measures output, offer a no more accurate reflection. One private brokerage house, CLSA, compiles its own PMI, suggesting a sharp contraction in industrial output between December 2008 and March 2009. Beijing's PMI data, on the other hand, indicated that industrial output was expanding during that period. Unfortunately, such obfuscation means China's real economic health is difficult to assess. Most indicators that would help an intrepid economist correct the government numbers -- progress on infrastructure projects, end-user purchases, and the number of "resigned" workers -- are not public.
Still, it is possible to infer the severity of the gap between economic reality and China-on-paper by looking closely at monetary policy. China's state-owned banks dramatically increased lending in the first half of 2009 -- by 34.5 percent year on year, to more than $1 trillion. This move seems intended to keep growth artificially high until exports bounce back. Most analysts agree that it is leading to large bubbles in the stock, real estate, and commodity markets. And the Chinese government recently announced plans to raise capital requirements -- an apparent sign it sees the need to reign in the expansion.
For the long term, China is banking on its main export markets -- in the United States, Europe, and Japan -- recovering and starting to consume again. The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment. That's when the Wile E. Coyote moment could happen. Once Chinese citizens no longer believe that the economy is doing well, social unrest and more widespread worker riots -- already increasing in scope and severity -- are likely. That's something that China will have a harder time hiding. And then we'll know whether China's statistical manipulation was a smart move or a disastrous mistake.
Behind FHA Strains, a Push to Lift Housing
As it tried to help shore up the ailing housing market during the past year, the Federal Housing Administration increased its exposure, particularly to mortgages in high-cost states that have also seen some of the sharpest price declines. Now concerns are mounting that the agency -- and the U.S. taxpayer -- may have to pay the price. The FHA insures loans secured with down payments as low as 3.5%. But values in many markets in which it has been increasing its activity have fallen far more than that in the past year. The result: A growing number of homeowners with FHA-backed loans owe more than their homes are worth and are more likely to default.Officials worry that the resulting losses will help push the FHA's reserves below the level required by Congress. The value of those reserves will be revealed in the agency's annual review due Sept. 30. If they have fallen below the minimum, that could prompt a new round of questions about the role government should play in stabilizing the housing market. David Stevens, the FHA's new commissioner, said on Friday that the agency will continue to support the housing market and isn't in danger of needing a taxpayer bailout. But some housing analysts warn that, if home prices decline much further, the agency would require taxpayer assistance for the first time in its 75-year history.
At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago. The prospect of yet another taxpayer bailout has put under the spotlight an agency that largely sat out the housing boom. It was created to serve first-time buyers and others with spotty credit. But during the boom, the FHA's rules on such matters as documenting income drove borrowers to lenders with looser standards.
As private lenders sharply curtailed credit when boom turned to bust, the FHA became one of the only places to turn for buyers who couldn't afford big down payments or who wanted to refinance but had little home equity. The number of loans backed by the agency has soared, and its market share reached 23% in the second quarter, up from less than 3% in 2006, according to Inside Mortgage Finance. The FHA's growing role has been cheered by economists, the real-estate industry and members of Congress who felt that it prevented the housing collapse from being worse.
Even as the FHA tightened lending standards moderately last year, Congress allowed the agency to make much larger loans, up to $729,750 in the highest-cost markets. Previous loan limits, at $362,000, had kept the FHA out of more expensive markets, including some of the hardest hit during the housing bubble. In July, California accounted for 13% of the FHA's mortgages, up from 1.5% in 2006. Mounting losses have eaten into the FHA's cash cushion. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
FHA officials have refused to comment on whether the reserves would fall below the 2% level, but say that even if that happens, the agency is adequately capitalized. The release of the annual review will be an early trial-by-fire for Mr. Stevens, a well-regarded housing-industry veteran who took the top FHA job in July. Mr. Stevens already has begun boosting oversight and reining in risk. Last month, he suspended Taylor, Bean & Whitaker Mortgage Corp., the third largest FHA lender, from making FHA-backed loans, sending a clear signal about the agency's newly aggressive posture. Taylor Bean ceased operations and later filed for bankruptcy protection. The agency is expected to announce measures this fall to improve oversight of its lenders and will name a chief risk officer, which it has never had.
Some housing analysts believe that deep losses could spur even tighter restrictions. "It absolutely changes the political dynamic once you have to ask taxpayers" for money, said Lisa Marquis Jackson, vice president at John Burns Real Estate Consulting in Irvine, Calif. Last month, the consultancy wrote in a note that mounting losses could lead to an "imminent pullback" from the FHA, and the firm has been warning investor and home-builder clients: "Be prepared for this to happen in some way, shape or form." Members of Congress have voiced concerns over the agency's reserves. But many may balk at raising new hurdles for borrowers.
Lehman rise leads bankrupt stock rally
Almost a year after it filed for bankruptcy, the value of Lehman Brothers shares has soared amid a surge in trading activity. Other bankrupt companies – where the value of shares is usually close to zero because equity investors are compensated only after all creditors have been repaid – have also seen a frenzy of trading in the last few days. "People lost so much money last year and they are so desperate to recoup their losses, that they are willing to invest in anything," said Brad Golding, portfolio manager of CRC Financials Opportunity hedge fund in the Cayman Islands. "Everyone wants a lottery ticket."
After Lehman collapsed last September, Barclays Bank and Nomura bought substantial parts of its business. That left a holding company largely containing toxic mortgage assets and derivatives potentially amounting to billions of dollars that are still being unwound. Lehman shares peaked last week at 32 cents, having spent much of the year at less than 5 cents. When the rally in Lehman began in late August, trading volume soared above 100m shares on one day, compared with virtually no activity earlier in the year. Lehman shares closed last week at 14 cents with trading volumes on Friday reaching just over 11m shares.
Shares in Washington Mutual and IndyMac, two other bankrupt financial institutions, have also risen sharply in recent days. Traders say Lehman and WaMu have more debt than cash, meaning they have no equity value and that buying their shares is a forlorn cause. "It is tulip mania," said Mr Golding. "People have decided [a stock] is worth something based on nothing. The facts are quite the contrary."
Trading in the delisted stocks of companies that have filed for bankruptcy takes place in private, over-the-counter deals, rather than on a registered exchange. More often that not, a sharp rise in the stock price of a bankrupt company reflects speculation about the recovery value prospects. The rally in Lehman shares has followed explosive rises in the share price of Fannie Mae and Freddie Mac, the two mortgage companies taken over by the US government last year. Shares in AIG and to a lesser extent Citi, two companies with significant US government ownership, have also risen sharply in recent weeks.
Labor Day Special: Reward Real Work, Tax Fantasy Finance
"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit."
--Lord Adair Turner, Britain's chief financial regulator.
"The big disadvantage of most taxes is that they discourage some really productive activity. This [Wall Street transaction tax] would discourage numerous financial transactions. People flip their assets several times in an hour or a day. They make money but does it really add to the productive base of the United States?"
--Thea Lee, AFL-CIO Policy Director
Every working American knows the difference between going to work and going to Vegas... unless you're on Wall Street. There you can pretend that pure speculative activity (that produces no real economic value) should be the most highly rewarded activity in the world -- higher than any other occupation, ever. A year has past since this selfish fantasy crashed into a tragic toxic stew, sending nearly 30 million from full-time jobs to the unemployment lines or to part-time work. Yet, we still have failed to put a lid on fantasy finance.
We were fools to let the casino engulf nearly a quarter of our economy in the first place. And we'll be even bigger fools if we miss this moment to slap a tax on all financial transactions, the very best tool we have to reign in Wall Street's destructive excesses. So far, very few of us seem willing to step out on this issue. But over the last week, there have been unexpected rumblings as Britain's chief regulator, an aristocratic Lord no less, along with the AFL-CIO issued nearly identical calls in behalf of a financial transactions tax. Maybe these strange bedfellows can wake us up from our stupor and ignite a serious discussion about the necessity of what was once called a "Tobin Tax".
James Tobin, the late Yale economist and Nobel laureate, originally proposed this tax to stifle currency speculation that he believed would engulf the world economy after the Bretton Woods financial agreements collapsed in 1971. Of course, that speculation returned with a vengeance, but nearly all economists and policy makers dismissed Tobin's proposal as a violation of our dominant dogma: free markets know best, always. Since our all-knowing financial markets imploded last fall, I've been howling in the wind in behalf of such a tax for the same reasons suggested by Thea Lee and Lord Turner. (Forgive me for pointing you to Chapter 10 of The Looting of America).
First, unlike payroll taxes that can discourage businesses from hiring people, we're dealing with the fact that there's too much useless activity going on in the financial sector. Flipping all those assets back and forth does nothing to promote the productivity of the real economy and, in fact, creates a crash-prone system that causes massive unemployment. Flipping toxic assets is more like dumping toxic waste into our rivers -- it might be profitable for a few, but overall it's tremendously harmful. So we want to discourage too much useless financial activity, and a tax on financial transactions helps reign in the sector's excesses.
Second, we need to siphon profits out of the "swollen" financial sector and to put downward pressure on outrageous, unconscionable and totally unjustified Wall Street profits and pay. Even more importantly, if Wall Street didn't have so much money at its disposal, it would have less influence over our elected officials, and would not be able to skew the regulatory process with a multi-million-dollar revolving door between the financial industry and government agencies. If the G-20 nations decided to bring the hammer down on this tax, it would raise hundreds of billions of dollars per year. (The estimated take for the U.S. alone would be at least $50 billion a year and almost all of it would come from the Wall Street firms and hedge funds that engage in repeated high speed trading.)
But this kind of bill will never see the light of day unless we build a broad populist movement to demand it. A poster-child for any campaign should be Andrew J. Hall, who hopes to waltz off with a $100 million payday from Citigroup, a bank which survives entirely because of taxpayer largess. Hall, a successful oil speculator and trader who produces no discernible value for the economy, has a contract that would be worthless had Citigroup gone under, as it certainly was slated to do before we bailed it out. Now he wants his lucre as if he had courageously sailed through the storm on his own. In fact, some view him as a hero to the taxpayer because his speculative profits are helping CitiGroup get out of the red. For me, it's hard to view this as anything other than financial insanity.
Instead of justifying this outrageous rip-off and the many more to come, we should support Representative Peter DeFazio's efforts to tax financial transactions. He has two bills in Congress that could help rebuild our economy. HR 1068 taxes financial transactions to repay us for TARP funds. A second bill just proposed calls for "a transaction tax on crude oil securities to pay for the deficiency in the Highway Trust Fund and to pay for the Surface Transportation Authorization Act of 2009." (link) But due to benign neglect by congressional leaders and the rest of us, these efforts have gone nowhere.
While Europe seems more willing to reign in its bankers, on this side of the pond Wall Street is regrouping rapidly. The higher the stock market, the more boldly Wall Street marches backward towards record profits and renewed sky-high salaries. Seeing no serious opposition, the banking community is using taxpayer support to fund lobbyists to kill any and all legislation aimed at curbing their powers. They will gut the proposed Financial Consumer Protection Agency. They will make sure that the most profitable derivatives will be exempt from controls. They will undercut any and all efforts to curb windfall profits. And of course they will undermine serious attempts to curb their obscene levels of pay.
Not only is this a missed opportunity and a travesty of justice, but it is an economic disaster in the making. Lord Turner and the AFL-CIO are calling for a transaction tax in order to help head off the next crisis which is inevitable unless the system is reformed. They know that if you let wealth accumulate in the hands of the few, you will get a fantasy finance casino. You can regulate all you want but that casino will continue to emerge through the cracks. The only stable solution is to move money out of the bulbous financial sector into the real economy, and to move money from the super-rich to the middle and the bottom of the income ladder. A financial transaction tax is an excellent way to accomplish just that.
It's hard to figure out why more of us aren't up in arms over this. Maybe we feel intimidated by the way banks work. Maybe we have a secret admiration for those who pay themselves tens of millions of dollars (using our tax dollars). Maybe we think the crisis is over and we can go back to business as usual. Or, maybe we think the tooth fairy will come and rescue us. I really don't know. But this is the best moment since the 1930s to do something about our obscene mal-distribution of wealth and our ruinous, bloated financial sector.
We fought a war of independence to free us from aristocratic rule. Now an aristocracy of wealth is taking over, again, even after we watched it wreck the entire economy. If a British Lord and the AFL-CIO can agree to take on this elite, maybe we do have a little something to celebrate on this Labor Day.
Teenage Jobless Rate Reaches Record High
Pity the unemployed, but pity especially the young and unemployed. This August, the teenage unemployment rate — that is, the percentage of teenagers who wanted a job who could not find one — was 25.5 percent, its highest level since the government began keeping track of such statistics in 1948. Likewise, the percentage of teenagers over all who were working was at its lowest level in recorded history.
"There are an amazing number of kids out there looking for work," said Andrew M. Sum, an economics professor at Northeastern University. "And given that unemployment is a lagging indicator, and young people’s unemployment even lags behind the rest of unemployment, we’re going to see a lot of kids of out work for a long, long, long, long time." Recessions disproportionately hurt America’s youngest and most inexperienced workers, who are often the first to be laid off and the last to be rehired. Jobs for youth also never recovered after the last recession, in 2001.
But this August found more than a quarter of the teenagers in the job market unable to find work, an unemployment rate nearly three times that of the nonteenage population (9 percent), and nearly four times that of workers over 55 (6.8 percent, also a record high for that age group). An estimated 1.64 million people ages 16-19 were unemployed. Many companies that rely on seasonal business, like leisure and hospitality, held the line and hired fewer workers this summer — a particular problem for teenagers.
In Miami, 18-year-old Rony Bonilla spent past summers busing tables at restaurants and working at the Miami Seaquarium. He said he set out to find another job this summer, but dozens of businesses, like Walgreens, Kmart and Chuck-E-Cheese, turned him down. Mr. Bonilla said he and many of his friends were unable to find any job offers beyond commission-only employment scams. "I’m looking for anything to pay the bills," he said. "You name it, I applied. And I never even heard from them."
Expecting record unemployment among youth, Congress set aside $1.2 billion in February’s stimulus bill for youth jobs and training. As with everything stimulus-related, supporters, like Jonathan Larsen of the National Youth Employment Coalition, say the money has tempered a bad situation, although the overall numbers are dismal. Economists say there are multiple explanations for why young workers have suffered so much in this downturn, but they mostly boil down to being at the bottom of the totem pole.
Recent college graduates, unable to find higher-paying jobs, are working at places like Starbucks and Gap, taking jobs once held by their younger peers. Half of college graduates under age 25 are in jobs that do not require college degrees, the highest portion in at least 18 years, Mr. Sum said. Likewise, the reluctance or inability of older workers to retire has led to less attrition and fewer opportunities for workers to move up a rung and make room for new workers at the bottom of the corporate ladder.
Increases in the minimum wage may have made employers reluctant to hire teenagers, said Marvin H. Kosters, a resident scholar emeritus at the American Enterprise Institute. High teenage jobless rates may also be distorted by other factors. The ability of more young people to rely on family may allow them to be pickier about jobs and therefore to stay out of work longer than they did in previous recessions, said Dean Baker, co-director of the Center for Economic and Policy Research. Additionally, with more students applying to college, the remaining pool of job applicants may be less desirable to employers.
"Maybe the most employable kids pull out of the labor force, making the numbers for what percent of kids are looking for jobs appear even worse," said Harry J. Holzer, an economist at Georgetown University and the Urban Institute. The decision of more young people to attend college, which could help them increase their earning potential later in life, may be one silver lining of the recession, economists say. Similarly, back when graduating from high school was a rarer achievement, the Great Depression pushed potential dropouts to stay in high school because work was so hard to come by.
But there is a bit of a catch-22: Many college students need to work to pay for college. Half of traditional-age college students work 20 hours a week, Lawrence F. Katz, an economics professor at Harvard, said. "In today’s labor market, the big margin comes from going on to college, not just graduating high school," he said. "Unlike the decision to finish high school, that’s not something you can do free of tuition."
U.S. Recovery Leaving Workers Jobless May Spur Company Profits
Employers kept Americans’ working hours near a record low in August, signaling that economic growth is poised to reward companies with added profits while postponing any recovery in the job market. The average workweek held at 33.1 hours, six minutes from the 33 hours in June that was the lowest since records began in 1964, the Labor Department said yesterday. The report also showed that while payrolls fell by the least since August 2008, the unemployment rate rose to a 26-year high of 9.7 percent.
The preconditions for gains in payrolls, including giving the army of part-timers longer hours and taking on additional temporary employees, weren’t met last month. At the same time, with economic growth forecast to resume this quarter, the figures set the stage for a surge in worker productivity and drop in labor costs that will stoke corporate profits. "It’s disappointing and it tells us that we are not quite there yet," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York who used to work at the Federal Reserve. "It’s great for business and terrible for households" for coming months, Feroli said.
There were almost 9.1 million Americans working part-time last month who would rather have a full-time job, up 278,000 from July, yesterday’s report showed. It almost matched May’s reading, when it reached the highest level since records began in 1955. The index of total hours worked, which takes into account changes in payrolls and the workweek, fell 0.3 percent last month to the lowest level since 2003. "It tells us payrolls aren’t turning positive any time soon," Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said on a conference call yesterday, referring to the workweek figures. "This wasn’t a friendly report."
A measure of unemployment, which includes the part-time workers who would prefer a full-time position and people who want work but have given up looking, reached 16.8 percent last month, the highest level in data going back to 1994. The workweek for factory employees, which held at 39.8 hours last month, leads total payrolls by about three months, LaVorgna said. Once it reaches at least 41 hours and once payrolls for temporary workers stabilize, then an increase in total employment can be expected months later, he said. Payrolls for temporary workers started turning down in January 2007, 11 months before the recession began. They dropped by another 6,500 workers in August, the government’s report showed yesterday.
At the same time, the report did underscore that the economy is on the mend and pulling out of the deepest recession since the 1930s. The drop in payrolls slowed for the sixth time in seven months, to 216,000 in August. Declines in temporary jobs have also slowed in recent months. Companies cut 90,400 temporary staff in November of last year. It’s a step in the right direction, Tig Gilliam, chief executive officer of Adecco Group North America, said in an interview. "That has to happen first," he said. "That is a pre-indicator for improvement in the overall market." Adecco SA, based in Glattbrugg, Switzerland, is the world’s largest supplier of temporary workers.
Gilliam projects the U.S. economy will not start adding jobs until early 2010 and that unemployment will reach at least 10 percent next year. The jobless rate climbed to 9.7 percent last month, the highest level since 1983, from 9.4 percent in July, yesterday’s report showed. Total hours worked are down at a 2.8 percent annual pace so far this quarter, according to calculations by Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York. Morris, who projects the economy will expand at a 4 percent to 6 percent pace this quarter, says that means worker productivity may exceed the second quarter’s 6.6 percent jump, which was the biggest gain in almost six years. "This is set to flow straight into the corporate bottom line," he said in an e-mail to clients. That indicates the "strong" earnings for companies in the Standard & Poor’s 500 Index in the three months to June will continue this quarter, he said.
Wall Street Pursues Profit in Bundles of Life Insurance
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one. The bankers plan to buy "life settlements," life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to "securitize" these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money. Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.The idea is still in the planning stages. But already "our phones have been ringing off the hook with inquiries," says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse. "We’re hoping to get a herd stampeding after the first offering," said one investment banker not authorized to speak to the news media.
In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products — credit-default swaps, structured investment vehicles, collateralized debt obligations — that proved far riskier than anticipated. The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.
In addition to securitizing life settlements, for example, some banks are repackaging their money-losing securities into higher-rated ones, called re-remics (re-securitization of real estate mortgage investment conduits). Morgan Stanley says at least $30 billion in residential re-remics have been done this year. Financial innovation can be good, of course, by lowering the cost of borrowing for everyone, giving consumers more investment choices and, more broadly, by helping the economy to grow. And the proponents of securitizing life settlements say it would benefit people who want to cash out their policies while they are alive.
But some are dismayed by Wall Street’s quick return to its old ways, chasing profits with complicated new products. "It’s bittersweet," said James D. Cox, a professor of corporate and securities law at Duke University. "The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days."
Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout. But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.
"When they set their premiums they were basing them on assumptions that were wrong," said Neil A. Doherty, a professor at Wharton who has studied life settlements. Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies. Critics of life settlements believe "this defeats the idea of what life insurance is supposed to be," said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. "It’s not an investment product, a gambling product."
Undeterred, Wall Street is racing ahead for a simple reason: With $26 trillion of life insurance policies in force in the United States, the market could be huge. Not all policyholders would be interested in selling their policies, of course. And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment. But even if a small fraction of policy holders do sell them, some in the industry predict the market could reach $500 billion. That would help Wall Street offset the loss of revenue from the collapse of the United States residential mortgage securities market, to $169 billion so far this year from a peak of $941 billion in 2005, according to Dealogic, a firm that tracks financial data.
Some financial firms are moving to outpace their rivals. Credit Suisse, for example, is in effect building a financial assembly line to buy large numbers of life insurance policies, package and resell them — just as Wall Street firms did with subprime securities. The bank bought a company that originates life settlements, and it has set up a group dedicated to structuring deals and one to sell the products. Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.
Spokesmen for Credit Suisse and Goldman Sachs declined to comment. If Wall Street succeeds in securitizing life insurance policies, it would take a controversial business — the buying and selling of policies — that has been around on a smaller scale for a couple of decades and potentially increase it drastically. Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a "cash surrender value," typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.
Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay. But the industry has been plagued by fraud complaints. State insurance regulators, hamstrung by a patchwork of laws and regulations, have criticized life settlement brokers for coercing the ill and elderly to take out policies with the sole purpose of selling them back to the brokers, called "stranger-owned life insurance."
In 2006, while he was New York attorney general, Eliot Spitzer sued Coventry, one of the largest life settlement companies, accusing it of engaging in bid-rigging with rivals to keep down prices offered to people who wanted to sell their policies. The case is continuing. "Predators in the life settlement market have the motive, means and, if left unchecked by legislators and regulators and by their own community, the opportunity to take advantage of seniors," Stephan Leimberg, co-author of a book on life settlements, testified at a Senate Special Committee on Aging last April.
In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected. It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money. It happened again last fall when companies that calculate life expectancy determined that people were living longer.
The challenge for Wall Street is to make securitized life insurance policies more predictable — and, ideally, safer — investments. And for any securitized bond to interest big investors, a seal of approval is needed from a credit rating agency that measures the level of risk. In many ways, banks are seeking to replicate the model of subprime mortgage securities, which became popular after ratings agencies bestowed on them the comfort of a top-tier, triple-A rating. An individual mortgage to a home buyer with poor credit might have been considered risky, because of the possibility of default; but packaging lots of mortgages together limited risk, the theory went, because it was unlikely many would default at the same time.
While that idea was, in retrospect, badly flawed, Wall Street is convinced that it can solve the risk riddle with securitized life settlement policies. That is why bankers from Credit Suisse and Goldman Sachs have been visiting DBRS, a little known rating agency in lower Manhattan. In early 2008, the firm published criteria for ways to securitize a life settlements portfolio so that the risks were minimized.
Interest poured in. Hedge funds that have acquired life settlements, for example, are keen to buy and sell policies more easily, so they can cash out both on investments that are losing money and on ones that are profitable. Wall Street banks, beaten down by the financial crisis, are looking to get their securitization machines humming again. Ms. Tillwitz, an executive overseeing the project for DBRS, said the firm spent nine months getting comfortable with the myriad risks associated with rating a pool of life settlements.
Could a way be found to protect against possible fraud by agents buying insurance policies and reselling them — to avoid problems like those in the subprime mortgage market, where some brokers made fraudulent loans that ended up in packages of securities sold to investors? How could investors be assured that the policies were legitimately acquired, so that the payouts would not be disputed when the original policyholder died? And how could they make sure that policies being bought were legally sellable, given that some states prohibit the sale of policies until they have been in force two to five years?
To help understand how to manage these risks, Ms. Tillwitz and her colleague Jan Buckler — a mathematics whiz with a Ph.D. in nuclear engineering — traveled the world visiting firms that handle life settlements. "We do not want to rate a deal that blows up," Ms. Tillwitz said. The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.
As an added precaution, DBRS would run background checks on all issuers. Also, a range of quality of life insurers would have to be included. To test how different mixes of policies would perform, Mr. Buckler has run computer simulations to show what would happen to returns if people lived significantly longer than expected. But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?
If the computer models were wrong, investors could lose a lot of money. As unlikely as those assumptions may seem, that is effectively what happened with many securitized subprime loans that were given triple-A ratings. Investment banks that sold these securities sought to lower the risks by, among other things, packaging mortgages from different regions and with differing credit levels of the borrowers. They thought that if house prices dropped in one region — say Florida, causing widespread defaults in that part of the portfolio — it was highly unlikely that they would fall at the same time in, say, California.
Indeed, economists noted that historically, housing prices had fallen regionally but never nationwide. When they did fall nationwide, investors lost hundreds of billions of dollars. Both Standard & Poor’s and Moody’s, which gave out many triple-A ratings and were burned by that experience, are approaching life settlements with greater caution. Standard & Poor’s, which rated a similar deal called Dignity Partners in the 1990s, declined to comment on its plans. Moody’s said it has been approached by financial firms interested in securitizing life settlements, but has not yet seen a portfolio of policies that meets its standards.
Despite the mortgage debacle, investors like Andrew Terrell are intrigued. Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments. "It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes," Mr. Terrell said.
Some academics who have studied life settlement securitization agree it is a good idea. One difference, they concur, is that death is not correlated to the rise and fall of stocks. "These assets do not have risks that are difficult to estimate and they are not, for the most part, exposed to broader economic risks," said Joshua Coval, a professor of finance at the Harvard Business School. "By pooling and tranching, you are not amplifying systemic risks in the underlying assets."
The insurance industry is girding for a fight. "Just as all mortgage providers have been tarred by subprime mortgages, so too is the concern that all life insurance companies would be tarred with the brush of subprime life insurance settlements," said Michael Lovendusky, vice president and associate general counsel of the American Council of Life Insurers, a trade group that represents life insurance companies.
And the industry may find allies in government. Among those expressing concern about life settlements at the Senate committee hearing in April were insurance regulators from Florida and Illinois, who argued that regulation was inadequate. "The securitization of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards," said Senator Herb Kohl, the Democrat from Wisconsin who is chairman of the Special Committee on Aging. DBRS agrees on the need to be careful. "We want this market to flourish in a safe way," Ms. Tillwitz said.
Banks Need to End $1 Trillion Kick the Can Game
Banks have known for a while that they would eventually have to face up to some of the assets they had stashed in off-balance-sheet vehicles. Now that day is looming, and regulators are concerned that lenders might need even more time to deal with such items. Enough already. It’s time for banks, and their regulators, to stop playing kick the can. Either banks have -- or can get -- the capital they need to support assets on their books, or government watchdogs should take action.
Instead, regulators last week raised the prospect of giving banks a one-year, phase-in period to fully recognize for capital purposes what may be about $1 trillion in assets coming back onto balance sheets next year. This breathing room may ostensibly help some banks avoid having to quickly beef up regulatory capital, the buffer that helps them absorb losses. Such a delay is unwarranted. Banks have had almost two years to prepare for accounting-rule changes adopted this spring that will place greater restrictions on the use of off-balance- sheet vehicles. And it was just such hemming and hawing that helped get the banking system into its current mess. After the implosion of Enron Corp., accounting-rule makers tried to shut down off- balance-sheet games.
Banks fought back, and the Financial Accounting Standards Board watered down the restrictions. That helped fuel both the rise of off-balance-sheet lending vehicles during the credit- bubble years as well as the so-called shadow-banking system. These vehicles allowed banks to shuffle assets off their books -- everything from mortgages to credit-card debts to auto loans -- even though they often still bore some risks from them. By seemingly shedding these assets, banks were able to hold less capital. That helped boost returns and profit. It also allowed risks to build up out of the sight of investors, regulators and in some cases the banks themselves.
As Federal Deposit Insurance Corp. Chairman Sheila Bairsaid in an op-ed article in the New York Times this week, "the principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the non-bank shadow financial system." Those gaps were exposed when the financial crisis hit, and many banks were saddled with assets, and losses, from those previously out-of-sight, off-balance-sheet vehicles. The best- known case involved Citigroup Inc., which suddenly had to absorb about $25 billion in collateralized debt obligations.
Even smaller banks such as Zions Bancorporation had to help off-balance-sheet vehicles, straining already-stretched balance sheets. This spring, the FASB tightened the rules. In light of that, bank regulators -- the FDIC, Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision -- have to decide how these returning assets will be treated for capital purposes. Regulators allow banks to hold different amounts of capital against different kinds of assets, which is why regulatory capital can differ from a bank’s stated shareholder equity, or net worth. Those deliberations gave rise to the possibility of the year-long phase-in period. A year may not seem like a long time; it is certainly less than the three-year grace period sought by some banks.
Yet regulators, including the FDIC’s Bair, acknowledge that the new accounting rules are needed. More than that, in a television interview last week, Bair said if banks had faced stricter treatment for off-balance-sheet vehicles "a few years ago, I think there would have been more capital in the system." If these rules would have helped to prevent the current crisis, that is all the more reason not to dilly-dally. Bair and other regulators haven’t said whether they would support a phasing-in of capital requirements. Bair has said, though, the 2010 start date for the new rules "is a little troublesome." Big banks in particular should have to face up to reality from the get-go since the government’s stress tests of 19 large institutions acted as if about $700 billion in off-balance-sheet assets had already returned.
The big four banks -- Citigroup, JPMorgan Chase & Co.,Bank of America Corp. and Wells Fargo & Co. -- are expected to see about $550 billion in assets return to their books under the accounting-rule changes, Barclays Capital analyst Jason Goldberg estimated in a recent report. Besides having had time to prepare for the changes, there is another reason to avoid delay. Any postponement opens the possibility that banks will use the phase-in period to argue for further forbearance. That is a time-honored tradition in Washington -- if you can’t kill something outright, just delay it into oblivion. Bank lobbyists shouldn’t be given that chance. Banks need to take their off-balance-sheet medicine now, without delay.
Construction Loans Falter, a Bad Omen for Banks
Even as the economy may be starting to recover, banks across the country are confronting a worsening outlook for their construction loans, an area that boomed for much of the decade. Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.
Construction loans were highly attractive in recent years for many banks, particularly smaller ones without a national presence. One reason was that other types of loans were not easy to make. A handful of big banks came to dominate credit card loans, for example, and corporate loans were often turned into securities. Construction loans, however, needed local expertise and were not easy to standardize. In a booming real estate market, there were few losses on such loans.
The problems now extend well beyond loans for the construction of single-family homes, where banks have been taking losses and cutting back their commitments for a couple of years. At the end of June, $173 billion in construction loans related to single-family homes was outstanding, barely more than half the peak level reached in the fall of 2006, when the housing market was booming. It is in commercial real estate construction — be it stores or office buildings — that the pain seems likely to rise. At the end of June, $291 billion in such loans was outstanding, down only a few billion from the peak reached earlier this year.
"On the commercial side," said Matthew Anderson, a partner in Foresight Analytics, a research firm based in Oakland, Calif., "I think we are fairly early in the down cycle." Foresight estimates that 10.4 percent of commercial construction loans are troubled, but expects that to increase as the year goes on. The definition of troubled loans used in the accompanying charts includes loans that are at least 30 days past due, as well as those on which the bank identified problems that led it to stop assuming that interest on the loans would be paid.
It is possible that some of the rapid rise in problem loans represents pressure from regulators to admit problems, rather than new problems. The number of newly delinquent loans seems to have declined in the second quarter, although it is hard to know if that is a trend that can continue. But the number of loans that the banks do not expect will be fully repaid has soared. The reports that banks file with the F.D.I.C. do not include details on all types of construction loans, nor on where the construction is. That information is estimated by Foresight, based in part on where each bank operates and on disclosures in other company reports.
Foresight estimates the biggest problems are in loans for condominium construction, with 38 percent of all construction loans troubled. Mr. Anderson says even that might be an understatement. He pointed to Corus Bank, a Chicago institution that specialized in condo loans. Its latest report shows that its capital is gone and that it expects losses on two-thirds of its construction loans. Foresight’s estimates of the proportion of problem construction loans in the 20 largest metropolitan areas has one surprise: the one with the largest proportion of troubled loans is Seattle, where the recession has started to pinch. But it is also notable that just one of the 20 areas has less than 10 percent of construction loans in trouble. A year earlier, most of them were below that level.
Europe split over U.S. bank capital plans
Continental European officials defended the globally-agreed Basel II capital rules for banks on Friday despite a U.S. call for its effective replacement with a tougher new regime within three years. Britain and Canada offered broad support for U.S. Treasury Secretary Timothy Geithner's plan for a radical reform so that banks set aside enough capital to avoid a rerun of the government bailouts during the credit crunch.
But France and Germany were cool as they pushed for more countries to adopt the Basel II rules in full, something which the United States has resisted. Geithner wants the new framework to be broader and tougher, requiring banks to hold more capital and be in place by the end of 2012 -- an ambitious target as Basel II took a decade to thrash out. He was due to present his proposal to a meeting of G20 finance ministers in London on Friday and Saturday but was already meeting some opposition.
French Economy Minister, Christine Lagarde, said revisions to Basel II would ensure banks have sufficient capital, and suggested that simply a "good and sound" explanation of what Basel II was needed to persuade G20 ministers it was enough. "It has been significantly improved, amended over time to take into account the... liquidity principle that was not part of the Basel II solution," Lagarde told reporters on the sidelines of the G20 meeting.
"I think we need to see clearly what is the problem, where is the issue, and what is the position of Basel II as amended before we jump to any new rules." A G7 source said Germany was also wary and a board member of its biggest bank, Hugo Banziger of Deutsche Bank, said Basel II did not need replacing. "There is absolutely no reason why that should be replaced... Basel II is a very good platform. Minor things need to be adjusted and other things need to be developed," Banziger told a Bank of France panel discussion.
European Central Bank Governing Council Members Christian Noyer and Nout Wellink said in a Bank of France report on regulation that planned refinements to Basel II would lead to improvements.
"Blaming Basel II is certainly short-sighted. If we should blame something, we should blame Basel I," Noyer said. "I am not taking from what (Geithner) said that it is against Basel II. I think the problems he raises are to a large extent addressed now by the Basel Committee."
British Finance Minister, Alistair Darling told Reuters in an interview he agreed with the United States that, across the world, banks needed to strengthen their capital position. "Inevitably, different countries have different emphases. It's very important that people recognise that the capital positions of banks have to be strengthened. It's important that we see all of these proposals as a whole."
Canada's Finance Minister, Jim Flaherty, also offered broad support for Geithner's proposal. "Certainly we have common cause with the U.S. With respect to capitalization requirements. Without being immodest, these kinds of recommendations have the world converging toward the Canadian position," Flaherty told reporters.
But Nout Wellink, who is also chairman of the Basel Committee on Banking Supervision which drafted the Basel II rules, said in the Bank of France report that changes to Basel II would make markets safer. "Taken together, the recent and planned initiatives of the Basel Committee will promote a more robust banking sector and limit the risk that weaknesses in banks amplify shocks between the financial and real sectors," Wellink said.
Noyer said more changes were needed to address the root causes of risks to financial stability, such as monitoring of system wide risks from banks. But there was still no widely accepted method to measure such risk "if this risk is able to be captured", he said.
Obama unveils measures to spur US retirement saving
U.S. President Barack Obama announced new measures on Saturday to encourage Americans to save more money for retirement, a move the White House said would put the economy on a stronger footing in the future. Obama, in his weekly radio and Internet address, said the government would enact rules making it easier for small businesses to let workers automatically enroll in Individual Retirement Accounts (IRAs) and 401(k) retirement plans.
Payments for unused vacation time and sick leave could be converted into retirement savings under the new measures and Americans would be able to have tax refunds directly deposited into their retirement accounts or used to buy savings bonds. The measures do not require congressional approval and most will take effect immediately. "We have to revive this economy and rebuild it stronger than before," Obama said in the address. "And making sure that folks have the opportunity and incentive to save -- for a home or college, for retirement or a rainy day -- is essential to that effort."
As the Obama administration focuses on lifting the U.S. economy out of its worst crisis since the Great Depression, the president has often warned that recovery must be coupled with steps to prevent another financial fall. Americans' widespread reliance on credit cards and failure to save are two things he has targeted as part of that effort. "The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased," Obama said. "We cannot continue on this course. And we certainly cannot go back to an economy based on inflated profits and maxed-out credit cards."
Obama said a drop in housing prices and fall in financial markets had caused Americans to lose some $2 trillion in retirement savings over the last two years. John Boehner, the Republican leader in the House of Representatives, called on Obama to support a Republican initiative that he said would keep the government from hindering Americans' ability to restore their savings. "Republicans are pleased President Obama has joined us in calling for action to help Americans rebuild their lost savings," the House minority leader said in a statement. "Millions of Americans have watched with anxiety in the past year as the value of their 401(k)s, college savings plans and other vital savings accounts have plummeted, and government should not be an impediment as they work to restore what they've lost," he said.
The House Republican bill would raise contribution and catch-up limits for retirement accounts, reduced Social Security earnings penalties, suspend capital gains taxes on newly acquired assets for two years and suspend taxes on dividend income through 2011, among other measures. An administration official said the Net National Savings rate -- which groups personal, corporate and government savings -- was -2.8 percent in the second quarter of 2009. The U.S. personal savings rate came in at 5 percent in the same time period after falling as low as 0.8 percent in April of last year.
"Right now the situation in national savings is unsustainable," said the official, calling the negative net national savings rate a "major macroeconomic challenge." U.S. officials hope making saving mechanisms more automatic will spur Americans to put more money away. Automatic enrollment programs in 401(k) savings plans by big corporations have increased employee participation significantly. "Working Americans should be able to retire with dignity and security, but nearly half of the nation's workforce has little or nothing beyond Social Security benefits to get by on in old age," Treasury Secretary Timothy Geithner said in a statement.
The initiatives announced on Saturday are meant to augment previous proposals that do require congressional approval, including a plan to automatically enroll workers in IRAs if they do not have workplace retirement plans. Even as it urges Americans to save, the administration wants consumers to spend money to help spur economic growth. The legislative proposals on Individual Retirement Accounts would not go into effect for a few years -- until 2011 -- to account for that dual desire, the official said.
Britain heading back to the dark ages
When California was hit with a spate of crippling power cuts eight years ago, it was not simply the fault of an unscrupulous energy supplier called Enron manipulating prices. The power company was blamed for meddling with the market, but state politicians were also forced to admit that their lack of investment in new electricity plants had contributed to the shortages. Rupert Soames, the chief executive of Aggreko, the FTSE 250 emergency power generator, says the UK must prepare seriously for the danger of being hit by similar blackouts within the next decade.
"It has happened before in developed countries and we should not kid ourselves that it cannot happen here," he said in an interview with The Sunday Telegraph. "The UK has an unacceptably high risk of interrupted power supply and I have enormous doubt about whether new plants are going to be built in time." Aggreko has already had to provide emergency power to governments in Spain, Greece, Asia, South America and Africa. Mr Soames does not want to see this happen in the UK, but fears that "a slow train crash" of energy shortages is on its way unless more action is taken.
His fears are not unfounded. It was revealed by The Daily Telegraph earlier this week that the Government's own figures suggest that there will be a 3000 megawatt hour shortage of supply by 2017 causing 1970s-style blackouts.
Over the next 10 years, one third of Britain's power-generating capacity needs to be replaced with cleaner fuels, as a result of European laws on pollution. By 2025 the situation is expected to worsen with the shortfall hitting 7000 megawatt hours per year – the equivalent to an hour-long power cut for half of Britain. Ed Miliband's Department of Energy and Climate Change has swiftly dismissed these ideas as alarmist, arguing that new renewable and gas plants will be able to cope.
Critics point out that the Government is going to have to persuade energy companies or other investors to build thousands of wind turbines, at least three potential new nuclear plants and a raft of cheaper gas stations if demand is to be met. There are fundamental problems with leaving these decisions purely to the market, according Mr Soames. The recession has meant that there is little incentive for private companies to start investing in new stations. And there is a growing sense that EdF, E.ON and RWE npower, the backers of new nuclear plants, may find that construction is uneconomic without levies on consumer bills – something ruled out by the Government.
Mr Soames' biggest worry is that existing nuclear stations may be forced to stay running for longer than is safe, with unknown consequences. Most controversially, the Aggreko boss believes that until the UK makes concrete plans for tackling a shortage of power stations, national energy security ought to take a priority over the targets that say UK emissions must be reduced by 80pc from 1990 levels by 2050. "I personally believe that meeting climate change goals are not incompatible with national energy security in the long run, but I think keeping the country running is more important," he said.
Some even believe that expecting the power to flow seamlessly until 2017 may be unduly optimistic. Nick Campbell, an analyst at the energy consultants Inenco, has calculated that the energy gap could start in 2012 – just three years away and five years earlier than the Government admits. The problem lies in the European Union's decree that Britain's dirtiest power stations – the old-style coal and oil generation plants – must be shut down not at a certain date, but after a certain number of hours. These plants, which are used as back-up generators for times of peak demand, are expected to shut in about 2015.
However, a number of outages at nuclear power plants mean these stations have already been burning through their allocated number of hours far more quickly than forecast. In fact, six out of ten may be forced to stop generation long before they are due to be decommissioned in six years' time. "Alternative forms of generation will need to be online way before these nine coal-fired plants reach their 2015 deadline or the generation gap will occur at some point between 2012 and 2015," said Mr Campbell.
Greg Clark, the shadow energy and climate change secretary, has also pointed out that the scale of the blackouts could be three times worse than Government predictions. Some of the modelling assumes little change in electricity demand until to 2020 and takes for granted a rapid increase in wind farm capacity. Dr Jon Gibbins, an energy technology expert from Imperial College, London, has been warning for years that the country faces an energy crisis, but says the situation is now growing more grave. "The electricity industry has been sweating assets for a long time and now it's just about at the point of running out," he said. "Policies at the moment just look like somebody in a Government office making up numbers."
He is particularly worried that Britain has left it late to start approving new nuclear stations, leaving the country with a glut of gas-fired power stations and intermittent renewable sources for some years. An over-reliance on gas-fired stations also leaves the UK vulnerable to the whims of politically unstable gas-producing regions such as Russia and the Middle East as Britain's North Sea reserves deplete, Dr Gibbins explains. Most will be imported via pipeline from Norway, but extra gas for winter needs to be shipped in expensive liquefied form. "We could be left with only renewables and gas plants for a while," Dr Gibbins said. "There's a distinct possibility that we won't be able to get enough gas. We have been lulled into a false sense of security by low gas prices during the recession, but the trend is that it will get more expensive."
In the long term, electricity demand is only likely to increase. Gas boilers and the transport system will be expected to go electric if the UK has a chance of hitting emissions targets, piling more pressure on the network. Chris Bennett, future transmission manager at National Grid – who is not unduly worried about shortages – is responsible for considering how to "flex demand" as the network operator works out how to balance changing consumption patterns. Smart meters, which monitor how household energy is used, could be used to switch refrigerators on and off, allow washing machines to run at off-peak times and make sure electric cars are charged overnight.
However, sceptics worry that a so-called "intelligent grid" could also be used to ration consumers in the event of insufficient capacity. The power companies themselves are often wary of talking about future supply problems, but some, such as British Gas's owner Centrica, have been buying up North Sea assets in preparation for the "dash for gas". However, E.ON points out that the recession has caused a 4pc drop in demand for electricity, as industrial customers close operations. "We have got an extra five years or so to think about this now," said a spokesman for the power company. "Many manufacturing bases have stopped operating and activity won't return to normal for some time."
Other experts note with a touch of cynicism that it may be in the interests of the big six electricity and gas suppliers to operate with a shortage of electricity. "Electricity providers can make more profits through their trading desks when prices are high than actually selling the power to homes," says one senior source in the energy trading industry. "There is sometimes a conflict of interest here." In the last few months, the Government may slowly have been beginning to move in the right direction. Earlier this year, it widened the remit of the regulator, Ofgem, to include national energy security and promised to speed up the planning process that awards access to the national grid.
Reports from the CBI, the business body, and Malcolm Wicks, Gordon Brown's special representative on energy security, also recognised that Britain needs to start building more nuclear power stations. But while the Government considers these reports and clings to its endless strategy documents, Britain's aged network and power stations lumber towards the end of their lives. "Big infrastructure changes are not a happy country for politics," Mr Soames says. "But somebody needs to take responsibility and realise that renewable energy sources are not going to be enough in the medium term. We need fewer targets and more concrete plans or risk the lights going out over Britain."
British conservatives float plans for massive privatisation
Selling off a range of public bodies would be a "get out of jail card" as the Tories desperately try to balance the books, according to tax lawyer Charlie Elphicke, who has advised the party's economic team.
John Redwood, chair of the Conservatives' economic competitiveness commission, has published proposals on his blog for the sale of Britain's motorway network while Ed Vaizey, the shadow arts minister, last week suggested selling off Radio 1.
The proposals reflect a growing belief behind the scenes that Mr Cameron will have to consider some form of privatisation programme of the type instigated by Margaret Thatcher if he wins power. Beginning soon after she took office in 1979 with the first stage of a sell-off of BP, Lady Thatcher's privatisation programme accelerated in the early 1980s with the successive sales of utility companies. Mr Elphicke, the Tory candidate for Dover, said: "The budget deficit this year and next year is expected to be £180 billion.
"If you reduce spending by £60 billion and put taxes up by £40 billion you still have a huge hole, a massive borrowing overhang. "How do you reduce the level of borrowing and repair the public finances? Asset sales are the one thing that is a get out of jail free card." Mr Elphicke said the Tories should consider selling BBC Worldwide, the commercial arm of the BBC, which could bring in an estimated £8 billion to the Exchequer. He said: "It's a neat little compromise. It preserves the integrity of public service broadcasting and leaves the rest of the BBC intact. The public have poured money into this over the years and we could argue that we now need the money back."
Mr Elphicke said Royal Mail and Channel 4 could also be sold, and banks returned to the private sector. "Even Labour are looking at selling off things like the Dartford Crossing and British Waterways," he said. "And David Cameron has said he wants a discussion about what the state should and should not do. "We need to say 'What does the government own that it does not need to own?' There is a conversation to be had with the nation where we say 'Look, we have to make hard decisions.'" Both Mr Elphicke and Mr Redwood argue that high street banks taken into public ownership during the credit crisis should be part of an early privatisation package.
"If you return the banks to the private sector you get capital receipts of £150 billion. That is the golden hope," Mr Elphicke said. Mr Vaizey was slapped down by party chiefs last month for proposing that the BBC should be forced to sell Radio 1. Although he is the shadow minister responsible for broadcasting, a Tory spokesman said the sale of Radio 1 was not party policy. Mr Vaizey, a long time member of Mr Cameron's inner circle, later said he was only speaking "metaphorically" and was simply giving an illustration of one way in which the dominance of the BBC could be broken up.
However, insiders say the idea of asset sales is being discussed by the Treasury team. One senior Conservative MP said: "We are absolutely fixated with balancing the books now, it is the only thing that matters. "And we are stuck with the fact that we have said we are not going to change the NHS budget and that is a fifth of the whole government budget. So we are stuck with that and we have to look elsewhere. "There is no way we are going to make the books balance just with cuts. Radio 1 and Radio 2 are ripe for a sell-off, perhaps even BBC1. "There is a perfectly sensible economic argument for selling off Royal Mail but it is politically toxic. We need to look at these things." Mr Elphicke said asset sales could be delayed until a few years into a Conservative government to ward off public alarm. "It doesn't need to be done immediately. It can be in year three," he said.
Banks are overvaluing toxic property loans, experts warn
Banks are significantly overvaluing assets to be included in the government's insurance scheme, which could leave the taxpayer footing the bill for any shortfall, experts have warned. Property loans – which will be part of the £575bn government's asset protection scheme (APS) to ring-fence the most toxic assets of Lloyds Banking Group and Royal Bank of Scotland – will be dated as of the end of December 2008 although commercial real estate values have fallen by just over 10% since then, according to data from the consultancy Investment Property Databank.
Matthew Oakeshott, the Liberal Democrat Treasury spokesman, said: "The APS is a ticking time-bomb for the British taxpayer. These poisonous property loans must have an independent, up-to-date valuation in accordance with the Rics [Royal Institution of Chartered Surveyors] valuation 'red book' when taxpayers actually go on the hook. "If not, the APS will be a fraud on the British taxpayer – just like someone insuring a car after it has crashed." Oakeshott is writing a letter to the chancellor, Alistair Darling, raising his concerns about what he called "taxpayers being stung in an APS cover-up". According to him, Britain should follow the Irish government, which is contracting independent valuers to put a price on banks' property loans before they go into a so-called "bad bank".Governments around the world have designed programmes to insure, protect or ring-fence toxic assets to help re-establish confidence in the financial system and encourage banks to start lending again. RBS is putting about £60bn of commercial property loans into the APS, out of a total £315bn of assets, while Lloyds' property loans in the scheme mount to £90bn, out of an overall £260bn, according to Credit Suisse estimates.
Industry specialists say any insured asset should be priced as realistically as possible. David Lovett, managing director of the restructuring firm Alix Partners, said: "The assets to be transferred should be valued at the date of transfer; it has to be at that date to ensure there is an accurate assessment and the issue has been resolved. "To have a valuation of any other date has the potential for distorting the claim and creating an over- or an underpayment for the claim," he said.
The government and the banks, however, claim the valuation date goes back to the end of last year because that is when coverage of the losses started. The taxpayer will pay 90% of any losses suffered by the two partially nationalised banks after a first loss to be taken by the banks. Ann Cairns, managing director at the restructuring firm Alvarez & Marsal, said: "If the government insured portfolios at today's prices, the insurance would be less expensive for the banks, but the value of that insurance would be limited."
The banks are paying a fee to the government for insuring their toxic assets and analysts differ over whether they will be forced to shoulder losses above that level. The government made a £25bn provision for APS-related losses in the budget. Jonathan Pierce, of Credit Suisse, estimates that the two banks' losses will not surpass the £32bn that the banks are paying the government in fees. However, he added: "This is highly sensitive to small changes in the proportionate loss rate because the amount of assets is so big and the length of time that the assets are covered."
Future losses depend on whether the economy recovers quickly enough, with predictions also varying widely. According to CB Richard Ellis, a real estate consultancy, property prices may only increase by 5% to 10% over five years, short of the near-30% decline in value since the peak of the market. BNP Paribas forecasts a rise of about 30%. Analysts complain that the scheme has so many uncertainties that it is difficult to predict any outcome. Final details are not yet ready, after months of negotiations following the initial announcement in February. A deal may be struck later this month, a source said. Lloyds is also having second thoughts about it and has been sounding out investors about an alternative rights issue.
Analysts agree that the announcement of the scheme helped calm the markets at a time when bank shares were in freefall. But since then, the design of the APS has been slow to take shape and has failed to re-ignite inter-bank lending, critics say. People and firms are still finding it difficult, or expensive, to access finance and encourage economic growth. Simon Adamson, credit analyst at CreditSights, said: "Clearly, it has taken a long time to put together and there are still a lot of doubts about how and when. It helped to restore confidence to banks but in terms of stimulating lending, it doesn't really seem to have achieved much."
Oakeshott believes it would be better to be more realistic and take the pain right away. "Japan's long agony in the 80s and 90s after a property price crash should teach us one single lesson – it's far better to take the pain up front and move on than trying to hide overvalued property off balance sheet for years on end," he said. "Our government must not sweep this £500bn problem under the carpet until after the election."
195 comments:
reposting from yesterday:
Snuffy- we use DC compact fluorescents for work lights (kitchen; ie the NE corner of the 20' x15' house), an AC fluorescent or two in places where the DC wiring isn't installed or is too long a run (12v in the house, 24v in the greenhouse;12v more readily available, but you can find almost anything you want in 24v if you look hard enough).
Frequent on-off stuff with CFL bulbs drastically shortens their lifespan, particularly the DC versions.
We use LEDs where we can; the most reliable ones are automotive 12v sets; look in the truck supply places. They always come with a plastic lens cover designed to focus the light straight out; often just removing the cover results in a more diffuse light pattern.
I use an amber LED truck light for my bed reading light; and sleep vastly better now; take a look here:
CFLs and sleep
We also use LED headlamps to fill in; NMH batteries recharged on a sunny day after 10 AM, so no double storage loss; (get a fast charger, doesn't hurt the batteries and they're smarter; ours fully charges AAs in 20 minutes) Each of us 3 adults has their own headlamp, I'm ahead in the competition at the moment, I've got the most advanced technology; 3AAs, and one LED that puts out nearly 100 lumens- and is dimmable. In long cloudy spells we'll do computer work with just the headlamp for illumination.
I could go on. :-) but I gotta get out in the field for harvest. If you read my early posts on my blog, there's quite a bit of stuff about off-grid living.
Lisa- many thanks for the info! I hadn't heard about the parasites problem- my ground is mostly well drained, anyway. Which parasites?
Stoneleigh- thanks! Could you build a feed trough for the alpacas that would be too high for the sheep to reach? Good to know not all the prices are crazy. How good are the alpacas at grazing grass down tight? My #1 criterion is good mowing behavior. If I could grow my trees without animal companions, I probably would. But after 30 years, it's clear- you can't. Unless you have unlimited time for mowing, and money for fossil fuels...
I find the whole thing really spooky...the way my neighbors and colleagues go about their days as of the gov't has it all under control and everything will be OK...it reminds me of the scene in THE TIME MACHINE in which the woman is drowning in the river, and all of the people on shore are ignoring her screams---as if they are utterly oblivious to her plight.
The absolute simple, basic, bottom line reality is that the system is in debt tens of TRILLIONS of dollars, and deleveraging---contraction---is the only cure. The whole 'Spending and pretending' thing creeps me out.
cs
After a couple of hours on a huge (3m+ hump)white camel from Mali a few years back, I toyed with the idea of camels for transport, ship of the desert and all that. Phenomenal temperature range they can withstand, -50°C to +50°C iirc.
Had a brief search about, seem to be $5-15K, but hardly any for sale..
I am sure the Australians would love to be relieved of some of the feral camels that are overbreeding down under.
A UN think tank on trade warned Monday that the current financial market rebound is not a "real recovery" and that any world economic growth recorded in 2010 was unlikely to exceed 1.6 percent.
"The depth of the recession has been so important that of course there will be a rebound ... but we still do not see that this is a real recovery," said Supachai Panitchpakdi, secretary general of the United Nations Conference on Trade and Development (UNCTAD).
Improving economic data including slowing job losses have been heralded by financial markets as green shoots of economic recovery, but UNCTAD poured cold water on the optimism.
Chief economist Heiner Flassbeck said the markets had been fuelled by financial speculation that in turn was driven by expectations of recovery.
"But anticipation of recovery is just a fiction, it is not there," he added.
The UNCTAD report noted rather that "tumbling profits in the real economy, previous over-investment in real estate and rising unemployment will continue to constrain private consumption and investment for the foreseeable future."
"Against this background, global GDP growth may turn positive again in 2010, but it is unlikely to exceed 1.6 percent," it added.
http://tinyurl.com/m9rav4
Ya think?
I listened to Obama's speech that he just gave in Cincinnati, and it appears that it's all under control. Life is good! Nothing to worry about.
Except everything is falling apart.
Re.: RECOVERY VS RESET
Prior the financial crisis, the poverty level was 10% of the US population.
What are going to be the new numbers when this is all over?
One suggestion was that there would be a shift to something like Mexico 40% being “well to do” and 60% in poverty.
The fear, from those that have done well, financially, (such as Karl D.), is that the present rescue plans will drive them into the 60%.
The fear is that they will be forced to service the government debt.
Without the government debt, they feel that are smart enough to keep playing the system and stay in the 40% of “well to do”. Therefore, the call to “clean up the books”.
What the most harden capitalist overlooks and is grateful for, is that there is a system for them to continue playing. The government stepped in and saved the banking system. Now, that they realize what happened and what can happen they are positioned to take advantage of the situation to remain in the 40% of “well to do” if the “books are cleaned up”.
The longer that it takes to “clean up the books” the greater are the chances that they will not remain in the 40% of “well to do”.
With “cleaning up the books” will there be only 40% of the population of “well to do”? Will it be me?
With “kicking the can down the road” result in 40% of the population being “well to do”? Will it be me?
Normally, the population doubles every 20 years.
Does anyone think that this will happen?
There seems to be a lot of people thinking that war will reduce the population and as a result reset the economy to a new lower but sustainable level.
So, will it be 40% of 300M or of 600M or of 150M.
It does not need to be a war that reduces the population. Let’s remember that we are at “peak” of too many critical resources. Any one of those “peaks” or/and any combination of those “peaks” will serve the purpose of reducing the population.
Therefore, a population reduction will achieve debt reduction. I think of the old saying, “You can’t get blood out of a stone”. Well, you certainly cannot get debt paid back by someone who is dead. Therefore, the result will be defaults.
There is no doubt that there will be “a reset”. The anxiety is WHEN and WHAT KIND.
A “black swan” event, (some of which are being evaluated on different blogs), floods, earthquakes, pandemics, and wars have a low, but real, probability of RESETING our economies.
Being prepared for change is your greatest asset. Evaluating “flee or fight” options is part of being prepared.
Yes ... we are on the road to recovery ... recovery from the financial collapse.
We are not on the road to recovery of what used to be ... we are resetting to a new economic reality.
JAL
Last comment on guns
I guess I started this whole thing by just requesting some "consumer report" advice. I was not really interested in "ethical" feedback. I chose to ask for this advice on this forum because it is my primary forum, and I can vet the feedback against known character ( I usually skip untagged comments unless regulars refer to them after the fact). Also, as a general rule, most of the regulars have high ethical standards here, and I wanted feedback from people who got no "thrill" from gun ownership, but just regarded it as a tool (hunting) or a necessary evil (protection).
The purpose of this blog site is to help the readership cope with survival, and security is one of Orlov's four primary food groups. Each person must go about it individually. I mentioned in previous posts that I have the highest respect for the unconditional non-violence choice as long as it is not preachy and telling us all that we must conform to their belief system and walk into the ovens whistling and with a smile. I have put aesthete on my comment kill list and hope that s/he does the same for me. In a way it's heartening to find someone even more obnoxious than I am.
Finally, I wish to thank those who responded to my actual question and gave me the information requested. There was sufficient consensus that I can and will now make an informed choice.
"Prior the financial crisis, the poverty level was 10% of the US population.
What are going to be the new numbers when this is all over?"
Poverty will need to be redefined.
"Normally, the population doubles every 20 years. "
Not a chance.
------
As for the system, it's dead. Trying to play or game it is a useless delusion. It's like trying to beat a corpse at chess. My position looks good, and therefore "he's still thinking."
El G,
All cool by me. It's not a topic we really want to or can avoid, and we shouldn't, if only to balance out the incessant and ongoing diet club. And once you start, you have to take the "totin'" overkill in stride. That said, both the pros and cons are obvious from a mile away for the, as you rightly say, comparatively higher ethical level readership we have somehow managed to maintain here.
--------------
Completely unrelated:
Did I see someone say yesterday that exercise is not a way to lose weight? I hope I didn't.
Metal hydride battery charger
Still in consumer report mode.
Can someone recommend to me a really good charger for four at a time AAA or AA. I have a BTY and I suspect it is killing my batteries though it appears to have nice features. I pulled out four the other day that were almost too hot to touch. I think I have gone through four chargers in the last two years w/o satisfaction and considerable financial loss. Will be on a plane to Mexico next Monday or Tuesday, so probably don't have time for mail order. (In Southeast Florida at the moment.)
Also re LED.
I bought a Petzl (French) headlamp about a year ago, and it is perfect. As a cantankerous person, I can find nothing about it to criticize. Bought it new on eBay for about half retail.
Can anyone help me with application of these principles? I pretty much agree with the economic outlook here and have followed for a long time now.
Due to circumstances, I would like to move but I don't HAVE to. I own my house and land. Would now be a bad time to sell and rent for a year while I build my off-grid house? Naturally, I could just work on my current house, but I'd rather change states.
Is there anything wrong with this plan that I might be missing? I do mean other than the fact that I should've sold in 2005.
Rodent
p.s. By "owning my house", I mean that I actually own it, not the bank.
p.p.s. By "owning my house", too, I'm under no delusions that the state actually owns my house via property taxes that they can raise beyond reason and at will without my consent.
Rodent
Re: Battery Charger
Powerex Maha MH-C9000. About $55.00 on Ebay but may be a good investment when quality counts.
Ah El G, how sweet of you. But rest assured, I shall never put you on my "comment kill list." Your posts have too much value contained within--you know, just in case I manage to sawzall thru a pipe "inadvertently".
Aesthete
@El G
I bought a La Crosse battery charger and am very happy. It resuscitated a couple of my dead AAs.
Anon noted the Maha, which gets better reviews than the La Crosse, but I think we are discussing gold medal versus silver medal in a very crowded race. I got mine on Craigslist for $25.
Did I see someone say yesterday that exercise is not a way to lose weight? I hope I didn't.
IMO it is, but it's not enough on its own, and it depends on the kind of exercise (ie weight-training is more important than cardio, as it prevents dieting from resulting in lean muscle loss and builds fat-consuming muscle mass). The diet part is enormously important though, particularly avoiding the addictive fillers that find their way into so many foods.
I don't want to bore people, but this is kind of a personal obsession for me because every day takes an act of will not to eat any of what most of the rest of the family does and what the cupboards and fridge are therefore full of. (They refuse to eat like me and are too old to be told what to eat.) Fortunately I have a lot of willpower and am very focused on achieving what I set out to achieve.
Sorry for the double post, and I forgot to mention...
I really like Cool Tools, I keep it in my RSS feed. That is where I heard of the La Crosse.
I would concur with the Maha. I have one of those (possibly different model, can't find it at the moment) and it seems not to fcuk batteries up too much. Either that or the Eneloops I bought 3 years ago are the real deal. Someone's done an absurd amount of testing on the Eneloops and has shared his research here.
Re: The Bank Failures on Friday.
All of these had their biggest troubled assets in Commercial Real Estate.
The lowest TAR was 56.3; higest was 215.
One another note, I took a look into a safe bank for a relative recently, who lives in a small metropolitan area.
There are a number of banks there, but all of the main banks are in trouble. Mostly with TARs of 50 or so, two in excess of 100. And the best has a TAR of over 30. The national average is about 11.
Fortunately there are a couple of small banks farther out with TARs of 6 and 8(!). Still high, but below the national average.
Note that the FDIC closed down 5. At that rate, it would take them about 2 years to clear the current problem list. I suspect they're just winding up.
BFF
"....Then they plan to "securitize" these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die...."
Nice. Let's sell everything. Then we can create another gov. 'stim' to prop it up when it crashes. Then, we'll borrow all the IMF can choke us with, change the name of Wash DC to DA FED, and then, when our kids kids find out at birth that their life comes with a big bill...no wait.....Why don't WE DO SOMETHING NOW. Does anybody really believe this is working? Pretty soon this is ugly. That's my sense.
Question Re: Federal Reserve Balance Sheet
The federal reserve has dramatically increased its balance sheet over the last 2 years. With freshly printed digital dollars, the FED has purchased hundreds of billions of dollars of mortgage-backed-securities. In addition, through special lending facilities like the discount window, TAF and TALF, the FED has loaned hundreds of billions of dollars to banks in exchange for toxic paper collateral.
My question: Who is responsible for re-balancing the Fed's balance sheet? Does the FED simply print more digital dollars to make-up for losses on mortgage-backed-securites and its worthless loan collateral, or is the taxpayer on the hook to bailout the FED?
@ el gall:
I bought a Petzl (French) headlamp about a year ago, and it is perfect. As a cantankerous person, I can find nothing about it to criticize. Bought it new on eBay for about half retail.
Petzl is quality, I trusted my life to one of their rock climbing harnesses for a number of years. They also seem to have a good rep among people who need to scale trees and utility poles.
As for battery chargers, I have a little Maha AA-size charger and it is a nice little unit. Even came with a nice carry bag that will hold the charger, adapter, and 16 AA batteries in two flatpacks.
I have an Accupower Accumanager 20 for AA-AAA-C-D-9V charger, but I find it merely serviceable. It gives no indication as to how much time remains in the charging cycle, and the blinking green LEDs are annoying when night falls.
I read articles like this and it makes me wonder about the message of TAE. No one is talking deflation, save for a few random bloggers and economists. And if they are talking deflation they speak of it in terms of being so irrelevant that words should not even be wasted talking about it. Most of the entire world of economics, government, etc. seems to think your ideas are irrelevant based on the actions they take and the policies they enact. They have access to the same data that you do and do not reach the same conclusions.
At what point does an objective reader start to think that the deflationary visions projected here are just irrelevant theories? Or should I just assume that the rest of humanity is wrong and you are correct?
Personally, I don't know who you are or what your credentials are. Sometimes, I wonder if you are even qualified in your analysis or if it is even accurate, especially in the face of the mountain of economic strategy that runs counter to your wisdom.
How can the world at large, including whole countries and economies, take the deflationary argument and bat it away like it is some irrelevant fly? And you insist that this little fly will be our ruin?
Who are we to believe?
I read here everyday. I believe what you say and have taken necessary actions as you recommend. But I can't help but wonder why no one sees what you see. And that maybe we are the crazy ones and not the other way around.
Thanks.
@South Florida
I understand that you will be updating a larger collection of Stoneleigh's comments. Am looking forward to it. Can I send you my email so I don't miss it when you complete it?
Thanks
Barbara Hazleton
@ greenpa
"My #1 criterion is good mowing behavior. If I could grow my trees without animal companions, I probably would. But after 30 years, it's clear- you can't."
We use scythes to clear bracken, brambles and wild roses from under the chestnuts and walnuts every few years. Havahart cage traps are excellent for rodents of all sizes (except deer)
Riley Martin said....
At what point does an objective reader start to think that the deflationary visions projected here are just irrelevant theories? Or should I just assume that the rest of humanity is wrong and you are correct?
From Wiki:
At the time of Galileo's trial, the dominant view among theologians, philosophers and scientists was that the Earth is stationary, indeed the center of the universe. Galileo's championing of Copernicanism was controversial within his lifetime, when a large majority of philosophers and astronomers still subscribed (at least outwardly) to the geocentric view that the Earth is at the centre of the universe. Galileo's adversaries brought the charge of heresy, then punishable by death, before the Inquisition. Since Galileo recanted, he was only put under house arrest until his death, nine years after the trial.
Humanity is wrong a lot.
Whilst the majority of this article http://www.zerohedge.com/article/latest-move-bullion-somethings-gotta-give feels like reading a well written TAE primer (not seen that inverted pyramid before though), spotted this dissenter from a poster in the comments section on what is ostensibly a 'whither gold?' thread, '>' is the article:
[btw I've only academic interest in gold [If I did have any spare I'd say wait till the gold req to pay $ debt has been sold I think) but I was interested to see he separates cash and credit under the 'store of value' criteria - can different rules apply on the way down - does it make any difference?]
">The risk pooling and credit insurance processes that were central to money creation at the top of the pyramid have proven vulnerable to a breakdown of confidence (and as the systems have started to break down this risk aversion has been justified in a classic self fulfilling prophecy). 2008 was characterised by a massive destruction of money and we expect this to dominate in 2009 also.
>For the purposes of understanding currency and price movements it is sufficient to observe that the securitisation of debt and creation of credit and financial derivatives amounted to a huge virtual printing press
Conflating money and credit. Credit is not money; why do people keep thinking that it is? Credit differs from money in that it does not fulfill the "store of value" function, and no wonder: it is born of nothing in the magical fictional reserve system. I strongly suggest readers brush up on exactly what credit is, so that they can more clearly understand what it most emphatically is not.
>This is what has been dictating the magnitude of the printing, and this is why printing so far has been rather benign in inflationary outcomes.
IMO the reason is this: most Western economists, market participants, bankers etc have been trained in monetarism and the belief system that it requires, that is, the conflating of money and credit. This too shall pass.
[snip]"
Riley Martin,
At what point does an objective reader start to think that the deflationary visions projected here are just irrelevant theories? Or should I just assume that the rest of humanity is wrong and you are correct?
My view is that the herd is in denial en masse. Does out logic seem sound to you? We are contrarians, which means we will never give you received wisdom.
Personally, I don't know who you are or what your credentials are. Sometimes, I wonder if you are even qualified in your analysis or if it is even accurate, especially in the face of the mountain of economic strategy that runs counter to your wisdom.
We would rather you critiqued our position based on its logic than who we might be. Qualifications are not as important as you might suppose, as far too often they represent nothing but a stamp of approval from the received wisdom crowd. We would rather think for ourselves, and explain to others how we see the world.
We fully expected doubts at this stage of the rally (ie much nearer its end than its beginning). In fact we said back in March that people would begin to think we were lunatics again by the end of the rally. We are consistent because the facts have not changed, only people's perception of them, as perceptions always change with rallies. Just watch those perceptions shift back on a dime once the rally is over. You shouldn't have that long to wait.
How can the world at large, including whole countries and economies, take the deflationary argument and bat it away like it is some irrelevant fly? And you insist that this little fly will be our ruin?
The world doesn't want to believe that we face a depression no matter what we do.
Who are we to believe?
Assess the arguments on their merits.
I read here everyday. I believe what you say and have taken necessary actions as you recommend. But I can't help but wonder why no one sees what you see. And that maybe we are the crazy ones and not the other way around.
They don't see it because they don't want to see it. The monetary authorities don't want you to see it either, or you might cause a bank run, which would reveal that the game was over. We're in a weird kind of limbo at the moment, like Wile E Coyote before he realizes that he's spinning his legs in thin air off the edge of the cliff.
The year is 2009...
people are still the same,
they'll do anything to get what they need.
And they need...Soylent green shoots!
"It's people...
Soylent green shoots are made
out of people!"
They're making growth out of people's decay,
next they'll be breeding us like cattle, for food!
We have to stop them, somehow...
Riley,
Exactly!
It takes enormous courage to choose the reverse course from the herd, and Stoneleigh has more than once acknowledged this fact.
Of course I&S are the people who correctly called last year's contraction, and who now correctly observe that NOTHING substantive has changed since then - not for the better, anyway.
There are always data points we could choose to look at, like the PPI continuing to fall, or the steadily rising mortgage default rate, but it's a huge leap to conclude that "we're right and they're wrong." Personally, I draw no reassurance in groupthink - Aren't these inflationistas the same economic geniuses who got us into this mess?
To be sure, there must eventually be a loss of faith in dollar-denominated debt, leading to bond-market dislocation and the economy coming to a screeching halt. But when?
All the printing in the world makes no difference if the banks are unwilling to loan, and the overextended consumers unwilling to borrow. And by "all the printing in the world," I mean at least an order of magnitude increase in stimulus programs and bank giveaways, because that's what it would take just to make up for all the debt destruction that's happened SO FAR.
So hedge if you're unsure, but me, I'm all in this time: "Short the phone book but make sure you get out fast before you get trampled."
Riley
You're exaggerating. It's simply not true that no-one sees what we see. In fact, some very smart people agree with us.
We know, as we've always said, that there'll be inflation. So we agree with the manifold on that.
However, we also know that there won't be until a huge bout of deflation has come and passed. And that's what most miss out on. Which comes down to a wager, conscious or not, that debts incurred in the past can remain hidden. We say they can't. Which means that dozens of trillions of dollars will need to disappear into nothingness.
Look, prices are dropping everywhere, even if that may not be evident in your daily life yet. I post articles to that effect just about every day now. Deflation has definitely started, even if some insist on calling it negative inflation.
I think the main problem is that people cannot imagine what deflation will mean. That and they don't understand how deep in debt the whole system is. Which is those same dozens of trillions of dollars. Which is far more than any printing press can print. If the US would try to print what it's losing in credit in its financial system, that system would be gone tomorrow. The US is not doing that, and it's not going to do that. Not for a few years at least.
The amounts printed pale in comparison to those lost to thin air. That spells deflation beyond any doubt. I'm having to guess here why people see inflation, because none I've seen ever explain away the debt, other perhaps than by claiming they are not important. Which puts them in the same boat with all those who proclaim recovery these days.
They all act as if debts don't matter. And that's what the whole shebang boils down to: we say the debts do matter. And you can't print enough credit to pay them down, let alone cause inflation on top of that.
It's all explained in our primers, if you're interested.
@ Riley Martin,
The mainstream media doesn't talk about deflation because the government doesn't have any tools to correct it apart from stepping out of the way. Unfortunately, that solution will result in much of the population (both wealthy and poor) losing all of their worldly possessions. Social disorder on a broad and frightening scale will then commence. Deflation is, obviously, MUCH more dangerous than inflation. Why doesn't the government explicitly warn the population? The government holds onto power as long as it can -- that's what governments do. In order to do that, it doesn't spell-out the inevitable fall that awaits us all. Nevertheless, evidence for deflation is everywhere. One data point that speaks volumes: 90% of all credit for residential real estate loans now comes directly from the taxpayer's pocket (via Fannie, Freddie, FHA, FHLB, and Ginnie Mae). What happened to all the private credit that fueled the housing bubble? It no longer exists. That's deflation. With the contraction of private credit, businesses fail and tax receipts fall. As a consequence, people lose their jobs, unemployment increases, and state workers get pay cuts. All these daily events, announced on the nightly news and in the local paper, are the consequences of deflation (contraction of credit) -- even if they aren't explicitly identified.
Now for a completely irrelevant comment:
JHK: in your weekly essay today, you once again use the word "corn-pone" -- as opposed to the old-fashioned "sauerkraut" variety. I think the use of this adjective makes it sound altogether too tame.
This evokes an image of Col. Sanders sipping a julep on the veranda while a hound dog sleeps in the breezeway behind him. Oh, it'll be OK, it's corn-pone. The current situation, and associated potential damage, are likely to be much worse than that boring old 20th century sauerkraut guy.
( I write this here because I am not sure you read your own comment section )
... and back to the regular discussion of diet, exercise, and ammo. :->
In my hometown there are persistent signs of deflation by means of the abnormally high and frequent discounts almost everywhere, since last october.
This is a structural change, relating to an absolute shortage of money-like substance in circulation compared to goods and services, as well as velocity retardation, this effect seems to act as a cumulative fluid-pressure defficiency, causing prices to lose buoyancy in most forms of tradeable produce.
It seems likely that deflation will persist for at least a few years, before anything can be moved
sufficiently to trigger para-constipation or projectile-vomiting.
"we say the debts do matter."
ok then, so what is the mechanism that makes debts "real"? Is it the multiple claims / bank run aspect, that there is so much more debt claiming real wealth than there is real objects? When all try to grab the real wealth at once, only a small percentage get any?
Is there a one paragraph illustration or explanation that can clearly convey why debts matter?
El Gallio-whoop-whoop; oddly enough the NMH battery charger I have is an Energizer; only model ID I can find is CH15MN.
It has a fan in it to cool the batteries as they charge, and individual monitoring of each position. We've had it 3 years, I think, and it works perfectly; came with a car cord (which was why I bought it) so we plug it right into the DC circuit.
From past experience, I will bet this model is no longer available, or is now made in West Whakistan instead of Taiwan. But you can give a try.
"I bought a Petzl (French) headlamp" - yeah, they're a good bet. In my experience the first thing to go on a headlamp is the on-off switch; they last about a 10th of the expected life of the LED. Petzl is probably better about that.
Death; "We use scythes to clear bracken, brambles and wild " I used to. But the plantings are now pushing 80 acres, expanding, and my back is tired. :-)
"we say the debts do matter."
ok then, so what is the mechanism that makes debts "real"?
I was thinking about this the other day - how about the image of Lehman employees packing their bags?
JAL: "floods, earthquakes, pandemics, and wars have a low, but real, probability..."
It appears to be human nature to ignore the fact, though, that over time, the probability for those events is 1. And you left out my fave, a mini asteroid strike. :-)
Seriously- just as women do not actively remember the pain of childbirth, I think we're hardwired to ignore the opportunities for natural cataclysm.
Which is possibly why so many people, all around the world, continue to build dwellings on flood plains.
The probability that The Big One will hit California is 1. We just don't know when.
@ greenpa
"But the plantings are now pushing 80 acres, expanding, and my back is tired. :-)"
80 acres of producing trees?! 8-o
How do you harvest that amount?
(We have started using GS and various financial planning experts for our main harvest)
oh, yeah, El Gal; the fan on the charger is activated by a thermostat. Imagine. It runs for about 5 minutes after the light turns green, and the instruction actually tell you it's better to leave the batts in until the fan stops. Will wonders never cease.
Death: "
80 acres of producing trees?! 8-o
How do you harvest that amount?"
With a lot of sweat and long days from Aug.1 to Nov.1, and a lot of help from our friends. Used to use Amish labor (teenage girls)- but can't afford it any more, now that we've got them trained.
"(We have started using GS and various financial planning experts for our main harvest)"
Um. What? You've totally lost me. But then I've been on my feet doing harvest all day...
Re Battery charger
Another vote for Maha MH-C9000 - I have two and an MH-C401FS
Sanyo Eneloops are the go for my money - I have 32 AA 8 AAA, and counting.
"(We have started using GS and various financial planning experts for our main harvest)"
Um. What? You've totally lost me. But then I've been on my feet doing harvest all day...
What is death incorporated's main harvest.......?
(tree crops are just a side project;)
@ Greenpa:
El Gallio-whoop-whoop; oddly enough the NMH battery charger I have is an Energizer; only model ID I can find is CH15MN.
I think I had (have? maybe it's tucked away somewhere?) this charger. I remember being impressed with how quickly it went through a charge cycle. I also wonder how compromised it would be if the fan failed.
"I bought a Petzl (French) headlamp" - yeah, they're a good bet. In my experience the first thing to go on a headlamp is the on-off switch; they last about a 10th of the expected life of the LED. Petzl is probably better about that.
This is generally true. However, the 5 year-old Black Diamond headlamp I own has a reputation for the slack in the battery catching snags and getting yanked out. Oddly enough BD's current headlamp designs ape Petzl's almost perfectly.
On the other hand, BD packs are first-rate for light and quick adventuring. They've always seemed to lack the snagging problem my headlamp displays. ;)
Re: Rechargeable NiMH Batteries
I strongly advise everyone to stay away from the generic "Tenergy" brand sold by All-Battery.com
Yes, they are cheap, BUT...
1) they rapidly self-discharge
2) they don't seem to store as much charge as other brands of AA battery
3) In a bulk box of 64 AAs I've had 4 or 5 bums show up fresh out of the wrapper
Clearly, this is a case of getting what I paid for. I've had much better experiences with store bought Duracell and Energizer NiMH AAs, particularly in terms of self-discharge.
Here is more evidence for deflation:
"At the Encore, which Vegas impresario Steve Wynn opened in December as an extension of his luxe Wynn resort, some customers were offered two-night stays this summer for $99. For some nights this fall, promotional rates as low as $90 are being offered at Bellagio, a premier Strip hotel where rooms customarily can reach $500 or more."
http://www.latimes.com/news/nationworld/nation/la-na-vegas-strip7-2009sep07,0,1877772.story
This weekend I joined Stoneleigh as a considered lunatic by my family.
This years labor day weekend, I took the leap and tried to warn anyone around me about market shenanigans, federal reserve corruption, goldman sachs inside baseball and the like and told everyone to prepare for some serious crapola in the next 2-6 months.
They looked at me sideways and muttered, what happened to Mike?
Oh well, I felt good and bad at the same time.
I'm glad I got it out there for everyone to consider, and bad that they now think I'm a lunatic.
I hope the fact that I've never quite come across that way with
that sense of urgency that it worked for some.
I warned them about bank runs and being prepared for hurricane conditions.
This is a weird feeling, I hope nothing happens, I have a lot riding on that as well, but I will forever henceforth be known as the doomsayer.
If things do indeed happen, maybe then, if its not too late, I can discuss with them the next stages of planning.
But for now, go against the grain is damn hard stuff.
@ Barbara Hazleton and anyone else who is interested:
I just forwarded Stoneleigh's comments for June 16 through Sept 15, 2008 to El Gallinazo. (This means, at the moment, that there is a gap between Sept. 15 and Oct. 15.) I will compile more in coming weeks as I am able.
And the Nikkei goes up as,
Japan's July imports down 41.2% on year.
Japan's July exports down 37.6% on year.
Wonderful :)
@Greenpa
This is actually Frank inadvertantly on his wife's account. Regular old barberpole worms, and all the other stomach worms. Interior Iceland is a (man made) desert. After 1200 worm free years, they have no resistance.
Be aware that Icelandics (and other northern short tail breeds) need more copper than most sheep.
Join the ISBONA list. Lots of knowledgeable folk there. Also learn about leadersheep. Big subject and run do not walk from any breeder who cannot/will not tell you if the sheep she's selling are from leader lines.
I'm happy to talk sheep. frankrrichards at the google mail service.
Ilargi said - "Did I see someone say yesterday that exercise is not a way to lose weight? I hope I didn't."
You did, and welcome back to the diet club.
While exercise may have a role in preventing obesity, once the weight has been acquired, however, it seems to take mainly a diet change to lose it. Although it may be counterintuitive, exercise actually sucks as a weight loss strategy. Having said that, I think it is a good adjuvant to a proper low-carb diet, once you have passed the adaptation stage and corrected the insulin resistance. Then some exercise probably helps speed things along.
I know this challenges the conventional wisdom but that should be familiar territory for you.
"(They refuse to eat like me and are too old to be told what to eat.)"
I like it, because in the big, big, big scheme of things in the end it ain't gonna matter.
Perhaps we should consider randomly picking people out of the phone book for political office instead of holding elections.
"Forty-two percent (42%) of U.S. voters say a group of people randomly selected from the phone book would do a better job than the current Congress. The latest Rasmussen Reports telephone survey finds that an identical number (42%) disagree, but 16% are not sure.
Last fall, just 33% thought the random group could do as good a job."
42% Say People Randomly Selected from Phone Book Better Than Current Congress
Ilargi said - "Did I see someone say yesterday that exercise is not a way to lose weight? I hope I didn't."
You can definitely lose weight with exercise, but it takes a LOT of exercise, and conditions where food availability is limited. For example, I regularly lose 2+ pounds of fat during a one week backpacking trip (50 miles of hiking). If careful after the trip (especially the first 3-4 days), the weight stays off.
While modest exercise tends to increase appetite, very intense, prolonged exercise tends to suppress appetite somewhat.
I thought deflation was a function of money supply and nothing more.
Why are some of the regulars and even the host suggesting that deflation is something else or more?
Headlamps:
The Petzl is great, but it's intended for backpacking and other weight-critical apps.
You want to talk about lousy battery capacity? I'll take my AA Tenergies over your AAA Eneloops any day! My headlamp takes AA's:
http://www.thehardwarecity.com/getProductDetail.html?sku=5810957
One of my intentional simplifications is to switch over all my battery powered devices to AA, and it hasn't been that easy. What's hanging me up at the moment is GMRS radios, which seem to be industry-standardized to AAA, except for custom or external packs.
But I'm really happy with this Garrity headlamp that uses three AA's, in a pack at the rear of the headband. The weight balance is great, it powers the 1W Luxeon LED just about forever, and it has several low-power LED settings that create almost no drain at all. It's also about eighteen bucks.
I hear what you're saying about Eneloops, but I'm not going mountaineering, so I care less about capacity per battery than about capacity per dollar. For high-drain, constant-use applications, the self-discharge rate is not as important as say, in an emergency flashlight.
What I decided on is a mix of brands, because not all my applications are mission critical, so to speak. I use a couple AA-powered devices all the time, and the Tenergies have worked fine in them - once I sorted out the duds from the collection. Those duds charged okay, but their self-discharge rate was higher, is all. For my battery dollar, I'd rather have more to choose from than going exclusively for the best and most expensive ones.
@el G I too thank you for the gun thread. I need a varmint rifle: It seems every critter in the township noticed this year that we have birds.
The unanimous consumer report was quite helpful.
@Aesthete There's lots of testosterone on this farm. Albus Dumbleboar, Egil the viking rooster, Prince the Percheron, three rams. I'm 55 but doing my best. We all agree. Chest thumping beats a fight. Daddy making a loud noise and adding the coyote to piggy breakfast is even better.
(It might be different if someone thought they might get laid, but that's not in play when things go boomp in the night.)
PKP:
I like it. Sort of like jury duty. We could probably get away with this sort of representation if we actually followed the constitution. It is not difficult to know what is and what is not allowed of the government if you read the constitution. Term limits should be enacted at all levels. Having unlimited terms allows agendas to be made and pet projects to be nurtured.
Nelson- "What's hanging me up at the moment is GMRS radios, which seem to be industry-standardized to AAA, except for custom or external packs."
We've got Cobras, with a lithium rechargeable provided. Absolutely love them- used heavy for 3 years, still going- but all the markings for the buttons are worn off, so if you don't know what they are, you're out of luck.
I get the feeling that alot of you will be in constant preparations mode. Buying this and that to be 'more ready'. Meanwhile, your own projected 'Y2K' will never get here and fancier, smaller, and more efficient 'survival' items will make your current preparations outdated. And you will repeat the process all over again.
You people are a survival item business' dream.
@ el gallinazo
@ South florida
Thanks for the comments compilation.
@Stoneleigh and Ilargi
It seems that you guys are prophetic
John Brown- "alot" is actually spelled a (space) lot.
Re: Warren Buffet buys government bonds!
HAH !! So much for Warren Buffet and his warnings about the Treasury Bubble. Suddenly stocks don't seem so hot, and likes the look of government paper.
from the NYTimes:
"Mr. Buffett declined to predict the short-run course of the stock market. But corporate data from Berkshire shows his company was selling more stocks than it was buying by the end of the second quarter, according to Bloomberg News. Its spending on stocks fell to the lowest level in more than five years, although the company is still deftly picking up shares in some companies and buying corporate and government debt......The shift in Berkshire’s investments suggests Mr. Buffett is starting to worry, said Alice Schroeder, the author of “The Snowball,” a biography of Mr. Buffett."
I'm single and building a cabin and garden on 5 acres in the Ozarks.
For my electricity needs (very minimal) I have:
2 6v rechargeable lantern batteries from the Co-Op
1 12v battery from a wrecked scooter.
12 AA rechargeable from Harbor Freight Sales.
12v solar trickle charger from HFS. ($12)
3 Solar shed lights from HFS that charge the 6v and the AA.
In addition I have from HFS:
2 solar lanterns. Fantastic!
1 solar electric fence. The charger + hardware cost about $100. The best investment I have ever made.
If I come across some extra money I plan to buy their 15w cell for $60 and a deep draw battery and have all the 12v I can use.
Yup! I going for subsistence living.
Paul M & PKP - Elsewhere I have also seen others discuss selection using a 'jury duty' process. Great idea. Have some kind of a lottery to select people via Social Security number, maybe similar to those balls that pop up for the PowerBall.
Senators chosen for 6-year terms with 1/3 chosen every two years, max of 2 terms.
Representatives chosen for 4-year terms with 1/2 chosen every two years, max of 2 terms.
President chosen for one 6-year term by majority vote of the people.
Probably won't happen in my lifetime, maybe never. But clearly others are thinking we need an improved method, without money and lobbyists.
Riley Martin. Please check out the following page on the St. Louis Fed web site to see how colossal our debt crisis is.
It lists the actual dollar values of the m3 money stock in the United States from 1959 up until 2006 (when the release of the m3 money stock numbers was discontinued).
On Jan. 1, 1959 the m3 money stock was 288.8 Billion $
On Feb 1, 2006 the m3 money stock was 10.298 Trillion $
This is an increase of approximately 3500%.
The following is the link to the page on this site.
http://research.stlouisfed.org/fred2/data/M3SL.txt
@ John Brown
LOL ...oh how I hate to use "LOL" ...but LOL.
@Mike
"But for now, go against the grain is damn hard stuff."
I grew up in an old Victorian house with a curved bannister. My bedroom was on the third floor and I used to ride it down for breakfast. Damn glad the carpenter built the ride with the grain.
South Florida
I sent it on to the Automatic_earth_fan.
Hopefully, it will be available for download shortly at:
http://cid-c26388ef19e98530.skydrive.live.com/
browse.aspx/.Public
@Nelson
"f course I&S are the people who correctly called last year's contraction, and who now correctly observe that NOTHING substantive has changed since then - not for the better, anyway. "
Contraction? I don't remember no steeeenkin' contraction.
To everyone re chargers
Thanks for the feedback. Seems like either the Maha or the La Crosse are the way to go.
Greenpa:
Do I spell anal retentive with or without the dash (-)?
Rodent
Looks lie your inquiry got orphaned, so I will give it a shot.
You don't appear to be in love with your current dwelling or considering to convert it to a proper doomstead. In that case, a good bet would be to sell it before the next crash, stash the loot in 100's and 13 week T-Bills, rent, and be prepared to buy a potential doomstead when real estate prices hit 10-20 % of peak. Only problem with that is that proper doomstead stuff will be much harder to locate then.
Might be a good idea to start planning your doomstead, rent a place with secure storage, and start to stock pile the stuff you will need when the time comes.
Re alot
I used to teach science at an alternative charter high school in a Denver suburb. The senior teacher was also the English teacher and she wouldn't let anyone graduate who used "a lot" as one word :-)
The kids had to write a proper, typed five page research paper as a graduation requirement. One year about eight of them chose serial killer cannibals as a topic. The English teacher, a sensitive Christian sort, just couldn't deal with it. She became distraught, but it would have been unethical and counterproductive to insert an expo facto anti-serial killer topic rule. So being of the vulturine persuasion, I volunteered to correct and assess the serial killer papers. haven't been the same since :-)
Re: Riley Martin- come on, people. You've got to get better at spotting the liars. There is no Riley Martin- and he's even playing you with putting "rile" in his alias.
It's a paid disrupter; moving on to another stage of deception; "I'm an honest seeker, JUST LIKE YOU, but this and that worry me (and you should worry too!) and, I'm actually ONE of you (not us) - so you should take me seriously!" This is right out of the "Liars Propaganda 1" textbook. And, an utter unknown, never seen before today, once again! raises the "anonymous! credentials?" crap.
All the arguments are moronic (kind of an indication) and his claim to be a longtime reader is contradicted by his irrefragable ignorance.
He/it was successful though- look at all the time diverted.
Riiiiight.
John Brown said...
Greenpa:
Do I spell anal retentive with or without the dash (-)?
So my little zinger when right over your head, eh? Kind of what you'd expect from... alot of your kind. :-)
Greenpa:
Yep, your 'zinger' went right by me. In fact, I still don't get it.
Dr J,
"Although it may be counterintuitive, exercise actually sucks as a weight loss strategy. "
Don't address things you don't know about. It shines an eery light on all else.
El Gallio (the whoop whoop was a Muppets reference..)
love both stories.
Speaking of cannibal serial killers- our favorite amusement in the NYT bestseller genre-
This kind of serial killer is going to get more and more common.
Kenya/drought/death
I can't read this kind of thing without a lot of pain. I'm wondering if I can get callous enough.
John, well if you don't know, I'm certainly not going to tell you. :-)
So, all of the world's economists, central banks, and governments just happen to overlook the trillions of debt when they devise their strategy going forward? They look at the same data that you look at and come up with a different analysis?
Are you suggesting that they don't see the trillions of debt?
What are you saying?
Normally, it is a bad joke when you have to explain it to anyone.
PKP,
M3 has fallen off a cliff since 2008.
Be careful what you wish for.
Greenpa, John Brown
That'll suffice.
Riley
You've had three people explain it to you. What else do you want? If you feel safer in larger crowds, your choice is obvious.
Yes, we say most economists have it wrong and are useless. If that were not true, we wouldn't be in this pickle to begin with.
Ilargi - "Don't address things you don't know about. It shines an eery light on all else."
Actually, this is my particular area of expertise. I gladly defer to your expertise on anything related to the economy. On matters related to obesity, apparently, no so much.
Dr J
Keep digging and you'll have nothing left. We're not talking obesity, obviously. Just exercise vs weight, nothing clinical, just McDo.
Ilargi,
Maybe you should read the book- The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2004, ISBN 978-0385503860, written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.
OK Riley,
This ain't going anywhere. Why not have you explain instead why we'll have inflation? And don't come with the printing press, let's have some substance.
What are you all going to do when your batteries go dead and you can't get replacements?
Ilargi - I know it is counter-intuitive but so is what you tell us about the economy. Why is it so hard for you to accept that maybe the consensus on weight loss is as wrong as the consensus on what's going on with the economy. In one case you obviously are very well informed to the extent that you can see what others cannot. On the other, you go along with the consensus which suggests to me that you are not that well informed whereas I am. We are not too dissimilar in that, in our respective fields of expertise, we understand the consensus has got it wrong and we are in a minority position. Look at your set-too with Riley, here. Perfect example.
Ilargi,
I never said we will have inflation. Why is my dilemma so hard to understand? The problem you say is so large and ruinous is mysteriously overlooked by 99.9% of the world. This giant amount of debt and its destruction surely seems like an issue to me and you. My dilemma is that most people who pay close attention do not even give it the time of day. I am wondering how that is possible with such a large, glaring problem.
Outstanding comedy from Brown and Riley tonight. I'm turning off Comedy Central.
I may be wrong, but I think Dr. J is saying exercise is inconsequential compared to food intake.
El G,
alittle / alot
...an expo facto anti-serial killer topic rule...
It's "ipso fatso". Archie Bunker told me so.
"Deflation" is the erudite farmer being addressed by the stunningly beautiful woman in the image box, only to discover the font is being manned by the hubby.
But then again, after the amorous arrows of gender speculation shot at avatar Summary, what could disappoint.
Aesthete
RE.: SIDE LINE VULTURES
I have noticed that most "advisors" are expecting a down turn in the market for Sept., Oct., Nov.
In that case, they are probably positioned to rake in some cash as the market goes down. The more it goes down the more money they will make.
On the other hand, there are the gov. "engineers" who will be standing by to avoid such a scenario.
I would expect that events would unfold after something happening that is not on their radars.
(The old black swan)
It does not have to be earth shattering.
Something simple ... power black out in an unexpected region ... a contamination of a food chain ... a prolonged strike ... seniors being thrown out of their care center...
or
An excuse to vent anger ( ie. we are being attack by needle wielding tugs. Protect us.)
jal
Dr j,
Tell me about your own respective personal training regimens, throughout your life.
Ilargi - I am not arguing that exercise is not beneficial. I will also concede that if you exercise vigorously and starve yourself at the same time, if you can keep it up, you will lose weight. What I am saying is that, as a strategy for weight loss, exercise has not proven to be the solution. Nor has the semi-starvation diet approach advocated by the current consensus. The reason for this is largely related to the fact that many people have developed insulin resistance which makes it very hard to adhere to that kind of regimen. I know you don't want me to go on at length on this topic so I won't. If you are interested in pursuing if further, I recommend my friend, Gary Taubes' book on the subject, "Good Calories, Bad Calories".
Dr J I will stick my beak in here and just say that muscle weighs more than fat and while I agree exercise does not do all that much to decrease weight it does leave you a thinner fitter fluttery bird as well as a, less likely to get sand kicked in the face, ex-pudgeryguy ... lets all sweat like the birdies sweat ... tweet tweet .... tweet tweet ... tweet tweet.
-tweety pie-
On the other hand, there are the gov. "engineers" who will be standing by to avoid such a scenario.
I would expect that events would unfold after something happening that is not on their radars.
(The old black swan)
Oh yes. The government engineers standing behind the curtain pulling our strings. Maybe they will release their lab borne swine flu, or send paid CIA agents to bomb a ship or an embassy? Black swan? I don't think you even know what that means.
Maybe we will get hit with a meteor?
Let's leave the conspiracy theories out of the equation.
To Riley Martin: Believe Ben Bernanke. Everything will be ok. Go back to sleep now and borrow as much as you can because it's your patriotic duty.
...
Ok, that's one more competitor off the block and more fertilizer for the ecosystem. :)
On a more serious note, Mr. Martin, your fundamental error is in assuming that economics is a real science. It's not. It does not use the scientific method. Rather, economics is a circle jerk of people who want to believe they are important because of what they think they know. The best comparison to economists that I can make are court astrologers.
But by all means, believe Mr. Bernanke who has not been right one single time since 2005 when the early stages of this crisis became increasingly apparent.
Or, you can think through the problem yourself. Maybe you'll agree with I&S or maybe you won't, but at least you will have reasoned through the problem yourself, instead of being spoon fed more pablum by wrongniks like Ben Bernanke and Timothy Geithner.
your fundamental error is in assuming that economics is a real science. It's not. It does not use the scientific method. Rather, economics is a circle jerk of people who want to believe they are important because of what they think they know. The best comparison to economists that I can make are court astrologers.
Are you talking about our hosts?
CIA Infiltrator said...
"Let's leave the conspiracy theories out of the equation."
Let's see, a conspiracy is when two or more people plan an illegal act together. But "in theory", that never happens. Do you happen to know what percentage of federal felony indictments include at least one count of conspiracy?
Greyzone,
Maybe you have not read what I have written, and like normal, assume many things being said.
All I am saying is that if the debt is so large and glaring, how can it be missed by so many people. I could see if the piece of information we are talking about is tiny and hard to see. But it is not. Ilargi and others have described the largeness of our reality. I just don't understand how it can go unnoticed by the world at large.
el g-
Like Kunstler, I am allergic to conspiracy theories.
"In one case you obviously are very well informed to the extent that you can see what others cannot. On the other, you go along with the consensus which suggests to me that you are not that well informed whereas I am."
Johari window
http://tinyurl.com/kwndno
Everyone has their little blind spots.
If you want scientific information on a healthy diet, skip Taube (many physicians quoted in the book say that he seriously misrepresented their comments) and instead go with Walter Willett of Harvard: "Eat Drink and Be Healthy".
Scientifically based, by a prolific researcher who sticks with the facts.
John Brown said...
"Are you talking about our hosts?"
The conventional definition of an "economist" is a person who holds a Ph.D. in the field. By that definition, neither of our hosts are economists. Neither are Mish, Denniger, Mad Max, or the vast majority of the minority who got all or most of it right.
But I, for one, intend to buy up the McMansion stock on 80 to 1 leverage before the hyperinflation hits.
________________
Re CIA Infiltrator (from Wikipedia)
The Working Group on Financial Markets (also, President's Working Group on Financial Markets, the Working Group, and colloquially the Plunge Protection Team) was created by Executive Order 12631,[1] signed on March 18, 1988 by United States President Ronald Reagan.
The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".[1]
As established by Executive Order 12631, the Working Group consists of:
The Secretary of the Treasury, or his designee (as Chairman of the Working Group);
The Chairman of the Board of Governors of the Federal Reserve System, or his designee;
The Chairman of the Securities and Exchange Commission, or his designee; and
The Chairman of the Commodity Futures Trading Commission, or his designee.
Please ignore the above. Big Brother has written it out of the history books.
Jim Brown: In re: your poking fun at survivalist stockpiles, please bear in mind that ten out of ten actuaries would agree that your life insurance policy is a bad bet for you. So, why don't you cancel your policy and save that money?
Riley Martin (and, yes, I know where your nom de plume comes from): Go read today's blog at www.market-ticker.org, look at the pretty graphs, and see what you think.
All: If the Tenergy batteries are bad, what brands should I get for rechargeable D, C and 9V?
Sept. 8 (Bloomberg) -- Commercial Aircraft Corp. of China said its first commercial jet will “surely be cheaper” than comparable-sized Boeing Co. and Airbus SAS models as the country seeks to develop its own aerospace sector.
The 168-seater C919 will use as much as 15 percent less fuel than current Boeing 737s and Airbus A320s, Chen Jin, Comac’s sales head, said at the Hong Kong air show, where the company is showing a model of the plane for the first time.
http://tinyurl.com/kodkn3
Greyzone said...
But by all means, believe Mr. Bernanke who has not been right one single time since 2005 when the early stages of this crisis became increasingly apparent.
Maybe you've considered that Bernanke and Greenspan have been right all along, but not about what they've been telling us. Gotta be smart to seem so stupid ... dontcha know:)
-J Canuck-
@Riley Martin:
"All I am saying is that if the debt is so large and glaring, how can it be missed by so many people."
It hasn't been missed at all. Not by the majority of Economists. Nor by people making money off of it.
They simply believe that debt doesn't matter.
The majority of Economists missed the crash of 2008. That is the biggest blunder of their careers to date. In a normal profession, they'd be fired.
Why do you care what a large group of people who have proven themselves to be clueless thinks?
Use some basic common sense, and pay attention to the ones who called the crash. Get their opinions, why they think what they do, and make up your own mind.
CIA Infiltrator said...
"Let's leave the conspiracy theories out of the equation."
The expected market down turn by the "advisors" is real.
Expecting that gov. try to keep the market from collapsing is not unreasonable and the past actions by G.S. support such expectations.
No need for conspiracies. Just business as usual.
However, an unexpected event would send all "controls" out the window.
I expect the unexpected to start and aggravate the expected market downturn.
jal
"If you want scientific information on a healthy diet, skip Taube (many physicians quoted in the book say that he seriously misrepresented their comments) and instead go with Walter Willett of Harvard: "Eat Drink and Be Healthy".
Scientifically based, by a prolific researcher who sticks with the facts."
I know both of them, Taubes better than Willett on a personal basis. My take is that Willett goes as far as he can while still keeping his post at Harvard while Taubes is unfettered and can speak the full truth.
BTW - Taubes interviewed over 600 scientists while researching his book. Of course some are going to cry about it and there has been a concerted, but unsuccessful, effort to discredit him by those who have a vested interest. You might consider reading the book and then deciding for yourself.
J Canuck
That is the $64 trillion question:
Was this a set-up from the get go for Gollem Sucks and JP Morgan Chase to essentially consolidate the world and turns all its denizens into rent payers to them?
Or was it simple anarchic, war lord greed and stupidity of Da Boyz which got us where we are and are going?
Conspiracy tin foil hat delusional that I am, I am still agnostic on the question. It will probably never be answered beyond a reasonable doubt.
However, if our hosts are correct, and their strategies lead to the total collapse of globalization, these strategies in the end will prove to be as unsuccessful as those of the sorcerer's apprentice.
Anon:
The best battery is the freshest battery. Don't get them from eBay or any other place that's likely to carry counterfeits. If you can afford them, by all means go with rechargeable lithium and/or Eneloop NiMH's.
Greenpa: Thanks - quality is the default when I can't find what I want, and the Cobras are good radios. The problem is when those batteries finally fade....
Guys, there are no conspiracies! Only collusive oligopolies.
@ CIA Infiltrator
Why did you pick that nom de plume?
jal
Why must deflation precede inflation? Why can't they both exist simultaneously. Wages have been stagnate for over 30 years and I see no price drops in items wage earners are forced to purchase to survive like utilities (gas and electricity) food, rent, clothes. So what if you can buy a computer for $200. They're still selling crappy US cars for $25K. Gold and Silver are climbing steady with Gold futures at $1000 this AM. Where's all the exclusive deflation?
Here is a brilliant guy who pissed off the bad guys too many times, similar to what happened to C.A. Fitts. They destroyed his business and put him in jail. He uses a decimal date form: 2007.15, the year is 2007 and .15*365 days = Feb. 23
Turnout Lights
Riley Martin,
"The Marginal Productivity of Debt - Why Obama's Stimulus Package is Doomed to Failure" by Professor Fekete explains how we have come to this critical juncture in history.
http://www.professorfekete.com/articles/AEFTheMarginalProductivityOfDebt.pdf
Some others call it "Zero Hour", when $1 of new debt fails to create more than $1 of additional GDP.
The marginal productivity of debt has been falling for decades. Zero hour may have been reached in 2007.
Lone Ranger
Riley Martin said: "Maybe you have not read what I have written, and like normal, assume many things being said.
All I am saying is that if the debt is so large and glaring, how can it be missed by so many people. I could see if the piece of information we are talking about is tiny and hard to see. But it is not. Ilargi and others have described the largeness of our reality. I just don't understand how it can go unnoticed by the world at large."
Let me ask you a question, Mr. Martin? If the debt was so inconsequential, how could Ben Bernanke have been so wrong so many times since July 2007? (And note that he's never been right once yet in his predictions.) If the debt was so inconsequential, why did the market tumble from almost 15K down to 11.5K? Then why did the market tumble again, from 11.5K down to about 8k? Then why did the market tumble even again, from 8K down to about 6.6K?
I mean if this debt is inconsequential then Bernanke's promise that the "sub-prime crisis is contained" should have come true instead of blowing up in his face, right?
Back in the 1880s almost every physicist in the world was convinced there was an "aether" through which all activity in the universe occurred. All of them based their thinking on this, except a few brave souls who went against the grain. The Michelson–Morley experiment was largely ignored at first by those who had a vested interest in the notion of a "luminiferous aether". But those folks were wrong and Michelson and Morley laid the groundwork for the second large scientific revolution.
That's a case of groupthink. You had a global community of physicists who reinforced one another's viewpoints and ignored data contrary to their viewpoints. Heck, Morley himself didn't want to believe the results of his own experiment and did several more, all increasingly detailed and of higher accuracies before he would finally let go of his own belief in the aether.
The same is largely true in the economics field today. The field is dominated by people who are hybrid thinkers derived from a mix of Keynesian theory and Friedman theory. If you're not part of that school of thought, you get laughed out of the room. It doesn't matter that Bernanke, Geithner, Krugman and the like have been repeatedly wrong. They have CREDENTIALS! Therefore they are the authorities and we must all listen!
Like I said before, a bunch of court astrologers with no real basis for what they proclaim.
But hey, you go right ahead and believe that Bernanke will be right this time. Put your savings back into that stock market. Go on, make the bet. Put your money where your mouth is. Me? I'll stay on the sidelines, thank you very much. I got out not too far from the market peak and am doing well since then in bonds. But you go right ahead and trust old Ben. Just don't expect me to do the same.
"luminiferous aether" likewise "spontaneous generation".
God causes disease. Invent microscope. Find bacteria. Conclusion? Illness causes bacteria.
Took Pasteur's swan neck flask to knock that one on the head.
Nice to have a rather benign experiment cause such a paradigm shift - rather than this social one.
"And I'm just a social experiment tailored to size
I've tried out the national machine and the welfare surprise
I'm the rich man the poor man the peace man the war man the beast
The festive consumer who ends up consumed in the feast"
Roy Harper "McGoohan's-Blues"
your poking fun at survivalist stockpiles, please bear in mind that ten out of ten actuaries would agree that your life insurance policy is a bad bet for you. So, why don't you cancel your policy and save that money?
Life insurance plan? I don't have a life insurance plan. I am not poking fun at survivalist stockpiles. But I am suggesting that they are somewhat pointless. Just as having a stockpile of gas for your car would be in the event of a fuel shortage. Eventually you will need more. Unless of course your stockpile of food and medicine and everything else is enough to carry you on forevermore. But I doubt that anyone here can achieve that.
We are animals, nothing more.
One day your battery will die out. What do you do the next day"? That is your life insurance program.
John Brown
One day the sun is going to go nova, flare into a red giant, engulf the earth, and boil off the seas. So what's the point of breathing?
There are at least two points to a survivalist stock pile. One point is that it makes your life easier and more probable while the stock pile lasts. Second it allows you time to perfect more primitive, sustainable manufacturing skills, such as those practiced by the First People of North America.
Also, the world may see a partial recovery in several decades. Not total due to peak oil, but partial. Some stockpiles may help one reach that point in time.
Choco-rations going up next week,
from 20 to 25 grams, doubleplusgoodnews.
Sept. 8, 2009
Mr. Martin
Mr. Brown
Greetings,
Be prepared!
Sincerely yours,
BSA
@ el gallinazo
Thank you for taking time to answer my question about moving. The reason I think my current situation is better now is because it's in the country. If I moved, it'd be to the suburbs to be closer to my job. But I hate the country. But it's better out here if TSHTF. Either place, I can do alternative energy and have plans to do so (real ones, not wishful thinking).
It's somewhat of an economic move too. If I can sell before the next downturn, rent/bide time on the next leg down, then buy when it bottoms----I'll be "ahead" , whatever that will mean in the future.
Since my economic outlook lines up with the peeps here, I thought I'd run it by in case I was forgetting something glaring.
----Rodent---
The whole argument of “so and so got it right” and “ such and such got it wrong” in order to marginalize an entire field of study strikes me more of that same old Republican/ Libertarian sophistry.
“Getting it right” for the people you describe is akin to “making time stand still” while gazing at the one dart that actually hit the dart board, and never mind the whole pile of missed shots laying on the other side of the room. In fact, some of those who ‘got it right’ have been very, very wrong too many times to count since their one blue-ribbon moment.
Bring some real facts and evidence to the table, Sir, in your effort to denounce an entire field of study.
Enough with the populist hand waving and sports bar expertise. You’re much, much better than that--I have read your prior posts.
Aesthete
What stuck me about the "States of emergency" post by Ilargi was the chart showing the cumulative State budget deficits.
Just a couple of years ago, I would have looked at the estimated 2010-2011 state budget deficits of $350 BILLION and gone 'holy crap' that's a lot of money.'
But I've become jaded by the tossing around of the term 'trillion'.
A couple trillion in bad paper at Fannnie and Freddie, a couple trillion in 'failout' TARP and other alphabet soup 'rescue' windows sliced into the side of the insolvent federal government.
A couple trillion is not really comprehensible to me so it begins to become very Alice in Wonderlandish.
The most amazing feature of the estimated 2010-2011 state budget deficits of $350 billion is how SMALL they appear next to the bad balance sheets of Fannie and Freddie and how SMALL they seem next to the federal 'failout' pledges of 12-24 trillion, depending on what you consider a promise of funds to be.
If estimated 2010-2011 state budget deficits of $350 billion look like a near impossible gap to bridge for states, what's coming next will dwarf that deficit by a whole magnitude of severity.
It all looks so insanely out of control it makes you wonder where in hell the current crop of the political prostitutes think they can hide til this 'breezes over'(ha).
I'm thinking that if the estimated state budget deficits suddenly jumped from the estimated $350 billion for 2010-2011 to, oh let's say, $3,500 billion for 2012-2013, would that wakeeverybodythefuckup, or would the Spinmeister Shysters of the Universe just stick another Propaganda Suppository up the United Sheeple's collective asses?
I am Curious Yellow
John Brown:
There are different types of "survivalists." There are some that practice personal sustained living, those who stockpile, and those who think they can somehow hunt if society takes a turn for the worse (an absurd notion, btw).
Those in the second category will eventually run out of supplies, but they have time to transition to whatever comes next.
While those in the first category are best prepared overall, for most it means sacrificing present quality of life and present income stream.
Why does debt matter?
"Not every body is insolvent,
every body that is insolvent
is dissolveable."
Interpret that in the worst possible way,
and that is why it's generally important
(to be able) to service your debt.
That goes for all levels of organisation, all entities that are legally capable of carrying debt. If we're special, we can always pretend we're either not insolvent, or simply not dissolveable at all despite being insolvent.
You could see debt in relation to 'real' capital in the same way as anti-matter is related to matter, equal mass, opposite charge, mutually annihilative.
Balance and counter-balance, weight and counter-weight.
A huge overcharge of anti-capital, or debt, has built up over the years, and not enough substance of value can possibly be generated or conjured to neutralise it all, leaving a crippling residue of unserviceable debt, inevitably making many bodies insolvent.
Debt becomes real by exactly
the same mechanism that makes everything else assume its 'correct' price, the same idea that prevents someone from walking out of a shop with goods they didn't pay for.
The contractual obligations pertaining to all forms of property rights make the substance of debt real and binding, and as heavy on the economy as if it were a massive burden of miscapital.
Countless dissolveables are completely dependent on the capacity for debt-servicing by others, a general jubilee for the insolvent would tear the tangled web of contractual obligations, and destroy the very structure of modern finance, which is essentially debt-based.
Remember, tuesday is
soylent green shoot day!
Mr Brown.
Any thing I have resembling a "stockpile" should be thought of as a "Insurance"policy,one I can hold in my hand and see.I don't suppose you have forgotten of a interesting spectacle of government efficacy,The response to Katrina?As the old bird said,its a transition tool.Most here think a inflection point where services are disrupted is inevitable.Preparing for it is a rational,thoughtful,intelligent decision.YMMV
Mr CIA infiltrator,
If you are reading Kunsler,then you are aware of peak,and of industries/government denial of that "problem".Would that not indicate a "conspiracy" to hush up one of the major threats to the continued status quo?.I have dealt with .gov departments all my life,Groupthink is rampent,and "Cover Your Ass"is the primary goal of most .gov types.This does not serve the public's interest.This also fosters a mindset that tends to produce "conspiracies",for the "public's own good".Surely as a spook you have seen this ehh?
Greenpa thank you!
I have thought those lights used for auto might be a way to go,The confirmation is appreciated.I have a lot of 24vt "stuff",as well as a Harris microhydro set-up for 24 that has been in storage for ever.When I decide to install it I will give you a update.[I had planned for 24vts] I also have a couple of milspec generators I wish to switch to run on wood-gas...if it works,the idea was a combination of several alternative power combination..
Mr Brown
As jal pointed out...its not a conspiracy...its BAU
I&S
Stoneleigh,I considered your comments one of the nicest I have received..ever. Same goes your way.
Neighbors are like family,you live with what you get.[ha!]
off to work
snuffy
Blogger Coy Ote said...
Be prepared!
Can't argue with that.
I watched some squawk box this morning,
most amusing, and frightening.
Things were swallowed by other things, and there was an attempt to introduce the novelty of
'sustainable' soylent green shoots,
which are made out of sustainable people.
Again, Greyzone, you put words into my mouth. I never said that the debt is inconsequential.
I am asking how such a large debt could literally be scoffed at by the world. They must know something that you do not. Or the process of deleveraging will run in a way that folks here have never thought about.
To me, the numbers are so large and glaring. It seems odd that numbers of this magnitude that are part of an equation are ignored. You may think that they are all under the same delusion. Or maybe you could ask yourself the question I am asking. Maybe we are the delusional ones. Imagine you ran a business. Month after month your expenses are the same number, fixed for months and months. Then one month the expense column suddenly jumps to an ungodly amount. A number so large and out of the ordinary that it could not possibly be ignored even by a cursory review of the books. This number grows each month thereafter. Do you, as manager, just ignore these numbers? Or do you attempt to find out why they are happening. The fact that the managers like Bernanke, and countries like China, look at the anomaly of debt and seemingly ignore it, indicates to me that they are playing under a different set of rules that to us seem outrageous. But to them, makes a whole lot of sense. And if we are forced to play by their rules, and not Ilargi's, I would prefer to know how to position myself accordingly.
RE: California's deficit
Currently unemployment compensation in CA is running at about $30 B/yr., and as unemployment increases this amount will surely increase too.
At present the US Federal Govt is paying most of this and so it is not included in the CA State budget calculations. However, the Obama administration has said that they do not intend to keep paying it. Of course, this may be political posturing, but what if the $30 B/yr. is shifted back to CA State to pay? The current CA deficit will be doubled. Ouch!
Anybody have more specific insight about how this works or how it might play out?
Thx - Prof77
http://prof77.wordpress.com/
Historically, killing off your creditors or the people you owe money to is seen as a very viable option when your back is up against the wall.
Ask the Germans about war reparations after WWI. Just repudiate the debt and snuff your creditor states.
Problem gone. Well not really, but on paper, it looks like it would fly.
Question:
If we cannot print enough money to counter the deleveraging, why does the dollar get devalued when money is printed. Printing money must have some impact on the money supply, otherwise the dollar would not lose value as it has been. Several articles about it yesterday and today.
So if Ilargi says printing money cannot keep pace, why can it keep pace to make the dollar less valuable? By all rights the dollar should strengthen under the collapse of credit.
Gravity said...
"Why does debt matter?
"Not every body is insolvent,
every body that is insolvent
is dissolveable."
Gravity, the force of your words stretches my poor rigid, literal, little brain cells into an uncomfortable configuration where I can't know if I'm smiling or frowning, but thanks.
@ 77Prof
I know that in Canada, U.I. is paid by the Fed.
Welfare is paid by the Prov.
The game is to have "make work projects" to shift the numbers to the Fed.
Yes, I too, would be interested in the funny bookkeeping happening else where.
jal
The official figures for unemployment in the UK are about 2.5 million - an 'anecdotal' figure that was relayed by a job centre worker to patient of mine that had been laid off was 4.6 million.
The office of national statistics has the figure down as nearer to 8 million, i.e 17% unemployment.
http://www.statistics.gov.uk/cci/nugget.asp?ID=12
This UK is a souffle economy, it looks OK(ish!) on the top, totally flat inside.
I was in that there London a couple of weeks ago - had two interesting encounters - one with a chap (property developer - I know, I know, won't be told) who had met with the 'uber' distressed asset manager at Clydesdale bank - whose M.O. is to claw something back from monumentally bad investments. He said "really - it was one step away from lending someone you met in the pub millions of dollars."
For example - £100 million for 'student accomodation' in a place saturated with flats - looking to get back anything he can - would settle for 10%.
The other chap was a banker at ABN Amro, now RBS.
I talked to him for about an hour - he was pretty high up in their organisation (after he told me what he did I was still non the wiser, even after nearly a year here - though he did still read the FT! (lol).
I talked to him re the information I've accrued here and it was like we were equals..
He agreed (using the 6.6% defaults vs 20:1 leverage arguement) that the US banking system is kaput - but claimed that some banks were still well capitalised..
So.. a big *thank you* to I+S. I came here in October '08 a non economist - and thanks to their explanations and take on the economy, I've managed to both bluff my way in polite society and pique interest.
A proper Eliza Doolittle, if you will.
Ilargi said...
Greenpa, John Brown
That'll suffice.
:-)
Just so you know, I was done. A little childishness can be momentarily amusing. But the next step would have been "neener neener", which is certainly beneath my distinguished dignity.
I came here in October '08 a non economist
----------------
This site turns people into economists!?!? Get me outta here!
:)
Dr. J
You are a quack.
The latest person who had a 'DR' in front of his name was responsible for the murder of Michael Jackson. I am a malpractice attorney and run in to quacks like you every day. 100,000 people die every year in hospital because of irresponsible self serving types like yourself. Stop giving out false information. It's dangerous and irresponsible. You allege to be a doctor. You could be a car mechanic for all we know. There are countless doctors out there dishing out false information which has brought us to the health crisis we are now in - epidemic of obesity, cancer, heart disease, diabetes, high cholesterol, high blood pressure and many other degenerative illnesses. You recommend people eat the same crap that brought us to this crisis in the first place.
The doctors you 'put down' have a place on the world stage precisely because of their impeccable credentials and track records - Dr. Andrew Weil, Dr. Dean Ornish just to mention a few that were discussed in a blog a few days ago. As someone pointed out the other day - their names and credentials are on wilkipedia for everyone to look at. The book THE CHINA STUDY which is the LARGEST study on nutrition ever done sponsored in part by Harvard Medical School is a must read for anyone interested in their long term health. People DO lose weight doing exercise including myself -30 pounds when I started my exercise regime. I know countless people who have lost weight through exercise. Are you nuts?
Anyone who takes your advise is not thinking clearly. The herd never thinks clearly or for themselves so I urge them to do their own research including investigating the likes of Dr. Weil and Dr. Dean Ornish, doctors who have reversed chronic illness in thousands of patients.
Stick to issues on the economy. It's the only thing you may be good at.
DR. XYZ
"....Maybe you should read the book- The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations...."
For some discussion about the limits of collective or individual judgement, try;
"Extraordinary Popular Delusions and the Madness of Crowds is a popular history of popular folly by Charles Mackay, first published in 1841. The book chronicles its targets in three parts: "National Delusions", "Peculiar Follies", and "Philosophical Delusions".
The subjects of Mackay's debunking include alchemy, beards (influence of politics and religion on), witch-hunts, crusades and duels. Present day writers on economics, such as Andrew Tobias and Michael Lewis, laud the three chapters on economic bubbles.[1]
Also; "Blink" by Malcolm Gladwell.
Marcus
Yo Riley -
You should really read some of the primers found on the right column. The questions in your last post are addressed in Stoneleighʻs most excellent primer The Special Relativity of Currencies. You reference the "value of the dollar." You need to understand that there are at least 2 ways to think about the "value of the dollar":
1) Its value in relation to other currencies (which is what most financial types mean when they say the dollar is "rising" or "falling" as indicated by the USD index).
2) The other, more important way (at least for most of us who arenʻt currency traders): its value in relation to locally available goods and services.
I was going to cut and paste some pertinent excerpts, but you really should go back and read the whole thing. This might help you ask more specific questions and people will stop accusing you of being a troll or The Man from U.N.C.L.E.
@Riley Martin:
"By all rights the dollar should strengthen under the collapse of credit."
The dollars' fall with respect to other currencies is also a function of international demand. Right now, that is low.
There's still over $1,000 trillion (1 quadrillion) in credit out there in terms of derivatives, internationally.
When this starts to implode, there will be a rush to safety, and that is the dollar. I.e. you'll see demand for dollars increase, along with it's relative worth.
A similar thing happened to Treasuries last December. There was such a rush to T-Bills that rates actually went negative. That is, so many people wanted them, that you ended up having to pay money (instead of getting interest) just to hold them.
"Dr. J
You are a quack.
The latest person who had a 'DR' in front of his name was responsible for the murder of Michael Jackson. I am a malpractice attorney and run in to quacks like you every day. 100,000 people die every year in hospital because of irresponsible self serving types like yourself. Stop giving out false information. It's dangerous and irresponsible. You allege to be a doctor... Weil ... Ornish ... China Study ... etc etc ... ad nauseum."
Normally I wouldn't respond to such an over the top ad hominem attack but will make a couple of observations in this case:
The very low-carb high fat diet has been demonstrated to significantly lower one's inflammatory status. This is important because inflammation is the underpinning of much of chronic disease. Beyond that, I also think it makes people grouchy. It is usually when I run into such virulently grumpy vegans that I am reminded of this. Case in point.
Secondly, you invoke the names of prominent people with credentials as though those attributes confer infallibility. Hasn't this fallacy already been exposed in the discussion of Bernanke and Geithner?
Thirdly, anytime the China Study is invoked as the ultimate authority on diet, I usually find I am dealing with a militant vegan who is defending a religious belief system masquerading as science so it is not possible to have a rational discussion beyond that point. Kind of like trying to debate religion with a Scientologist. No point in it.
You can't teach a pig to sing and, if you try, it just annoys the pig.
Grocery shoppers are finally seeing some reprieve from last year's steep price increases.
Food prices are dropping on some key items as retailers slash prices to better compete and food makers do more promotions and pass along savings from lower ingredient and gasoline costs.
It's welcome relief for American consumers who are looking to save money as they cope with stagnant incomes, job loss and economic uncertainty.
Prices for dairy, meat, fruits, vegetables and bread have all fallen.
http://tinyurl.com/lqq65j
anon 10:14 - "There are different types of "survivalists." There are some that practice personal sustained living, those who stockpile, and those who think they can somehow hunt if society takes a turn for the worse (an absurd notion, btw).
Yes, there are numerous "types" of survivalists depending on how you want to lump them. In a sense we all are survivalists... don't we all want to survive?
If you are underwater you try to grab a life preserver, if you find yourself in the desert you search for water.
The minute details of the predicament we are in are less important to most of us than the fact that we know WE ARE IN ONE HELLUVA PREDICAMENT!
Knowing this doesn't make any of us rocket scientists it just means we have our eyes open and our intuitive senses are aware of impending change on a huge scale.
As for me, I have a foot in several worlds at the moment, and one of them is TAE. (coyotes, those crafty dogs, have more than 2 feet remember) :-D
Read the following with the comments.
It's not educational unless you use a grain of salt.
http://seekingalpha.com/article/160264-why-economists-messed-up?source=email
Why Economists Messed Up
All,
South Florida has provided another collection of Stoneleigh's comments. I now have two collections from South Florida (SF) and one from CA. There may be some overlap amongst them; if someone wants to provide me a different/consolidated version, I would be happy to replace or add to what I have made available on SkyDrive. (You can forward things to me via El G.)
All current collections are available at the following location:
http://cid-c26388ef19e98530.skydrive.live.com/browse.aspx/.Public
Regards,
Robb
Anon 1:31 PM said...
Grocery shoppers are finally seeing some reprieve from last year's steep price increases....
http://tinyurl.com/lqq65j
LOL, What you excluded from the SAME article:
Still, that doesn't make up for the surge in food prices from last year, when costs for ingredients like wheat and corn and fuel costs for transportation soared to record highs. Food makers raised their prices and some even shrank package sizes to protect their profits. CPI's food-at-home index finished last year up 6.7 percent, so the less than 1 percent drop so far this year doesn't erase that.
I think that's enough on the topic of diet and exercise for a while. It's turning into a flame war and that's counter-productive no matter what side of the debate you're on. Dr J is not a quack. He's a contrarian in his field, as we are in ours.
Hello,
I am concerned about this blog because the level of dialogue has slipped considerably over the last few days. I know that this has happened before, but it seems that we have struck a new low with people hiding behind anonymity to call others quacks, while bringing nothing new to the discussion. In fact, their writing style and content would indicate that they are simply a previous contributor masquerading as a malpractice attorney.
I am unsure why, but food/diet/nutrition hits a raw nerve for many contributors. What is it about food that shortens tempers? This strikes me as a North American (perhaps Anglo-Saxon?) phenomenon in that I have never observed such reactions from people anywhere else. Just the idea of becoming angry over carbohydrates or butter strikes me as bizarre.
The heat over guns was perhaps more comprehensible, but there were, as so often, people projecting their own phobia into very simple discussions.
Some degree of all the above is to be expected in an open blog, but it seems to me that we need to step back and think twice before responding. Rereading the other person's post is generally a good idea.
For what it is worth,
Looking forward to reading you,
FB
Agree Stoneleigh
Agree FB
Hello,
Sorry Stoneleigh, did not see soon enough your post on dropping diet for a while.
Hope you are heard.
Ciao,
FB
Stoneleigh let me pose a scenario to you. I agree with the deflation call 110%. No question it is coming. Mathematically, it is a certainty. However, since we are seeing the dollar slip below the 78 level, isn't it possible that we could see a loss of confidence in the US "system" (financial markets, debt, economy and currency)? This would almost certainly cause an even greater crisis IMO. So the question now is between a flight to safety and USD up, or a crisis of confidence and USD flushed down the toilet.
Hello,
@Americano
I would bet that a true crisis of confidence in the U.S. is still quite a ways off.
Hearts and minds are simply not there yet, at least among those who did not already have doubts about the U.S.
Ciao,
FB
FB said,
I would bet that a true crisis of confidence in the U.S. is still quite a ways off.
Americans are irrelevant in this context. It is foreign creditors that I am worried about, and I suspect it is they who will blink first. The "people" won't budge until something breaks loose.
Stoneliegh:
What field are you a contraian in?
I,m pretty sure Dr J has mopre credentials in the field of medicine than you or Ilargi have in economics.As far as I can tell you're not really a economist. To be a contrarian in any given field don't you have to be p[art of that field? Your credibility would be greatly enhanced if you would simply reveal your identity and credentials. The idea that personality is going to detract from your message sounds like a gutless cop out. Stand behind your belief and predictions with some identity.If not I'm calling bullshit.
Hello,
@Americano
I was in fact speaking primarily about the rest of the world, as I have little idea of what people in the U.S. are thinking, but would assume that they would be the last to doubt.
Foreign creditors are certainly more attentive today, but I am not picking up any clear signs of widespread distrust.
Again, I think a bond dislocation is a ways down the road with plenty of time in between for multiple swings.
Ciao,
FB
* Exercize doesn't cause weight loss, weight loss causes exercize; It sounds counter-intuitive, but have you no steak or cream pies or hot fudge? 5 year study proves that a pound of muscle weighs more than a pound of fat
* DEATH wields a schythe but recommends HAV-A-HART Rodent Traps; Rodent needs a new home; Note: Deer are not rodents
* Why believe I and S when 99.9% of bona fide telephone cleaners disagree with them? Instead trust The Wisdom of the Clowns: How Buffoons Shape our Societies and Nations
* Today is Soylent Green Shoots Day; The FED is here To Serve Man; 42% believe members of congress should be randomly chosen from a comic book
* The good news for the day: Hotels now cheaper in Vegas; Trained Amish teenage girls seek better employment; Sometimes things go boomp in the night
* Going against the grain is damn hard stuff; Luckily sewer pipes have no grain
* Alot of people would of been happier not preparing for Y2K; I and S are secretly owners of an MRE factory
* A stock pile is an insurance policy; Insurance policies are a bad bet; A better bet is cash in your mattress
*Be prepared
For what?
The death of the King
Is he sick?
No, I'm going to kill him.
Stoneliegh:
What field are you a contraian in?
I,m pretty sure Dr J has mopre credentials in the field of medicine than you or Ilargi have in economics.
Anon,
Why are you pretending that you cannot spell?
A general question for Stoneleigh.
As complexity breaks down just-in time delivery and manufacturing, do the smaller manufactured things like vitamin production and AA batteries and wire fencing for livestock collapse last or first or erratically.
Same question for things like Big Berky filters and grain mills?
Larger systems like Fedex and UPS would have to take quite a hit to stop all trades like ebay/craig's list.
anon 3:54
For my part credentials don't make a big difference. I don't care about a shingle or a degree.
I read what Dr. J says, I read what Stonelady says, and I read what you and others say. I then evaluate WHAT IS SAID on merit, and let gravity take it's course. (no pun on gravity the poster)
I&S of course have a contrarian view with regard to current economic/political trends at present. Their view makes more sense to me than the mainstream. I could not care less if they have 5 degrees nor not a single one.
What's your view of peak resources, for example?
US credit drops 21.6 billion!
Here are two graphs, one from Calculated Risk and one from Zero Hedge. These twins (?) do not seem to have had the same Tony.
Would anyone care to disambiguate?
Calculated Risk
Zero Hedge
-J. Canuck-
Coy Ote:
This is anon@10:14. I was not criticizing survivalists. I am one (of the hoarding, as opposed to sustained living, variety).
I think everyone should be prepared; only in the last fifty years has it become vogue to be as absolutely unprepared as possible. Imagine what looks you'd get if you went back in time 100 years or so and told people that in the future, you'd be perceived as fringe if you stored food and resources for times of shortage.....
"A general question for Stoneleigh.
As complexity breaks down just-in time delivery and manufacturing, do the smaller manufactured things like vitamin production and AA batteries and wire fencing for livestock collapse last or first or erratically."
Don't expect a sudden stop of shipping and manufacturing without warning. I would expect first to see unreliability, such as shipments "going missing", etc, until it becomes too risky and/or expensive to ship for ordinary people. I used to import specializied seeds from india and china before the recent boom (late 80s) and it was a nightmare.As has been quoted here before "The future is already here, it's just unevenly distributed".
"...only in the last fifty years has it become vogue to be as absolutely unprepared as possible..."
Yep. We're the "just-in-time" society. There are indeed many characteristics of the last 75 years that were unique, and likely soon to be relegated to history.
But, as this article states...
http://www.primitivism.com/facets-myth.htm
...what we can look forward to is a simpler and in many ways much better social reality. (after the cleansing, that is)
Hello,
This from an Anon at 15.54:
Your credibility would be greatly enhanced if you would simply reveal your identity and credentials.
Besides the silliness of such a remark from an Anon, it brings up another bizarre aspect of the discussions over the past few days, that is the obsession with credentials.
It reminds me of when, long ago, I was working in the "best" hotel in Salzburg, at the reception desk, and I was informed that I was to address one particular client as "Herr Diplom Ingenieur". The guy really wanted that and the management was cooperative. This was typical in Austria and said a lot about social relations.
The importance placed by some contributors here on another person's credentials (a word that is difficult to translate) makes me wonder if the inquiring person is not reluctant to think on their own and to draw conclusions based on the data, logic and arguments presented.
In short, why count on other peoples' opinion when you can have your own?
Ciao,
FB
RE the ad hominen attacks I have noticed this arise and fall away previously on TAE . There seems to be a cycle. Could the " in fighting" possibly be triggered because we are experiencing cognitive dissonance?
Anon @3:54,
I,m pretty sure Dr J has mopre credentials in the field of medicine than you or Ilargi have in economics.As far as I can tell you're not really a economist. To be a contrarian in any given field don't you have to be p[art of that field? Your credibility would be greatly enhanced if you would simply reveal your identity and credentials. The idea that personality is going to detract from your message sounds like a gutless cop out. Stand behind your belief and predictions with some identity.If not I'm calling bullshit.
We would rather you assessed our arguments on their own merits than in terms of what letters we have after our names. We wouldn't want people to have blind faith in what we say anyway. We want people to look at the evidence and think for themselves. We offer our view, which you are entirely free to accept or reject.
I am indeed not an economist, as I have said many times. It's just as well, since I would otherwise have had to unlearn a great deal of dogma (such as the efficient market hypothesis or rational utility maximization) before making any genuine progress.
For what it's worth, I have plenty of letters after my name, but not in economics. My formal background is in science and law, and I am employed in renewable energy. Economics and finance have been a major focus of mine for about 15 years. If you knew my name it wouldn't make any difference as I guarantee you would never have heard of me.
Anon @4:06,
As complexity breaks down just-in time delivery and manufacturing, do the smaller manufactured things like vitamin production and AA batteries and wire fencing for livestock collapse last or first or erratically.
Same question for things like Big Berky filters and grain mills?
Larger systems like Fedex and UPS would have to take quite a hit to stop all trades like ebay/craig's list.
I would expect an erratic process depending on where things are manufactured and where people still have money for longest. As credit evaporates, and the scarcity of actual cash becomes apparent, the inevitable economic seizure could occur quite quickly. The more complex the product, the more likely it's availability will be limited. The more essential the product, the more likely it will have relative price support, and therefore be less affordable than everything else.
The dollar hit a YoY new low today. Wasn't there a call for a flight to safety and rise by I&S? Seems I remember one.
How does the current tumbling dollar fir into your predictions I&L? Is it the crash that precedes the rise or just a missed call?
5:32
Today's environment doesn't call for a flight to safety, as is obvious from for instance the S&P. That should be enough of an answer. Flights to safety take place in negative environments.
Otiswild
Posts: 557
Incept: 2009-03-09
http://www.youtube.com/watch?v=MgjwjaBJ5....
This market is one unpredictable n***a!
-----------------------------------
Allowing posts like this on his site, will ensure that Karl Denninger is never taken seriously in mainstream circles. You just cannot allow this kind of thing to happen and maintain any semblance of credibility. I am both disappointed and dismayed that this type of thing is allowed.
http://tickerforum.org/cgi-ticker/akcs-www?post=106386
The link to the racism
"US credit drops 21.6 billion!"
It is as I&S has been saying, "Cash is king" ...
Businesses and individuals are being forced to live within their income.
Yes, it is not all volunteered. Those that refuse to live within their income are finding out how expensive the banks can make life.
The credit society is being reset.
jal
Anon 51,
I wouldn’t be too quick to claim that Denninger is turning a blind eye to that post. He might be playing a round of golf for all anyone knows. I’m a fan of Denninger’s tenacity and willingness to step out on a limb. He seemingly does a lot of work in analyzing certain economic trends, perhaps more than most. But I seriously doubt he spends 24/7 in front of the computer. Give the man the benefit of the doubt.
The clip, by the way, was decadent any way you look at it. Bad acting, bad everything. And it went on and on and on…and continued on until I had enough.
People who want another view of African-American culture should investigate the beautiful art of John Biggers. He is one of the “ Meta- Moderns” who both defied and implemented modern and post-modern artistic methodologies in addition to incorporating aspects of Yoruba culture. There is still a lot of misconceptions concerning African art, and Picasso’s naïve proclamations did not help the cause of understanding.
Aesthete
Anon @5:32,
The dollar hit a YoY new low today. Wasn't there a call for a flight to safety and rise by I&S? Seems I remember one.
How does the current tumbling dollar fir into your predictions I&L? Is it the crash that precedes the rise or just a missed call?
As Ilargi points out, a flight to safety, and consequent resurgence in the dollar, will occur in a negative environment (ie when the market rally is over). IMO that point is rapidly approaching.
"I think that's enough on the topic of diet and exercise for a while. It's turning into a flame war and that's counter-productive no matter what side of the debate you're on."
Sorry Stoneleigh - my bad.
As Ilargi points out, a flight to safety, and consequent resurgence in the dollar, will occur in a negative environment (ie when the market rally is over). IMO that point is rapidly approaching.
What's the chance that flight to safety ending up in the maw of China and leaving not so much as a ripple to indicate it's plunge into the deep and briny?
-J Canuck-
"What's the chance that flight to safety ending up in the maw of China [..] "
0
A nice video to put it all in perspective, the size of the Universe!
http://www.youtube.com/watch?v=N_RqlTi6wGY
been enjoying watching some fascinating BBC documentaries on The Atom. The quantum world is truly incredible. No matter how many times I read about it or learn about it, I am continually amazed.
To Anon at 5:51. Denninger has a report-this-post function. Have you tried it before you accused him of racism? Is he responsible for monitoring every post on his site? For example, if I insult you, would llargi be responsible, or would I?
FB: "Besides the silliness of such a remark from an Anon, it brings up another bizarre aspect of the discussions over the past few days, that is the obsession with credentials."
Actually, they're not obsessed at all, just repeating meaningless questions that have been answered repeatedly; it is a standard tactic for disruptors.
My education vis-à-vis disruptors started unusually early, when I was a sophomore in college.
One of the scientists who had finally proven that DDT was clearly responsible for egg shell thinning in top raptors came to my college to give a seminar. He was brilliant, it was great; but there were these two guys in the back of the room who constantly interrupted with-meaningless questions that had been answered repeatedly.
Later, at the lunch for Bio majors with the guy, one of us asked, "who the hell were those bozos in the back? They sure weren't students. We're all embarrassed that you were subjected to that crap."
The professor laughed. "Oh, those guys follow me everywhere! I finally hired a private detective to find out who they are. They work for Shell Oil."
This is my first hand experience, mind you. And made all the more educational by the next fact the professor gave us. "What's most interesting about it is: Shell does not and never has manufactured DDT. Makes you think, hm?"
So my antennae were turned on early. Do corporations pay people to disrupt conversations they don't like? Yes, they do. Are the big corporations conspiring to confuse the issues? Yes, they are.
J Canuk
That cracked me up.
...I think Illargi addressed some of your concerns in his 09/02/09 intro.
Brevity does not imply inarticulateness, nor inaccuracy.
Sorry Stoneleigh.
Re: exercise as a way to lose weight.
The argument is typical of our society, which is essentially still trapped by classical Greek philosophy. The abstraction of reality and the formation of logical arguments based on these abstractions has given us many benefits (science and technology), but also has hindered us on many fronts (or at least allowed us to fool ourselves).
To break the world down into component parts is a convenient/easy way to study something, but it ignores one fundamental fact. The whole is greater than the sum of the parts. This is partly because the parts we break things into is fairly arbitrary, and based largely on the way we chose to observe something. Many doctors and scientists know this intuitively, even if they have not consciously recognised this fact.
To say that exercise is a good way (or not) to lose weight, leaves out many important considerations. No regime of weight loss should concentrate solely on losing pounds – it should be about becoming more healthy. Exercise should never be considered in a vacuum. Diet, and other life-style changes should also be considered. Exercise IS required to become/stay healthy. There are many types of exercise though, some beneficial in certain areas (gaining strength, gaining cardiovascular fitness, and so on), but not so good or even detrimental in other areas. So TYPE of exercise is also important.
As a multi-decade martial artist and fitness enthusiast I have had my own experiences and have formed my own opinions, but they have been made whilst observing many hundreds of individual's efforts to get/stay fit and improve their overall well-being. I would say that the general understanding of fitness/health is VERY low across the population, including among many professional trainers/doctors/etc.
Anywho, enough of a rant on that...
Greenpa - "My education vis-à-vis disruptors started unusually early, when I was a sophomore in college."
I had a similar experience as a naive young student in Edmonton in the late sixties when Fred Hampton, a youthful articulate Black Panther leader came for a speaking engagement. Midway through his talk a couple of guys behind me started cursing and then began shoving the people around them. Fred called out that they were agent provocateurs and warned people not to engage. A few weeks later in Chicago, Fred was shot in his bed during a police raid on his apartment. It was later revealed that one of his close aides that night was actually an FBI plant.
Makes you think they will stop at nothing when their interests are threatened.
For those who are keeping track of how many branches and banks have closed go to
http://www.urbansurvival.com/lastweek.htm
If you're keeping track of how many branches have been involved since IndyMac went down last year, the count is 3,654.
Here in my office in whatever spare time I can muster, I keep looking for the definitive work that clarifies whether the 3,000 banks closed down in the opening 2½ years of the previous Depression were counted on an institutional basis or on a branch basis; so far no success finding that little detail.
----
Maybe someone can help.
jal
jal @ 10:49 And a bank today could be a combo of multiple mergers such that a closure of one major regional bank would actually be a closure of 10 or 15 or more of previously smaller banks, and their multiple branches.
@ bluebird
Yes!
He is trying to compare apples with apples.
I'm sure that today's branches would probably be more equivalent to the size and the number of people affected, therefore, the number of banks closed during the depression should be counted as the number of branches closed today.
jal
"...only in the last fifty years has it become vogue to be as absolutely unprepared as possible."
Yup.
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